Corporate Social Responsibility A Strategy For Inclusive Development Business Essay
Events around the world over the last few decades have emphasized the need for corporate entities, their stakeholders, governments and international organizations to take the issue of Corporate Social Responsibility seriously. Incidents such as the explosion at the Union Carbide Bhopal, India in 1984, the oil spillage at Prince William Sound, Alaska USA in 1989, a few corporate scandals; for example the Mirror Group UK 1991, the Bank of Credit and Commerce International (BCCI) 1991, UK, Polly Peck 1992, UK, Enron USA 2001, World Com USA 2002, Parmal at Italy 2003 remain fresh and indelible in our minds. Issues such as rampant poverty, climate change and global warming, human rights abuses, terrorism and the globalization of the world economy also affect how corporate entities conduct their operational practices. These operational practices consequently impinge on how corporate entities perceive their responsibilities to societies; and in turn societies’ expectations from corporate entities have increased. Societies give license to businesses to operate and consequently businesses have to serve society not only by creating wealth, but also by contributing to social needs and social expectations towards society.
The current state of world affairs, calls for development that is inclusive.
This paper delves upon issues such as the need for inclusiveness in development, the role of business in the contemporary society and its association with inclusive development, the Government’s contribution towards CSR facilitation and the promotion of CSR by the corporate sector as a strategy for Inclusive Development.
Many people end up being excluded from the mainstream society; the reasons may be varied like gender, ethnicity, age, sexual orientation disability or the deprivation of basic human rights.
This exclusion has resulted in making poverty and inequality a global challenge today, affecting nearly all countries of the world. The World Bank estimates for the year 2008 indicate that approximately 3 billion people or 45% of the global population is living below the international poverty line ($1-2 a day). If inflation is taken into account global poverty is on the rise.
Poverty is a vicious cycle and the poor or unfortunate are in a way trapped in this cycle. They lack access to good nutrition, health care and decent living conditions face barriers to education, employment and public services and are thus denied a dignified human existence.
Economic growth is an important factor in reducing poverty and generating the resources necessary for human development and environmental protection. The past fifty years have seen unprecedented global economic growth. This growth evidently has failed to bring about an overall development to societies across the world.
The challenges discussed so far underscore the need for “Inclusive development”, an emerging concept that recognizes diversity as fundamental to sustainable socio-economic and human development, based upon the notion that every human being can and should contribute to the development process where isolated policies be replaced by integrated strategy benefiting individuals and societies as a whole.
It is only right then that economic growth and development today is revisited by all actors in the society instrumental in generating this development. In order to structure such a strategy, all projects related to education, health promotion, environmental and social protection need to consider those trapped in the vicious cycle of poverty.
Development that is Inclusive – reduces poverty – where all groups of people contribute to creating opportunities, share the benefits of development and participate in decision-making.
United Nations Development Program’s human development approach complements Inclusive development as it integrates the standards and principles of human rights: participation, non-discrimination and accountability for all social and environmental concerns.
Sustainability and Inclusive Development
Sustainable practices encourage conserving, mitigating waste and enhancing our resource bases by gradually changing the ways in which we use natural resources available to us for industrial and personal consumption and the technologies we choose and the way we apply them.
Nations strive to meet the basic requirements of their people for employment, food, energy, water and sanitation. To achieve this sustainably, there is need to balance economic, environmental and social goals so that prosperity is ensured not only for the current but future generations as well.
Poverty eradication is an integral part of the goal of an environmental strategy for the world. The concepts of a shared planet, global citizenship, ‘spaceship earth’ cannot be restricted to environmental issues alone. They apply equally to the shared and inter-linked responsibilities of environmental protection and human development. Restoring natural systems and improving natural resource management practices at the grassroots level are central to a strategy to eliminate poverty. It can be inferred that sustainable development is a precondition to achieving inclusive development.
Role Of Business
Corporate Houses have become powerful institutions on the planet in the last 50 years. Businesses have emerged stronger and more powerful when compared with Nation states. Willis Harman notes that “the dominant institution in any society needs to take responsibility for the whole as the church did in the days of the Holy Roman Empire”. The expectations from Business are indicating reflections of a demand for change. “Business has been asked to be Inclusive and not just merit based; maximal and not just legal; to be ahead of law and not just run with it; to be consultative rather than just procedural; to meet global standards and not just local ones”. In short, a large part of social responsibility is expected to be taken by corporate houses and therefore the concept Corporate Social Responsibility has emerged over time.
