What is the objective of any corporation or firm in business world? The obvious answer is that the objective of any business is to maximize its revenues and to make money for its shareholders. It is a very important objective and if a business corporation fails to achieve that objective of making money for shareholders its share prices will go down, it will have a bad reputation and unless radical changes are implemented in order to improve things the business corporation will not be around any more- it will go bankrupt.
Corporate Social Responsibility- what is it?
As Wikipedia.org defines it “Corporate social responsibility is an expression used to describe what some see as a company’s obligation to be sensitive to the needs of all of the stakeholders in its business operations”. Company’s stakeholders are its employees, customers, suppliers, community organizations, subsidiaries and affiliates, joint venture partners, local neighborhoods, investors, and shareholders (or a sole owner if the case is).
“A business that accepts Corporate Responsibility will be prepared to be responsible for and willing to justify its actions. It will also consider the impact of its actions on a variety of individuals and groups, both inside and outside of the organization”. (Hall, Jones, Raffe p.789)
A more simplified definition of CSR in this report is how businesses manage their operations to produce positive impact on society. Today, in a highly competitive business world it is extremely important for companies, especially big corporations to build up reputation of a company which cares about nature, problems of society in present day, environmental issues and which deals fairly with its customers, suppliers and employees.
For example, a mobile phone business will try to provide as wide coverage as possible for its customers. However, in order to do so, it is likely to have to erect masts in the places that give the best reception. Masts tend to have fairly ugly and may disrupt the environment in which they are placed. If the business accepts this and is prepared to pay for innovative designs that blend in with the environment then it could be said to be accepting CSR. Orange, the mobile phone company, for example, has introduced tree shaped transmitters which blended in with the surrounding area and were also comfortable enough for squirrels to live in.
Ignoring its Social Responsibilities, on the other hand can cost companies very expensive. Obvious example is Nike, a sport clothing manufacturer share prices of which went down and the brand was seriously damaged when the news of poor production conditions in Asia broke out.
An example of a model company in recognizing and fulfilling its social responsibilities is Toyota Motor Corporation. The Company believes in helping people improve the quality of their life. Toyota Motor Corporation partners with organizations, schools, universities and other businesses to support programs that help make our world a better place.
But is making money for shareholders the only objective of a business corporation? The answer is negative. Along with making money any business corporation depending on its size has wide range of responsibilities towards wider society which include caring for the nature, helping to improve local conditions of life and others- responsibilities we call corporate social responsibility (CSR).
A comprehensive definition of Corporate Social Responsibility (CSR) is offered by McWilliams and Siegel (2001, p.117) as situations in which a company goes beyond compliance and engages in social causes which is beyond of company’s interests.
Alternative definition proposed is “the policy and practice of a corporation’s social involvement over and beyond its legal obligations for the benefit of the society at large” (Enderle and Tavis, 1998)
There is a consensus among business researchers and practitioners that corporate social responsibility (CSR) has become one of the most important aspects of the business that companies cannot ignore. The increasing level of importance of CSR has been linked to the search for competitive edge by companies and increasing level of awareness of consumers to the ethical aspects of business practices fuelled by intensive media coverage of these issues (Dawkins and Lewis, 2003; Blowfield and Murray, 2008).
Today increasing numbers of companies are investing considerable amount of financial resources into the CSR aspect of the business and these practices are being communicated by them to the public through various channels in an intensive manner. Moreover, engagement in CSR-related activities is being perceived by multinational businesses as a compulsory aspect of the business practice that can only be ignored at the cost of the brand image (Ward and Smith, 2006).
Supporters of narrow view: soul objective of corporations- making money
Supporters of narrow view in CSR claim that corporations have just one objective- make money. They believe that caring about the environmental, social and other problems should be the responsibility of government and non-profit making organizations sponsored by governments.
A bright supporter of the narrow view is Milton Friedman who claims that diverting corporations from the chase of profit makes our economic system less effective. He states: “The stockholders or the customers or the employees could separately spend their own money on the particular action if they wished to do so. The executive is exercising a distinct “social responsibility,” rather than serving as an agent of the stockholders or the customers or the employees, only if he spends the money in a different way than they would have spent it” ( M. Friedman 1970)
Another defender of narrow view in corporate social responsibility is famous economist Adam Smith, whose “invisible hand” argument states that if every member of society in a free market economy strives to promote his own economic interests they are led to promote the general good. This may be a good argument in other eras of economics, but using this argument to justify for support of the narrow view will reasonably arise criticisms.
The hand-of-government argument of the narrow view states that businesses should have no social role other than making money.
According to inept-custodian argument business executives lack moral and social expertise, and can only make economic decisions. To ask executives to take charge of non-economic responsibilities is equal to putting social welfare in the hands of inept custodians.
