Idea Of Corporate Social Responsibility Business Essay
Kotler and Lee argue that the issue of corporate social responsibility has been of growing concern among Businesses. Being socially responsible is the new reality of businesses. However there is difficulty in defining what is meant by corporate social responsibility .There is no single, commonly accepted definition of the notion of corporate social responsibility; there is no consensus on the actual meaning, however CSR is often used interchangeable with terms like corporate governance, corporate citizenship, corporate accountability and business ethics. In words of (Worthington, Ram and Jones, 2003, p.113) CSR refers to “the continuing commitment by business to behave ethically and to contribute to economic development while improving the quality of the life of the workforce and the families as well as the local community and society at large”
It is “a commitment to improve community well-being through discretionary business practice and contribution of corporate resources” (Kotler & Lee, 2005, p.11). Communities’ well being refers to human conditions and environmental issues. The basic idea of CSR is that business and society are interwoven rather than distinct entities (Wood 1999 cited in Moir, 2001).
It is possible to trace the evidence of the business community’s concern for society for centuries (Banerjee, 2007). According to the (Cannon, 2005, p.1), the role and responsibilities of the corporate entity in the society is not new, the comment in the Bible that it is ‘‘Easier for a camel to pass through the eye of a needle than a rich man to pass through the gates of the haven’’. The first example of company managers taking responsible attitudes to their businesses’ dealing with Society and the environment goes to Philanthropic businessmen such as Robert Owen, Sir Titus Salt, the Cadbury Family and later lord Leverhulme. Robert Owen in early 1800s, created a new type of community at the site of his four factories in New Lanark. He built Houses and Schools and introduce reforms (E.g. refusing to employ children less than of ten years of age, reduce the working day for all workers to 12 hours. Because he belief that a person’s character is formed by the effects of his or her environment (Hoskin, 2012).
According to the(Carroll, 1999) the early writing on the CSR, it was referred to more often as Social responsibility than as CSR, because the age of the modern corporation’s prominence and dominance in the business sector has not yet occurred . The publication by the Bowen (1953) of his land mark book Social ‘Responsibility of Businessman’ argued to mark the beginning of the modern period of literature on this subject. Bowen (1953, p.6) state that ‘’it refers to the obligation of businessman to pursue those policies, to make those decisions, or to follow those line of action which are desirable in terms of the objectives and values of our society’’. He argues that social responsibility is no panacea, but that it contains an important truth that must guide the business in future. Since then there has been shift in terminology from the social responsibility of businessmen to CSR(Bowen, 1953).
Thoughts of Bowen are further extended by the (Davis, 1960, P.60) who defines the Social Responsibility as, ‘’ it refers to businessmen’s decisions and actions taken for reasons at least partially beyond the firm’s direct economic or technical interest’’ .Social responsibility is nebulous idea but should be seen in managerial context(Davis, 1960). Focus on CSR engagement has during the last decade increased but there are those who criticize it, claiming that CSR is not a company issue. Putting focus on CSR will only take the eye from the real goal; to increase their shareholders wealth, CSR is to confuse the essence of what corporations should do (Henderson, 2001).
“If you find an executive who wants to take on social responsibility fire him. Fast
Rather than being the corporations’ priority to address, CSR is something that governments and politicians have to work with, not businesses. “There is one and only one social responsibility of business-to use its resources and engage in activities designed to increase its profits” (Friedman, 1962, p.173). Corporation’s sole responsibility is to increase profits by legal means, donating to charities, is detrimental to firms since it may decrease profitability or increase product prices or both (Pinkston & Carroll 1996 cited in Snider, Hill & Martin, 2003). CSR reduce the focus on profit and should therefore be cost outside the scope of legitimate corporate concern. Corporations and managers might not in addition be competent to engage in social issues (Friedman, 1970).