Inclusive Development is to be shaped by various factors, such as; the functional definition of inclusive development, interventions that enhance governance and promote effective institutions, sound economic policies, and cultural and socio-economic considerations in policymaking and implementation. Inclusive development is an effective tool for overcoming social exclusion, combating poverty and ensuring social and economic sustainability, i.e. all sections of the society benefit out of such initiatives.
Governance, trade, technology and financing practices determine social justice and protection of the rights of the underprivileged. It involves all actors in the society the government, businesses, public and private sector institutions, civil society or communities themselves. CSR as a strategic tool by companies with collaborative support of the above mentioned actors can and has become one of the important drivers to promote overall human development ensuring environmental protection. Such development is sustainable and leads to Inclusive Growth.
Today we have innumerable examples of Companies where Inclusive Development has been the guiding principle for Business in the long run. A few International names include Coca Cola, Starbucks, Johnson & Johnson and Microsoft. In the Indian scenario we can begin with the legendry Tata’s followed by Infosys, ITC, Bharti, Mahindra & Mahindra, Wipro and many others. Initiatives of a few companies are covered underneath.
The Tata Group
Pioneers in the area of CSR in India, the TATA group has always played an active role in nation building and socio-economic development. Over the years, the Tata philosophy to 'Give back what you get' has been followed by all their enterprises across India. Be it relief measures, rural development, health care, education, art and culture, they have been very forthcoming. As a result every year, the Tata Group's contribution to society has been phenomenal. Tatas spent Rupees 1 billion on 8 community development and social services projects during the fiscal 2001-02-the highest by any corporate house in India.
ITC partnered the Indian farmer for almost a century. They are now engaged in elevating this partnership to a new paradigm by leveraging information technology through its trail blazing 'e-Choupal' initiative.
Figure 1 : An ITC E- Chaupal
In June 2000, ITC’s Agri-Business Division conceived ‘E-Choupal’ ( Figure 1) as a more efficient supply chain aimed at delivering value to its customers around the world on a sustainable basis. The model has been specifically designed to tackle the challenges posed by the unique features of Indian agriculture, characterized by fragmented farms, weak infrastructure and the involvement of numerous intermediaries, among others.
‘E-Choupal’ also unshackles the potential of Indian farmer who has been trapped in a vicious cycle of low risk taking ability > low investment > low productivity > weak market orientation > low value addition > low margin > low risk taking ability. It makes the farmer and the Indian agri-business sector globally uncompetitive, despite rich & abundant natural resources. Such a market-led business model can enhance the competitiveness of Indian agriculture and trigger a virtuous cycle of higher productivity, higher incomes, enlarged capacity for farmer risk management, larger investments and higher quality and productivity.
Infosys’, Mr. Narayan Murthy has been at the forefront to champion the role of ‘good corporation’ He said “we should look for public good and private good will automatically come.” In March 1996 the Infosys Foundation was created in the state of Karnataka operating in the areas of health care, social rehabilitation and rural uplift, education, arts and culture. Since then, this foundation has spread to the Indian states of Tamil Nadu and Andhra Pradesh, Maharashtra, Kerela, Orrisa and Punjab. The foundation receives 1.5 % of the company’ after tax profits. In line with its stakeholder driven approach the allocation of funds is based on a participatory process.
Since 2004, Infosys has embarked on a series of initiatives to consolidate and formalize its academic relationships worldwide under the umbrella of a program called the AcE ie Academic Entente. Through case study writing, participation in academic conferences and university events, research collaborations, hosting study trips to Infosys development centres and running the instep Global Internship program, the company communicates with important stakeholders in the academia promoting meaningful development.
Starbucks, a leading example of Environmental Sustainability has outlined a bold global environmental strategy that will help achieve a meaningful reduction in the company's environmental footprint. Starbucks has identified climate change as a key priority for the company and is in the third year of implementing its climate change strategy. The company has committed to significant renewable energy purchases for its stores and has also focused on ways to improve energy efficiency through store design. Starbucks also believes it has a role to play in consumer education and awareness, and is beginning to engage its supply chain partners on climate related issues such as renewable energy.
In 2005, The Starbucks Emerging Issues Council, (a group 18 senior Starbucks executives) prioritized climate change as a key issue for the company in response to the environmental threats facing coffee growing communities. The council is also involved in determining what further measures are needed for the company to proactively and responsibly address the issue of climate change in a leadership capacity.