Fourth argument in favour of narrow view regarding corporate social responsibility is the materialisation-of-society argument which states that expansion of corporate responsibility will materialize society rather than moralize corporate activity. Corporate managers will impose their materialistic ideas, by means of cost-benefit analysis, on many non-economic activities.
Supporters of broader view: corporations have broader responsibilities.
Supporters of the broader view believe that businesses have other obligations apart from pursuing profits. Because of their great social and economic power, corporations must carry social responsibility towards society and wider community. Businesses cannot make decisions which are made solely with economic point of view, because they are interrelated with the whole social system – business activities have deep implications for society. As a result, society expects business to pursue other responsibilities as well.
A social contract between society and business represents a unstated understanding within society about the proper goals and responsibilities of business. This social contract is an on-going process of negotiation and change.
Organizational Example: CSR at Toyota Motor Corporation
Toyota Motor Corporation fully recognizes its corporate social responsibilities and with a focus on safety, the environment and education offers people the tools they need to make a difference in a positive side. The company operates under a global earth charter that promotes environmental responsibility throughout entire company. Toyota is leading the way in lowering emissions and improving fuel economy in gasoline powered vehicles. Not only did Toyota create the world’s first mass-produced gas/electric hybrid car, but it is also at the front of developing tomorrow’s fuel cell vehicles.
Toyota Motor Corporations commitment to preserving the environment doesn’t stop with their vehicles. Two of the company’s manufacturing plants have been designated as zero landfill producing operations. “Green”complex in California has one of the largest commercial solar panel systems in North America and conserves more than 11 Million gallons of drinking water annually through special pipelines that supply recycled water for cooling and landscaping.(toyota.com 2006)
In addition, as part of the dedication to environmental preservation, Toyota has developed strong partnerships with organizations like The National Arbor Day Foundation and The National Environmental Education & Training Foundation.
The corporation partners with organizations, schools, universities and other businesses to support programs that help make the world a better place.
Toyota Motor Corporation has a variety of national programs like Toyota Driving Expectations Safety Program, Toyota Youth For Understanding Summer Exchange Scholarship Program, Toyota International Teacher Program, National Center for Family Literacy, Toyota Community Scholars, United States Hispanic Chamber of Commerce Internship Program and others.
Among comparatively recent theories concerning firm’s social responsibility is “Theory of the firm/strategic leadership theory” which was proposed by Waldman et al (2004). The theory states that some aspects of CEO leadership can have a direct affect on the inclination of firms to engage in CSR and companies which are run by intellectually stimulating CEOs do engage more in strategic CSR than average companies.
In order to achieve competitive edge for themselves, small and medium enterprises in UK also have to address the social responsibility aspect of their businesses. Tolhurst et al (2010, p.12) specify following CSR issues which do not get enough attention:
- Community poverty;
- Lack of trust in companies;
- Environmental impacts: conservation and land rehabilitation;
- Corrupt business practices
- Water usage and impacts on scarcity
- Climate change and biodervisity.
There are abundant amount of help from experts available online for free, small and medium enterprises in UK, Europe or anywhere in the world can obtain, if they budget cannot afford a member of staff to deal with CSR or an external consultant. For example, Judge (online, 2010) gives following advice for small businesses looking to improve the corporate social responsibility of their business:
- Not to worry about the size of the company, as small businesses can also gain huge benefits from efficient approach to CSR
- Not to be put off by the terminology as CSR can only cover the impact of the business on environment and people.
- Being proactive, rather than reactive, which means having CSR policy and action plan that must benefit cause and the company.
- Communicating with staff and getting them engaged in choosing causes to support as a part of CSR action plan
- Aiming to commit to specific charity or cause.
- Analysing and identifying skills and resources that company can give with no high cost for the business.
- Asking the experts for help to deal with some aspects of CSR.
- Being an ethical consumer, and accordingly, buying fairtrade products, using local suppliers, and committing to an ethical supply-chain.
- Recording and communicating the progress to all stakeholders of the business.
- Communicating CSR activities to existing and potential customers through various channels
Also small and medium size enterprises should not ignore the growing connection between corporate reputation and social responsibility which is explained by Freeman (2006, p.12) with several reasons:
- Non-government organizations are emerging overnight and challenging multinational corporations
- Increasing number of company stakeholders in various field share the idea that companies are responsible in the same line as governments for wide range of social and environmental problems.
- A number of corporate management scandals in Europe and the USA has decreased trust in business and increased attention of the public the accountability of companies for their activities.
- Businesses are creating competitive edge by safeguarding their social image and gaining the loyalty of customers and employees.
Freitag (2008, p.38) confirms that today everyone acknowledges the value of CSR as an important component of a business practice, but it is not evident how CSR should be approached and developed, due to the fact that CSR policy and activities are not overseen by any regulatory agencies and are not specified as a required component of a business practice. This reality gives small and medium enterprises in UK a freedom of choice in terms of the causes they wish to support as part of their CSR program, and the amount of money they will spend on it.