Some go further with their arguments against CSR and states that being CSR and investing in CSR activities such as charitable contribution, promoting community development plans, establishing environmental protection procedures put those companies at an economic disadvantage compared to less corporate responsible companies (Aupperle, Carroll & Hatfield, 1985). CSR is a dilution of business primary purpose, it is seen as a social involvement that is costly and that is hindering from profit maximization. The content of CSR is what corporation says they are doing, but this may differ from what they are actually doing (Davies, 2001).
CSR rests upon a false view of the world that CSR is oversimplified, taking for granted “the idea that the problems and solutions of today have known and agreed solutions” (Henderson, 2001). Business should focus on what they are best at, increase shareholders wealth and create job opportunities. Corporations are not responsible for the world. Private interest, must be separated from the public, they should have nothing to do with CSR. It is politicians that should speak for society, not business people (Henderson, 2001).
CSR is simply a way for corporations to hide behind the mask of their obligations and responsibility (Christian Aid, Behind the Mask- The Real Face of CSR, 2004): a window dressing tactic. CSR sounds and looks good: corporations just appear to be socially responsible for the purpose to not damage their image and brand as well as for the reason to keep the critics quit. CSR is only seen as a “branch of PR” and a mask that companies hide behind. It has become a “vital tool in promoting and improving the public image of some of the world’s largest corporation” (Christian Aid, Behind the Mask- The Real Face of CSR, 2004). And since CSR is PR tools it can mean a variety of things to different people (Frankental, 2001).
Whether it is corporations’ or government’s responsibility, or whether one is against or for CSR, it is important to stress out today’s corporate power. With globalization, business itself is more pervasive and more powerful. “The business of business is business” (Friedman, 1962). The size and scope of international business has during the last decade grown: the 100 largest companies in the world have turnovers that are greater than the GDP of half of the world’s countries (McIntosh et al., 1998). Corporations are powerful entities, in some countries more than the government due to the fact that they are financially stronger and operating internationally.
Reasons for the Recent Popularity:
Globalization & the Increased Number of MNC’s and TNC’s:
Globalization and the technological revolution, such as the Internet, have created new economic expansion opportunities for corporations. Instead of just doing business in their own domestic market, corporations are now entering world markets in hopes of increasing sales and profits. With globalization the number of multinational corporations (MNC) and transnational corporations (TNC) has increased. In 2003 the number of MNC’s boosted from 7000 to 63 000 parent companies operating with around 69 000 subsidiaries (Behind the mask: The real face of CSR, 2004) in 1997. The number of TNC includes roughly 63,000 firms, with more than 800,000 subsidiaries (Kytle & Ruggie, 2005). MNC’s and TNC’s are today mainly governed by the national legislation of the countries in which they operate, however national legislation in developing countries are weak and many lack an acceptable legal framework to adequately protect social and environmental rights. In such places the necessary laws may not exist due to a lack of political will or technical ‘know-how’ to enforce them (Behind the mask: The real face of CSR, 2004). Corporations operating internationally where rules are unclear and control is difficult can do whatever they want to do and get away with it, or they can simply choose not to do what they ought to do because they have no clear legal obligations. This has led to unethical behaviour and many corporate scandals.
Problems with Ethics and Corporate Scandals:
Inside Trading and Questionable Accountants: Recent corporate scandals have put corporations in the limelight. Accusations about inside trading and questionable accountants suddenly became commonplace. For six years running, Enron was seen as an "extraordinary & unique business” (Fortune Magazine, 2006), but in 2001, one of the biggest corporate scandals was revealed. $618 million was lost, $1.2 billion in reduction in shareholder equity. In December the company filed for bankruptcy and 4,000 employees were fired. In total 20,000 workers lost their job
(Miller, 2005). The company had overstated corporate profits and understated debts, giving the public and its shareholders a false profile of the company’s economic condition. Employees lost billions of dollars due to the disappearance of their pension plans which were mostly invested in the company stock. In addition to this WorldCom filed the largest bankruptcy in the history of US. The telecom company had inflated its profits to $3.8 billion during 2001 and 2002. 17,000 jobs were lost and a market value of $100 billion was gone (Miller, 2005). What everyone thought was a nightmare suddenly became a reality.