The Starbucks three year climate change mitigation strategy includes the following steps to reduce the company’s emissions:
Purchasing renewable energy
Focusing on energy conservation measures
Educating and advocating the need for collaborative action
Figure 2: A Starbucks Plantation
The Starbucks three year climate change mitigation strategy includes the following steps to reduce the company’s emissions:
Purchasing renewable energy
Focusing on energy conservation measures
Educating and advocating the need for collaborative action
As a responsible company, Starbucks is open and honest about the successes and challenges they face. Their Global Responsibility Reports give a clear picture of the progress they’ve made in the areas of ethical sourcing, environmental stewardship and community involvement.
Established in 1886, The CocaCola Company operates in more than 200 countries and markets nearly 500 brands. They are a global business that operates on a local scale in every community where they do business. The CocaCola system operates in the context of a broader value cycle: They work with others to source ingredients, create packaging, sell products, recover and reuse packaging materials and replenish the water used. Managing sustainability through a complex business cycle can be challenging, however collaborating closely with our business partners, communities and consumers, they seek to ensure environmental and social responsibility and are working to encourage consumers to recycle the packaging materials associated with their products.
Global Sustainability select goals and targets for Coca Cola include: Active Healthy living, Energy management, Climate protection, Community, Sustainable packaging and Water stewardship.
It is evident that a new paradigm for innovation is emerging: a partnership between private enterprise and public interest that produces profitable and sustainable change. Companies are moving beyond corporate social responsibility to corporate social innovation. Traditionally companies viewed the social sector as a dumping ground for spare cash, obsolete equipment and tired executives. This mindset could not create lasting change. Community needs are now viewed as opportunities to develop ideas and business technologies leading to both business and community payoffs.
Government as a CSR facilitator
Inclusive development requires – that planning and interventions are state-led, with indispensable but ancillary engagement by the private sector and other stakeholders. CSR has not evolved separately from the public policy. Many governments have actively participated in encouraging corporations to voluntarily assume greater responsibility of the social/environmental aspects of their business policies by way of seeking to harness various market mechanisms to promote CSR. They have been promoted by various National governments, the European Union and several Inter-Governmental Organizations most notably the United Nations and the Organization for Economic Co-operation and Development (OECD).
It is interesting to note the shift in the motivations of governments for encouraging CSR. For almost three decades now it has been associated with addressing corporate governance deficits but more recently improving corporate policies with respect to issues like social cohesion, national competitiveness and environmental stability have been emphasized. The interest of the Governments is not only to encourage CSR initiatives but also to build CSR capacity. Shift is also being witnessed from endorsing and facilitating CSR by corporate to including partnering and mandating CSR through soft legislation. In advanced capitalist countries governments are playing extensive roles in a variety of initiatives to encourage CSR.
The last decade has seen developments of newer roles and relationships between Governments and corporations.
The UK Government has created a ministerial portfolio of CSR; corporations have created forms of self reporting and self regulation for instance The Global Reporting Initiative (GRI) ; NGO’s such as the World Wildlife Fund (WWF), Amnesty International, to name but just two have entered partnerships with corporations to help them improve environmental and social practices. There is evidence of substantial growth in the number of ethical or social mutual funds as well.
In India, The Ministry of Corporate Affairs has issued CSR Voluntary Guidelines in 2009 for the Private Sector, to help encourage business entities formulate a CSR policy, guide its strategic planning and provide a roadmap for its CSR initiatives which are an integral part of the overall business policy and aligned with its business goals.
The policy is expected to be framed with the participation of various level executives and approved by the Board. The Ministry of Corporate affairs has urged all companies to create a separate fund for their CSR activities in the interest of greater transparency.
The recommendation is a part of Voluntary guidelines for companies especially those listed on the stock market.
Core Elements of the Policy Guidelines include:
Care for all Stakeholders:
The companies should respect the interests of, and be responsive towards all stakeholders, shareholders, employees, customers, suppliers, project affected people, society at large etc. and create value for all of them.
Their governance systems should be underpinned by Ethics, Transparency and Accountability. They should not engage in business practices that are abusive, unfair, corrupt or anti-competitive.
Respect for Workers' Rights and Welfare:
Companies should provide a workplace environment that is safe, hygienic and humane and which upholds the dignity of employees. They should provide all employees with access to training and development of necessary skills for career advancement, on an equal and non-discriminatory basis.
Respect for Human Rights:
Companies should respect human rights for all and avoid complicity with human rights abuses by them or by third party.
Respect for Environment:
Companies should take measures to check and prevent pollution; recycle, manage and reduce waste, should manage natural resources in a sustainable manner.