CSR is closely related to the credibility of the company. Credibility with stakeholders is specified as a determinant of an efficiency of a company by Davis (2005, p.108).
CSR being a broad concept the definition of the term is divided into two groups by Mohr (1996, p.48): a) multidimensional definitions, delineating major responsibilities of companies, and b) definitions based on the societal marketing concept
Fombrun and Shanley (1990, p.239) consider engaging in CSR as important elements of product differentiation and building a reputation.
The landmark events in the history of CSR in UK are described by Ward and Smith (2006, p.7) as following:
1823 British Anti-Slavery Society
1895 Rowntree/Cadbury Bourneville
1917 Russian Revolution
1962 Silent Spring published
1973 Invention of the Internet
1970’s Rise of green groups
1977 Nestle boycott starts
1981 Inner City riots
1989 First BSE case in UK
1991 Dissolution of USSR?
1992 Rio Earth Summit
1993 Ecology of Commerce published
1995 Brent Spar scandal
1990’s-2000 Shareholder activism
1999 OECD Guidelines?
2000 UK’s first CSR minister appointed
2001 China’s accession to WTO
2003 Film The Corporation released
According to Blowfield and Murray (2008, p.21), as taken from Carroll (1979), there are four types of responsibility for companies:
- Economic responsibility. It concerns the responsibility of business of producing goods and services needed by society and selling them making a profit.
- Legal responsibility. It requires companies to undertake their profit maximisation objective within the boundaries of law.
- Ethical responsibility. It concerns the ethical responsibilities of businesses that are not covered by legal law.
- Discretionary responsibilities. It concerns voluntary responsibilities of companies like philanthropy, which are not necessarily expected by societies.
In order to safeguard themselves from any possible accusations from NGO’s and other parties, not only big multinational corporations, but also small and medium enterprises in UK have to devise a CSR program that includes critically evaluating company’s performance against its four types of responsibilities above on a constant basis.
Kotler and Nancy (2005, p.22), identified six major initiatives for social responsibility related activities:
- Cause Promotions
- Cause-Related Marketing
- Corporate Social Marketing
- Corporate Philanthropy
- Community Volunteering
- Socially Responsible Business Practices
Crane et al (2008, pp.48-54) mention following CSR theories in their work:
- Corporate Social Performance
- Shareholder Theory (Fiduciary Capitalism)
- Stakeholder Theory
- Crane, A, McWillialms, A & Matten, D, 2008, “The Oxford Handbook of Corporate Social Responsibility”, Blackwell Publishing
- Blowfield, M, Murray, A, 2008, “Corporate Responsibility: a critical introduction”, Blackwell Publishing
- Davis, I, 26 May 2005, “The Business of Doing Business”. The McKinsey Quarterly, Issue 3
- Enderle, G & Tavis, AL, 1998, “A Balanced Concept of the Firm and the Measurement of its long-term Planning and Performance”, Journal of Business Ethics, Issue: 17 (11)
- Fombrun, C & Shanley, M, 1990, “What’s in a name? Reputation Building and Corporate Strategy” Academy of Management Journal, Issue:33
- Freeman, B, 2006, “Substance Sells: Aligning Corporate Reputation and Corporate Responsibility”, Public Relations Quarterly, Volume:51, Issue:1.
- Freitag, AR, 2008, “Staking Claim: Public Relations Lenders Needed to Shape CSR Policy”, Public Relations Quarterly, Volume:52, Issue:1
- Judge, K, 2010,“Corporate Social Responsibility for Small Business”. University of Bedfordshire, Accessed August 3, 2010. Available at: http://www.bhpms.ac.uk/knowledgehub/events/toptips/csr
- Kotler, P & Lee, N, 2005, “Corporate Social Responsibility: doing the most good for your company and your cause”, Wiley Publications
- McWilliams, A & Siegel, D, 2001, “Corporate Social Responsibility: a theory of the firm perspective”, Academy of Management Review, Issue:26
- McWilliams, A, Siegel, DS & Wright, PM, January 2006, “Corporate Social Responsibility: Strategic Implications”, Journal of Management Studies, Issue: 43(1)
- Mohr, LA, 1996, “Corporate Social Responsibility: Competitive Disadvantage or Advantage?”, Proceedings of the 1996 Marketing and Public Policy Conference, Edited by Hill, RP & Taylor, CR, American Marketing Association
- Tolhurst, N, Pohl, M, Matten, D & Visser, W, 2010, “The A to Z of Corporate Social Responsibility”, Wiley Publications
- Waldman, D, Siegel, D & Javidan, M, 2004, “CEO Transformational Leadership and Corporate Social Responsibility”, Working Paper, Rensselaer Polytechnic Institute
- Ward, H & Smith, C, 2006, “Corporate Social responsibility at Crossroads: Futures for CSR in the UK to 2015”, International Institute for Environment and Development