Employment Practice and Violation of Human Rights:
Nike, the biggest Shoe and Apparel Company in the world6 was, on the other hand, put in the spotlight for its questionable employment practice, low wages, poor working conditions and human rights violations. Nike was now being attacked from every corner and because of its wide spread brand recognition everyone seemed to know that ‘swoosh’. This trademark which had made them so successful was now causing difficulties. The Swoosh, which once stood for victory and self-empowerment, became synonymous with something else- human rights violations. Suddenly Nike did not seem so ‘cool’ anymore. The immensely successful company was now facing challenges. “Whatever the Swoosh touched turned to gold. Now the hardships they're going through are going to make them work for it"(McCall, 1998, p.31).
Lack of Environmental Responsibility:
Environmental disaster has also been exposed by the media. For example, in 1989 Exxon spilled 11 million gallons of oil being carried on its Valdez oil tanker into the water surrounding Alaska. The accident caused huge environmental damages; harbour seals and otters suffered a great loss in their population. The fishing industry in Alaska was also affected by the spill8.
As a result of these corporate scandals and the lack of trust that they have brought, corporate social responsibility (CSR) has become an important issue for companies to address. The erosion of trust has put pressure on corporations to improve their Corporate Social Responsibility policies and practices. In particular social and environmental issues have been pushed into the limelight. Corporations are now looking into their “triple bottom line”, trying to make a sustainable change. Transparency and accountability are today two important elements which have made it difficult for corporations to escape scrutiny (Benn, 2011).
But the question whether CSR is a mask to hide behind or not is not of high importance. What is important is to make sure that corporations take ownership and responsibility for their actions. Today, the debate about CSR has shifted: it is no longer about’’ whether to make sustainable commitment to CSR, but rather how’’ (Smith, 2003).
Importance of Stakeholders:
Freeman’s classic definition of a stakeholder is “any group or individual who can affect or is affected by the achievement of the organization’s objectives” (Freeman, 1984, p. 46).
Stakeholders are typically analyzed into primary and secondary stakeholders. Clarkson (1995, p. 106) defines a primary stakeholder group as “one without whose continuing participation the corporation cannot survive as a going concern” – with the primary group including “shareholders and investors, employees, customers and suppliers, together with what is defined as the public stakeholder group: the governments and communities that provide infrastructures and markets, whose laws and regulations must be obeyed, and to whom taxes and obligations may be due”. The secondary groups are defined as “those who influence or affect, or are influenced or affected by the corporation, but they are not engaged in transactions with the corporation and are not essential for its survival”.
Mitchell et al. (1997) develop a model of stakeholder identification and salience based on stakeholders possessing one or more of the attributes of power, legitimacy and urgency. Thus, we might anticipate that firms would pay most attention to those legitimate stakeholder groups who have power and urgency. In practice this might mean that firms with problems over employee retention would attend to employee issues and those in consumer markets would have regard to matters that affect reputation. Stakeholder groups may also become more or less urgent; so environmental groups and issues became more urgent to oil firms following the Exxon Valdez oil spill (Patten, 1992).
Donaldson and Preston (1995) identify three themes in their formulation of stakeholder theory of the firm.
There is underlying tension between the normative and instrumental approach to stakeholder theory. For instance, McWilliams and Siegel(2001) use the conventional input-output model of the firm to conceptualize CSR as a form of investment that allow a firm to differentiate its products and processes. Demand for a product have CSR attribute (e.g. organic, pesticides free product and union labelling in clothing) can come from customer as well as investors and employees.