Activities for Social and Inclusive Development:
Depending upon their core competency and business interest, companies are expected to undertake activities for economic and social development of communities and geographical areas, particularly in the vicinity of their operations for disadvantaged population.
The CSR policy of the business entity is also expected to provide for an Implementation strategy that includes identification of projects/activities, setting measurable physical targets with timeframe, organizational mechanism and responsibilities, time schedules and monitoring.
The Implementation Guidelines:
*Companies may partner with local authorities, business associations and civil society/non-government organizations.
*Companies should allocate specific amount in their budgets for CSR activities.
*To share experiences and network with other organizations the company should engage with well established and recognized program/platforms which encourage responsible business practices and CSR activities.
*The companies should disseminate information on CSR policy, activities and progress in a structured manner to all their stakeholders and the public at large through their website, annual reports, and other communication media.
In addition to the Voluntary Guidelines another Government initiative if materialized, would lead to a situation where Corporate Social Responsibility for a state-owned firm may no more be just a "photo opportunity" for its chairman but would involve people-centric projects to be funded by 2-5 per cent of the company's net profits.
The Department of Public Enterprises (DPE) is in the final stage of preparing guidelines for the Central Public Sector enterprises (CPSE s) to take up important CSR projects. The proposal, cleared by the Committee of Secretaries is awaiting approval by Heavy Industries and Public Enterprises Ministry. It proposes a contribution of 3-5 % for enterprises with net profits of up to Rs 100 crore. Those earning net profit of more than Rs 100 crore may be asked to contribute up to two per cent of the amount.
The Government has taken a very firm step and its regularization may see tangible impact on CSR initiatives undertaken by the companies. The CSR would inherit dimensions apart from traditional welfare related CSR practices like organizing blood donation camps charity events and the like. The CPSEs would be obliged to take up specific projects to help people affected directly or indirectly by their businesses. It would be the Company’s primary obligation, to recycle part of their profits in order to help the society. While several CPSEs provide funds for CSR projects, it is not obligatory in nature so far. The guidelines would provide for measurement of the CSR. These obligations would be set in the Memorandum of Understanding, which sets targets for an individual CPSE. The performance evaluation of the companies would also have CSR performance as one of the parameters of overall performance of the company.
The CSR Credits system that was proposed recently by the Corporate Affairs Minister Shri Salman Khurshid is a way forward where soft legislation will gradually facilitate CSR integration into the very core of corporate strategy.
Mr. Khurshid believes that charity is rewarded in tax exemptions and other benefits however CSR remains unrewarded. Reiterating the idea of making CSR quantifiable he has urged corporate to debate the possibility of establishing a CSR exchange to deal in CSR Credits.
Through the CSR exchange mechanism, companies would be able to trade in CSR credits, akin to trading in carbon credits. This is to be done through certification for their CSR activities by a government body. The credits could then be traded in a CSR credit exchange.
The system translates into a situation where a company yet to engage in CSR may be able to compensate it through purchasing CSR credits from company that has already earned them. This would be quite similar to carbon credits where a polluting entity has to buy carbon credits from companies that have earned them through environment-friendly activities.
In addition to this another issue under consideration is the “conflict of interest” where a company produces consumer products that are deemed harmful to consumption and health. Shri Khurshid said “If there is a business that is inherently destructive and unwholesome, a way has to be found to offset the negativity of that business”.
The Governments are using CSR to complement Government policies in order to promote Inclusive Development. This system reflects new forms of Governance in which Governments employ a much richer and subtler array of mechanisms to affect business behavior rather than employing enforcement. The use of policies that endorse, facilitate and partner with firms is further characteristic of a new governance paradigm which emphasizes norms, networks, incentives and volunteerism.
Government participation in promoting CSR may be an anathema to the business world as it may conjure up visions of control and constraints to operate competitively in a global world but positive though incipient signs of change are visible as we trace the evolution.
CSR-Business Society Interface
The phrase “Corporate Social Responsibility” originates with H. Bowen, who wrote “Social Responsibility of Businessmen” in 1953. Corporate Social Responsibility (CSR) is used to describe businesses’ integration of social and environmental issues into decisions, goals, and operations. Other terms used in the CSR context are: Corporate Responsibility, Sustainability, Corporate Citizenship, Ethical Business Practices, Social/Environmental Responsibility, Triple Bottom Line and Environmental and Social Stewardship.
The basic questions at the heart of CSR are as old as business itself, such as what is business for? What contribution does it make to society? Its rise to prominence however has not been a smooth one, as the concept has been frequently discredited, written off, marginalized or simply overlooked in favor of new or supposedly better ways of conceptualizing the business and society interface.
Archie Carroll has provided an interesting overview of some of the prominent CSR Definitions. Milton Friedman (1970) contends that social responsibility of the firm is to increase its profit, Keith Davis (1973) supported the view that CSR requires consideration of issues beyond the narrow economic, technical, and legal requirements of the firm.
Definition concepts in the Oxford Handbook range from CSR as an “obligation to respond to the externalities created by market action to CSR as a discretionary spending in furtherance of an explicit measurable social objective consistent with relevant social norms and laws” and CSR as an “additional political responsibility to contribute to the development and proper working of global governance.” Defining CSR is therefore not just a technical exercise but also a normative one in setting out what corporates should be responsible in society or an ideological one describing how the political economy of society should be organized to restrain corporate power. CSR is still a developing field of research as also Lockett et al concluded from a decade long study of CSR literature that “CSR knowledge could best be described as in a continuing state of emergence.”
To sum up Corporate social responsibility (CSR) can most comprehensibly be called an approach through which companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.
The relative ambiguities regarding the definition and clear identity of CSR as an area of academic enquiry is also reflected in the institutional infrastructure of CSR, most notably in the Journals where CSR research is published, the societies and conferences which facilitate scholarly debate, and institutionalization of CSR as a field of academic teaching. The table below lists the Journals in the field of CSR. It can be noted that none of the CSR Journals have CSR as a title.
Table 1: CSR Journals
Business &Society (Sage)
Business &Society Review(Blackwell)
Journal of Business Ethics ( Springer)
Business Ethics Quarterly(Society of Business Ethics)
Business Ethics: A European Review ( Blackwell)
Corporate Governance:International Journal of Business in Society(Emerald
Journal of Corporate Citizenship (Greenleaf)
Corporate Social Responsibility and Environmental Management
The concept of CSR has long and wide ranging history, it is mostly the product of the 20th century especially since the 1950’s. It was referred more as social responsibility (SR) than CSR for many years. Patrick Murphy in the University of Michigan Business Review, 1978 states that the period before 1950’s was the ‘philanthropic’ era in which companies donated to charities. Between 1953 and 67 was the ‘awareness’ era during which there was more recognition of the overall responsibility of business and its involvement in community affairs. The period between 1968 -73 was termed the ‘issue’ era in which companies began to focus on specific issues such as urban decay, racial discrimination and pollution problems. Finally the ‘responsiveness’ era 1974-2008 and continuing beyond, companies began taking serious management and organizational actions to address CSR related issues.
Various CSR Theories have taken shape over time the most comprehensive are compiled by Garriga and Mele (2004) mentioning precisely four theories about the responsibilities of Business in Society: Corporate Social Performance Theory, Shareholder Value Theory, Stakeholder Theory, Corporate Citizenship Theory.
Corporate Social Performance Theory has its roots in Sociology. It has evolved from several previous notions and approaches. It is a configuration in the business organization of principles of social responsibility, processes of response to social requirements and policies, programs and tangible results that reflect the company’s relations with society, (Wood 1991).
Archie Carroll (1979) was the first to introduce the concept of Corporate Social Performance. He made a synthesis of the basic principle of social responsibility. Carroll suggested that the entire range of obligations that business has to society must embody economic, legal, ethical and discretionary (philanthropic) categories. In 1991, Carroll first included them in a ‘Pyramid of Corporate Social Responsibility, as shown in Figure3.
Figure 3: CSR Pyramid
The four classes reflect that “the history of business suggests an early emphasis on the economic and then legal aspects and a later concern for the ethical and discretionary aspects”. It was suggested that, although the components are not mutually exclusive, it “helps the manager to see that the different types of obligations are in a constant tension with one another”.
More recently, Schwartz & Carroll have proposed an alternative approach on three core domains (economic, legal and ethical) and a Venn model frame work. The Venn framework yields seven categories resulting from the overlap of three core domains.
Wartick & Cochran extended the Carroll approach suggesting that corporate social involvement rests on principles of social responsibility, process of social responsiveness, and the policy of issues management. In recent times more and more corporations are being proactive in publishing reports on economic social and environmental performance. The Global reporting initiative has become more and more popular as have certifications or reports, such as the UN Global Compact, AA1000, SA 80000 and others . All of this introduces more complexity into the corporate social performance models but in essence, the conceptual foundations remain unalterable.