CSR can be a source of product and process innovation (biodegradable detergent, sweat free labour, low emission production). Thus, the demand factor of CSR assume that competing on price and CSR attribute is more effective than competing on price alone(Smith, 1994). Apart from demand factor, there is supply side perspective on CSR from the resource based view of the firm which requires a firm to allocate resources to meet the demand for CSR. McWilliams and Siegel (2001) describe how different kind of resources like capital, material and labour can be CSR related. According to Margolis and Walsh (2003) study, corporations that take in to account the need of all its stakeholders will also be successful in traditional performance criteria. Following this theory, a socially responsible firm requires simultaneous attention to the legitimate interests of all appropriate stakeholders and has to balance such a multiplicity of interests and not only the interests of the firm’s stockholders.
Social Contract Theory:
Donaldson (1982) consider the business and society relationship from the social contract tradition, mainly from the philosophical thought of Locke. He assumed that short of implicit social contract between business and society exists. This social contract implies some indirect obligation of business towards society. This approach would overcome some limitations of deontological and teleological theories applied to business.
Donaldson and Dunfee (1999) develop integrated social contracts theory as a way for managers to take decisions in an ethical context. They differentiate between macrosocial contracts and microsocial contracts. Thus a macrosocial contract in the context of communities, for example, would be an expectation that business provide some support to its local community and the specific form of involvement would be the microsocial contract. Hence companies who adopt a view of social contracts would describe their involvement as part of “societal expectation” – however, whilst this could explain the initial motivation, it might not explain the totality of their involvement. One of the commercial benefits that were identified in the Australian study (CCPA, 2000) was described as “license to operate” – particularly for natural resource firms. This might be regarded as part of the commercial benefit of enhanced reputation, but also links to gaining and maintaining legitimacy (Suchman, 1995).
Suchman (1995) defines legitimacy as “a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs and definitions”.
(Pfeffer and Salancik, 1978) identifies three types of organizational legitimacy:
He also identifies three key challenge of legitimacy challenge:
Lindblom (1994, cited in Gray et al., 1996) organization may employ four broad legitimation strategies when faced with different legitimation threats:
Seek to educate its stakeholders about the organization’s intentions to improve that performance.
Seek to change the organization’s perceptions of the event (but without changing the organization’s actual performance.
Distract (i.e. manipulate) attention away from the issue of concern
Seek to change external expectations about its performance.
Thus legitimacy might be seen as a key reason for undertaking corporate social behavior and also then using that activity as a form of publicity or influence. Davis(cited in wood, 1991) explain that not that business uses its power to legitimate its activity but, rather that society grants power to business which it expects it to use responsibly. In the long run, those who do not use power in a manner which society considers responsible will tend to lose it.
CSR goes far beyond the old philanthropy of the past, where its primary purpose was to donate money at the end of the financial year, for good causes. Today it’s an all year task, all year responsibility that “companies accept for the environment around them, for the best working practices, for their engagement in their local communities and for their recognition that brand names depend not only on quality, price and uniqueness but on how, cumulatively, they interact with companies workforce, community and environment” ( Brown, 2006) . CSR is as “an entirely voluntary corporate-led initiative to promote self-regulation as a substitute for regulation at either national or international level” (Christian, 2004).
CSR is a situation where “companies integrate social and environmental concern in their daily business operations and in their interaction with stakeholders on a voluntary basis (The European Commission, 2001). It is about ‘’what organizations do how they do it and the impact of their behaviour on the wider society” (Worthington, 2003). CSR is not merely about making money for its shareholders, but also acting as a good corporate citizen by obeying the law and taking good care of its people, community and environment. Decisions should not be made only on financial reasons but on questions such as community investment, environmental impact, business ethics and human right, in other words the triple bottom line; People, Planet and Profit (Elkington, 1998). Being CSR furthermore involves being economic, legal, ethical and philanthropic.
The CSR pyramid is based on a four-part perspective, namely economic, legal, ethical and philanthropic standpoint as figure 4 illustrates. A four-part conceptualization of CSR includes the “idea that the corporation has not only economic and legal obligations, but ethical and discretionary responsibility as well” (Carroll, 1991). It is during the recent years that ethical and philanthropic functions have taken a more important role.