Shareholder Value Theory is based on Economic Theory. It is also referred as Fiduciary Capitalism and holds that the only social responsibility of business is making profits and as a supreme goal, increasing the economic value of the company for its stakeholders.
In the 1960’s and 70’s there was a debate between Friedman and others who defended the business enterprise as being responsible only for making as much profit as possible, in contrast scholars including David and others argued that corporations had power and power entails responsibility, therefore corporations had responsibilities beyond economic and legal. Friedman’s position was clearly against that of the concept of social responsibility.
Theodor Levitt, (once the editor of HBR) wrote about the dangers of corporate social responsibility. In his words “Corporate welfare makes good sense if it makes good economic sense, and not infrequently it does. But if something does not make economic sense, sentiment or idealism ought not to let it in the door “Since then some economists have argued that the market, instead of managers, should have control over allocation of resources and returns. Adherents to this view considered CSR as a threatening dragon for shareholder value creation.
Peter Drucker a well known management ‘guru’ reintroduced the topic of social responsibility many decades later, stressing the idea that profitability and responsibility were compatible, and the challenge was to convert business’ social responsibilities into business opportunities. Today, it is commonly accepted that under certain conditions the satisfaction of social interests contributes to maximizing shareholder value. An ideal level of CSR is determinable by cost benefit analysis.
Stakeholder Theory is related to the Ethical Theories. The theory takes into account the individuals or groups with a stake in or claim on the company. From this perspective CSR means that corporations have an obligation to constituent groups in society other than stockholders and beyond that prescribed “by law or union contact.”
The word ‘Stakeholder’ was used for the first time in 1963 in an internal memorandum at the Stanford Research Institute, although the concept had existed before. In 1984 R. Edward Freeman published the landmark book Strategic Management: A Stakeholder as a new conceptual framework for management. Evan & Freeman presented a normative Stakeholder theory based on a Kantian Approach. Since then the model has spread considerably and Freeman along with collaborators has enlarged clarified and added modifications to this work.
Several authors accepting the basic framework have used different ethical theories to elaborate different approaches to stakeholder theory.
Corporate Citizenship Theory is derived from the Political concept of a citizen. While CSR is more concerned with social responsibilities as an external affair, CG suggests that business is a part of the society.
The term Corporate Citizenship was introduced in the 1980’s into the business and society relationship. Davis in 1973 noted that “social responsibility begins where law ends”. In 1990’s the concept of Corporate Citizenship attracted positive business attention. The increasing popularity has been in part due to factors that have had an impact on the business and society relationship such as Globalization, the crisis of the welfare state and power of large multinational companies.
Concern for communities where companies operate has progressively extended to a global concern due to intense protests against globalization. In the last few years, some scholars have undertaken the task of developing normative theories of Corporate Citizenship. A full theory is not yet available however valuable academic work has been done by Wood, Logsdon Matten and Crane. Matten et al in 2003 have presented an extended view whereby they believe corporations enter the arena of citizenship at the point of government failure to protect citizenship. Business then fulfills a role similar to that of Government in solving social problems.
These theories can be used to explain what companies are actually doing but most of them can also be understood as normative theories showing what companies should do to maintain appropriate behavior in society. An understanding of these theories will certainly be helpful to understand a CSR related aspect.
Technological advancement, use of Internet and other means of fast communication through information media have provided greater visibility of corporate actions. Customers’ perceptions of companies and their consequent purchasing behaviors are indicating fundamental changes causing significant financial impact for businesses. CSR is no longer viewed as just a regulatory or discretionary cost, but an investment that brings financial returns. Based on the maturity of strategic thinking in the company, CSR is being implemented in one or more of the following ways: as a Reactive strategy; as an Image building exercise; for improved operating efficiency and as a Source of competitive advantage.
According to Marcello Palazzi and George Starcher, Businesses today are operating in times of ‘turbulence and accelerating change’. The forces responsible for challenging traditional views of competitiveness include Globalization, increasing intensity of competition, rapid technological changes, shift from an industrial economy, demographic factors, environmental challenges and changing value systems. These forces make it essential to build deeper and more strategic relations with customers, suppliers, employers, communities and other stakeholders.
In Western Europe, Japan and North America increasing number of companies are finding that it makes good business sense to fully integrate the interests and needs of customers, employees, suppliers, communities and our planet- as well as those of shareholders – into corporate strategies. AT & T, IBM and Levi Strauss have come up with an approach that ties corporate giving directly to strategy aimed at increasing their name recognition among consumers, boost employee productivity, reduce R & D costs overcome regulatory obstacles and foster synergy among business units.