Pyramid of Corporate Social Responsibility
Looking back in history, businesses were created as economic entities “designed to provide good and services to societal members” (Carroll, 1991). Economic responsibility explained in figure 5 is the most fundamental one since “all other business responsibilities are predicated upon the economic responsibility of the firm, because without it the others become moot considerations”(Carroll, 1991).
The Economic responsibility of business:
It is important to perform in a manner consistent with maximizing earnings per share
It is important to be committed to being as profitable as possible.
It is important to maintain a strong competitive position.
It is important to maintain a high level of operating efficiency.
Carroll(1979) argue that businesses are expected to pursue its economic responsibility within the framework of the legal one. Businesses are looked upon as corporate citizen that complies with the law and regulations broadcasted by federal state and local governments. These laws and regulations are the ground on which businesses must operate. Legal responsibilities embody basic notions of “fair operations as established by our lawmakers”. Even though they are depicted as the next level of the pyramid it is seen coexisting with the economic one. In other words maximizing ones profit while obeying the rules and regulations that is set by the government (Hoskins, 2011). Legal Responsibilities of business:
It is important to comply with various federal, state and local regulations.
It is important to provide goods and services that at least meet minimal legal
It is important that a successful firm be defined as one that fulfils its legal obligations.
Ethical responsibility refers to those activities and practices that are expected or prohibited by societal members even if they are not codified into law. Those responsibilities are about accepted norms, standards and expectations that reflect a concern for what consumers, employees, shareholders, and the community regards as fair (Carroll, 1991). It is simply about respecting and protecting stockholder’s moral rights. In some cases, ethical norms and standards precedes the establishment of law. Ethical responsibility can also been seen as embracing new values and norms which businesses are expected to meet, even if those values and norms may reflect on a standard performance that is higher and that is not currently required by law. Even though ethical responsibility is the next layer in Carroll’s CSR pyramid, it must according to Carroll be “consistently recognized that it is in dynamic interplay with the legal responsibility category”. It is in other words pushing the legal responsibilities to broaden at the same time as expecting businesses to operate at a level above that is required by law (Carroll, 1991, p.116).
It is important to perform in a manner consistent with expectations of societal
Mores and ethical norms.
It is important to prevent ethical norms from being compromised in order achieve corporate goals.
It is important that good corporate citizenship be defined as doing what is expected morally or ethically.
It is important to recognize that corporate integrity and ethical behaviour go beyond mere compliance with laws and regulations.
Carroll (1991) define philanthropic responsibility refers to corporations acting as a good corporate citizen, by contributing resources to the community and improves quality of life. The distinction between ethical and philanthropic is that the philanthropic one is not expected in an ethical or moral sense. It is good if businesses give away charities, but they are not seen as unethical corporations if they aren’t engaged in those kind of activities. Philanthropic responsibility is therefore more discretionary on the part of businesses (Banerjee, 2007). The responsibilities are following:
It is important to perform in a manner consistent with the philanthropic and charitable expectations of society.
It is important that managers and employees participate in voluntary and charitable activities within their local communities.
It is important to voluntarily assist those projects that enhance a community’s “quality of life”.
The pyramid declares the distinct components that together constitute the whole. Even though the responsibilities have been explained and treated separately, they are not mutually exclusive (Carroll, 1991).
Stages of Corporate Responsibility:
Several theorist use the analogy of a journey when explain How companies define and then develop their corporate responsibility goals (Murray, 2011). Post and Altman (1992) describe the evolution of environmental management, and is the subject of numerous case studies of corporate transformation that set out the steps and missteps taken by individual companies. Whereas, Clarkson (1995), building on others, developed the RDAP (reactive, defensive, accommodative and proactive) framework of corporate responsibilities.
In contrast, Mirvis and Googins(2006) warn that there is no single development pathway, but believe that there is natural progression. Their model build on ideas of behavioural Psychology and posits that companies, like individual, exhibit distinct pattern of behaviour at different stages of development, their activities become more sophisticated as they mature. There are five stages of corporate responsibility:
The company’s corporate responsibilities are episodic, with little senior management support and largely focused on legal compliance.
Top management is more aware of the society’s expectations, there are corporate responsibilities policies and there are attempts to use corporate responsibility in public relation (Marvis and Googins, 2006)
The company broadens its corporate responsibility agenda and is much more involved in owing and stewarding it. Senior management clearly on top of the issue and there is a supportive organizational structure (Murray, 2011).
There is much more internal collaboration and corporate responsibility-typically defined in terms of social and environmental performance-is driven into the line of business.
Values clearly influence business decision, as is the case at the UK’s Cooperative Bank, which report on the business opportunities it has declined for ethical reasons (Marvis and Googins, 2006).
Corporate Social Initiatives:
According to the CEO of Washington Mutual,’’ Since its founding in1989, Washington Mutual has made giving back to the communities in which it operates a top priority, not simply because it’s good for business, but it’s the right thing for the responsible corporate citizen to do. And make to mistake, the result are tangible.
-Kerry Killinger, Chairman, president and CEO of Washington Mutual, in the 2001 Community annual report-
There are six major initiatives under which the most social responsibilities related activities fall. These are following:
Corporate Social Marketing
Social Responsible Business Practices
(Kotler and lee, 2005) argue that a corporation provides funds, in-kind contributions, or other corporate resources to increase awareness and concern about a social cause or to support fundraising, participation, or volunteer recruitment for a cause. For Example, a local program, financial canters in Miami, Florida, helped Washington Mutual sponsor a May 2003 town hall meeting that facilitate community discussions around teacher recruitment, induction and retention. One activity of support included the distribution of 197,000 fliers publicizing the event to parents and Washington Mutual’s banking customers. The meeting aired on a local station, with a reported 40,000 households turned in and more than 10.4 million audience impression generated by this airing and related coverage. [http://www.csrwire.com/press_releases/24193-Washington-Mutual-wins-2003-CRA-Community-Impact-Award ]
Cause Related Marketing:
McWilliam and siegel(2001) have state that cause related marketing creates a reputation that farm is reliable and honest. A corporation commits to making a contribution or donating a percentage of revenue to a specific caused based on product sales. For example, in effort to encourage recycling of used equipment, Dell offered a deal in the summer of 2003: Recycle up to three items of select equipment, such as desktops, monitor, notebook and get 50% off the regular recycling price per unit. Any brands of computer, keyboard, printer, and mouse and fax machine were accepted for recycling. The offer also included a coupon for 10% off any online purchase of software and peripheral products. Preliminary results suggest as much as a 200 percent increase in order per day.
Corporate Social Marketing:
A corporation support the development and/or implementation of a behaviour change campaign intended to improve public health, safety, environment or community well being. For example in March 2003, Dell began offering a new product line, printers and as part of this launch, promoted their new printer-recycling program. When customer purchases a dell printer, they can now recycle their outdated printers at no additional cost and without leaving home. [http://content.dell.com/us/en/corp/cr.aspx?c=us&l=en&s=corp ]
A corporation support and encouraging employees, retail partners and franchise member to volunteer their time to support local community organization and cause. For example, McDonald’s working through owner/operators, employees and suppliers, has a long-time record of helping communities hit by tornadoes, hurricane, floods, earthquake or other disasters. McDonald’s has partnered with American Red Cross and its International Red Cross network to provide food and other support to disaster victims.
Socially Responsible Business Practices:
A corporation adopts and conduct discretionary business practices and investments that supports social causes to improve community well being and protect the environment. For example, in 2002, McDonald’s purchased more than$460 million in recycled packaging materials and reduces its packaging material by an additional 35 million pound.