In the American scenario, since the 17th Century, business leaders have been in the top ranks of donors. However, companies today are viewing community needs as opportunities to develop ideas and demonstrate business technologies, find and serve new markets and solve long standing business problems. They focus on inventing sophisticated solutions through hands on approach.
This is no charity; it is R & D, a strategic business investment. Craig Smith explains, philanthropic and business units have joined forces to develop philanthropic strategies that give their companies a competitive edge.
CSR initiatives are strategically conceived as conferring competitive advantage on the firm over Industry rivals. A number of topics relate to this area of focus, including : the supply and demand theory of the firm, the base of the pyramid approaches, a natural resource based view of the firm and including stakeholders for competitive advantage. Adaptive approaches to building a business case for CSR focus on building competitive advantage through strategically orienting and directing resources towards the perceived demands of stakeholders.
Increasingly, corporate strategies have to be seen in a global context. The National Diamond is interesting to note here, Michael Porter introduced a model that helps analyze why some nations are more competitive than others are, and why some industries within nations are more competitive than others are, in his book The Competitive Advantage of Nations. This model of determining factors of national advantage has become known as Porter’s Diamond (Figure 4).
The model suggests that the national home base of an organization plays an important role in shaping the extent to which it is likely to achieve advantage on a global scale. This home base provides basic factors, which support or hinder organizations from building advantages in global competition. Porter distinguishes four determinants or four pillars of research (factor conditions, demand conditions, related and supporting industries, firm structure, strategy and rivalry) that one must undertake in analyzing the viability of a nation competing in a particular international market, but it also can be used as a comparative analysis tool in recognizing which country a particular firm is suited to expanding into.
Figure 4: Porter’s Diamond Model
Two of the aforementioned pillars focus on the (national) macroeconomics environment to determine if the demand is present along with the factors needed for production (i.e. both extreme ends of the value chain). Another pillar is focused the specific related and supporting industries to the particular firm/nation/industry being studied. The last pillar looks at the firm's strategic response (microeconomics) i.e. its strategy, taking into account the industry structure and rivalry. In this way it tries to highlight areas of competitive advantage as well as competitive weakness, by looking at a companies/nations suitability to the particular conditions of a particular market.
Economists, policy makers and development experts all over the world are prophesying a significant change in the way free markets function and a shift in approach to capitalism as we know it. It would be interesting to note Kyosei Path followed by Canon and other Japanese majors. The Nestle approach is also interesting to see how a company has embedded in its system the objective of achieving the MDGs aimed at Sustainable / Inclusive Development.
Canon: Kyosei Path
The Canon Kyosei journey begins by laying a sound business foundation and ends in political dialogue for global change promoting Inclusive/Sustainable Development at all stages. The process is analogous to building a pyramid in that the strength of each layer depends on the strength of the layers preceding it and the end result is a win-win situation for all stakeholders and society in general.
Stage1: Economic Survival
Companies at this stage work towards securing a predictable stream of profits and establishing strong market positions in their Industries. They contribute to society by producing needed goods, purchasing locally produced raw material and employing workers. In pursuing business goals they tend to exploit staff and create labor problems.
Stage2: Cooperating with labor
A company enters this stage when workers begin to cooperate with each other, cooperation becomes a personal code of ethics. At this stage the management starts to look at labor as vital to a companies success. This approach is widely popular in Japan and can become inwardly focused doing little to solve issues outside the company.
Stage3: Cooperating outside the company
When a company begins to cooperate with outside groups like customers and suppliers it enters the third stage. Customers are treated respectfully and reciprocate by being loyal. Suppliers are provided with technical support and they deliver high quality material on time. Community group becomes partners in local problem solving. They understand that “a rising tide lifts all ships.” In the event of focusing on the local and national issues global issues suffer.
Stage4: Global Activism
Expanding large scale business operations in foreign countries a company is ready to enter the fourth stage. Cooperating with foreign companies they can increase their base and address global issues. For instance reduce trade friction by building trade countries that have trade surplus with home country. Training local workers in new technology can help enhance living standard of people in poor nations or being responsible for the environment.
Stage5: The Government as a Kyosei partner
When a company has established a worldwide network of kyosei partners it is ready to move to the fifth stage which is very rare. Using their wealth and power companies can now urge the national governments to work towards rectifying global imbalances.