Corporate Accountability and Reporting:
(Bolton and Benn, 2011) argue that Accountability is diffuse and somewhat murky term. Not only does it have many definitions but it also raises the contentious issue to whom an account is to be made out, to society in general or to the shareholders?
(Valor, 2005, p.196) define accountability as ‘’corporate control that is the establishment of clear means for sanctioning failure’’. Whereas, in (Luo, 2005, p.12) words ‘’ Corporate Accountability is the extent to which a company is transparent in its corporate activities and responsive to those it services’’.
Increasing demand for transparency in corporation’s reports in regard to social and environmental impacts is a result of increased pressure on organization to be accountable for their actions (Cooper and Owen, 2007). There has been various accounting standard are in practice. For example, AccountAbility (AA1000) standard based on the triple bottom line, Global Reporting Initiatives is Sustainability Reporting Guidelines, ISO 14000 is environment management standard). [http://www.accountability.org/standards/index.html]
Corporate Responsibility Reporting can be defined as an approach to reporting a firm activity which identifies measure and reports on socially or environment related behaviour (Benn, 2011).
The measurement and reporting of financial data has long been seen as a core plank of corporate accountability. But problem arise when how to implement accounting system that will incorporate the intangible nature of many social and environmental costs and benefits as well as identify them in relation to lifecycle analysis aspects of production and manufacturing system.
The answer for this problem is GRI (Global Reporting Initiative), which is develop in 1997. It encourages companies to develop sustainability reports supporting the inclusion of social and environmental issue and sometimes financial Impacts. It promote holistic approach to measuring sustainability, The GRI uses both systemic indicators, which relates an organization’s performance to its broader economic, environmental or social context and cross cutting indicators, which relate two or more dimensions of organization’s economic, environmental and social performance as a ratio.
According to the survey conducted by the KPMG which includes the Fortune 250 companies and 100 largest companies , their result show that 80% of the global Fortune250 now release environmental, social and governance(ESG) data in standalone reports or integrated into annual financial reports, up from 50% in the three years.
Benefits of Adopting CSR in Business:
Most health professional promise that if we engage in regular physical activity we will look better, feel better, do better and live longer. Business for Social Responsibility is a leading non-profit global organization providing business with information, tools, training and advisory service related to integrating CSR in their business operations and strategies (Kotler and Lee, 2007). The benefits are the following:
Today corporate reputation and brand image has become more important as markets have become more competitive and corporate image/reputation more vulnerable. Corporations may simply be penalized by consumers and others for actions that are not seen in their eyes as being socially responsible (Smith, 2003). “Corporate image is a result of everything a company does or does not do” (Smith & Taylor, 2002, p.21).
Reputation has become one of the most valuable intangible assets and CSR is an important key component of corporate reputation and brand recognition. Corporations with a strong CSR image/reputation last longer than a corporation without such an engagement (Kotler & Lee, 2005). Companies that last long are those that focus on their reputation (Kay, 1993 cited in McIntosh, et al, 1998).
“The brand that will be big in the future will be those that tap into the social changes that are taking place.”
- Sir Michael Perry, Chairman of Centric PLC
Being CSR is furthermore not only the right thing to do; it can also distinguish a corporation from its industry peers (Smith, 2003). Having a good CSR image by acting ethical and responsible can create competitive benefits such as improve sales, strengthen financial relations, harmonize employee relations & boost recruitment and managing crisis described below.
Today’s customers are not only concerned about the quality or the price of products/ services, but also about the way they have been produced and if the process has harmed the society, its resources or its people. ”Consumers have become increasingly sensitive to the CSR performance of the companies from which they buy their goods and services. These trends have contributed to the pressure on companies to operate in an economically, socially and environmentally sustainable way” (Smith, 2002, p.19). It is not solely what companies say, but mainly what they do.“Actions are more important than words” (Kotler & Lee, 2005, P.81). A strong image originated from a corporation’s actions improves a company’s sales. It also increases its market share and market penetration (Moir, 2001).