Canon has followed the Kyosei path to success and has taken it a step further. This requires strong commitment by top managers. This always pays back as the companies find new ways of doing business and move to cutting edge of business strategy, organization design and management practice. With increased spending on R & D from a rate of 3 or 4 % to a double digit Canon was issued more patents in the US than any other company. The question here is how Kyosei applied here: Guidelines were fixed and Canon would not conduct R & D that supported military purposes or harmed the environment an account of Sustainability was kept at every step promoting Inclusive Development.
Kyosei helped to break through another important management practice: working with the competitors. This way Canon found opportunities they would have otherwise missed. Presenting patents and demonstrated technological abilities HP saw advantage in buying lazer printer from Canon.
Corporates have also attempted to contribute towards Inclusive Development by working in their local community on the lines of the MDG’s Nestlé supports the UN Millennium Development Goals - objectives that, through partnerships respond to local needs and harness local knowledge and capabilities, resulting in positive, sustainable change. An overview of the MDG’s would help understanding the Nestle Case.
The Millennium Development Goals (MDGs) are eight goals to be achieved by 2015 that respond to the world's main development challenges. The MDGs are drawn from the actions and targets contained in the Millennium Declaration that was adopted by 189 nations-and signed by 147 heads of state and governments during the UN Millennium Summit in September 2000. The eight MDGs break down into 21 quantifiable targets that are measured by 60 indicators. The MDG’s are listed as follows:
Goal 1: Eradicate extreme poverty and hunger
Goal 2: Achieve universal primary education
Goal 3: Promote gender equality and empower women
Goal 4: Reduce child mortality
Goal 5: Improve maternal health
Goal 6: Combat HIV/AIDS, malaria and other diseases
Goal 7: Ensure environmental sustainability
Goal 8: Develop a Global Partnership for Development
Nestle has made an effort to combine the UN Global Compact Principles and MDG’s for achievement of sustained economic development. The same has been undertaken by various Corporate Houses and National Governments through their CSR initiatives.
Nestlé’s Corporate Business Principles guide the company behaviour in relation to all relevant stakeholders. They reflect the basic ideas of fairness, honesty and respect for people and the environment in all business actions. Their ongoing evolution has seen the inclusion of the 10 UN Global Compact (UNGC) Principles on human rights, labour, the environment and corruption in 2002. Examples that illustrate Nestle’ compliance with, and support for, these Principles are contained in the Creating Shared Value report.
Here are a few examples of Nestle’ actions in 2007 that meet their commitments as a UNGC signatory.
Table 2 : Nestle as a UNGC Signatory
UN Global Compact Principles
Some examples of Nestlé actions
Human Rights Principles
Expansion of participation in International Cocoa Initiative and Nestlé-specific cocoa projects in West Africa
CARE independent audit programme covers areas of human resources, occupational health &safety and environment
Reduced water consumption and influencing supply chain to adopt good water management practices; higher energy efficiency and lower GHG emissions; optimized packaging volumes and sustainable packaging; founding signatory, UNGC CEO Water Mandate
Establishment of Nestlé Code of Business Conduct
Nestlé's creation of shared value for itself and society brings specific contributions to the UN Millennium Development Goals. Many examples in the Creating Shared Value report and the website demonstrate how their long-term growth strategy helps alleviate extreme poverty and hunger (goal 1) through initiatives like the Popularly Positioned Products (PPP) strategy; the capacity-building programmes in milk districts and through coffee initiatives like Nespresso AAA and 4C. Similarly, there are many examples of how Nestle contributes to environmental sustainability (goal 7), such as reducing water consumption, packaging materials or carbon footprint, while the environmental aspects of agricultural engagements such as managing water in agriculture, 4C coffee and Nespresso AAA also contribute towards this goal.
Beyond the impact outlined above, Nestle supports more than 120 projects and initiatives around the world that relate specifically to the eight Millennium Development Goals towards the final goal of Inclusive Development.
For most companies, CSR is driven by one of the two reasons — external environmental or statutory pressures or an organic internal. It is found that most recognized companies today fall under the latter category and initiate CSR programs with great passion.
It is increasingly becoming evident that issues related to climate change and social responsibility in the area of operations will soon be decisive factors for Business survival. There are many business leaders today who are eager to try to project an image of social responsibility- for example, by developing triple bottom line reports.
Corporate Social Responsibility today is in fact the building block of the social pillar of sustainability and Inclusiveness in all forms. There is no dearth of examples where Inclusive Development has been the guiding principle for Businesses in the long run towards attaining and promoting Inclusive Development.
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