Strengthen financial relations:
Being corporate social responsible helps to “raise the corporate profile and to make the organization’s presence known to influential players within financial circles” (Smith & Taylor, 2002, P.19). In other words increasing investors appeal. Investors do not want to invest in an irresponsible and unethical business since those companies are less valued on the market. Therefore investors are more inclined to invest in businesses with outstanding reputation than one without (Smith, 2003). Having a good image/reputation could in addition strengthen the financial relation with governments and NGO’s. And companies could through that gain and maintain legitimacy (Suchman 1995 cited in Moir, 2001). Legitimacy might be seen as a key
reason for why corporations undertake social behaviour and using that activity as a form of publicity or influence (Lindblom, 1994 cited in Moir, 2001).
Harmonize employee relations and boost recruitment:
Having a good image and reputation can attract and retain a motivated workforce. It is a way of keeping the best people within the company and improves their working performance. CSR brings more productive workers and greater employee loyalty. Good working condition and relations cannot only help companies to keep their human capital but also attract new people. Employees typically prefer to work for social responsible firms (Smith, 2003). A study with a national cross section of 1,040 adults conducted by Cone Inc. showed that eighty percent of the respondents
would likely refuse to work for a company if they were to find out about negative corporate practice (Kotler & Lee, 2005). Employees are simply choosing to work for a company that has strong values than for companies lacking those. “An image for being socially responsible adds to an image of being honest and trustworthy. Such a reputation is a major driver of customer and employee satisfaction. It is often correlated with sales growth” (Davies, 2004, p.74).
A good image and reputation does not only boost recruitment, but can also be a real asset for a company in times of crisis. “In times of crises, a company with good corporate image enjoys a presumption of innocence” (Smith & Taylor, 2002, p.31). The desire for companies to improve their risk management is a powerful factor behind CSR. In the 1992 riots in Los Angeles McDonalds23 stores were protected to be vandalized because of their good reputation (Kotler & Lee, 2005). ”Dishonest companies will be unable to borrow, to obtain working capital, or to form stable
business relationships with suppliers and customers. Decency in this sense is not just good for business, it is essential. When it comes to maximizing long-term owner value, honesty is not just the best policy; it is the only feasible policy” (Bakan, 2005, p.68). It is not only accepted to act in a social and responsible way it is today expected (Kotler & Lee, 2005).
Consumers boycotting of company products and services are today increasing for one simple reason; they work. Nikes exposure of sweatshop labour conditions and Shell misreporting of its oil reserves in 2004 and its failure to use its influence to prevent the executions of activist (McIntosh, Leipziger, Jones & Coleman, 1998) are two good examples of how vital it is to have and obtain a good image and reputation in today’s competitive market.
CSR as Business Strategy:
The term bottom of the pyramid (BOP) refers to the poorest people in the world who live on the less than US$2 per day. There are around 2.7 billion people in this situation, more than half of the population of the developing world. The people at this quartile often live in rural areas and deprives of basic necessities like education, food and technology. [www.worldbank.org]
Prahalad (2006) argue that the problem with this group is the social equality, but a problem that provides an opportunity for phenomenal growth in the private sector in which these 2.7 billion people represent untapped potential for multinationals. According to the (Hart, 2005), the only way large corporations can work towards the betterment of society and natural environment and remain economically viable through targeting markets at the base of the pyramid. For Example, product such as mini water purifiers or house hold detergent in disposable mini packs are designed to be affordable for this market and also provide human health and environmental benefits, the firm will be contributing to the overall well being of this sector. While at the same time remains economically viable.
(Ansoff, 1965 ; Barney, 1991) state that strategy is concerned with understanding and addressing issues that impact on a firm's ability to achieve its mission, so that products/services can be produced to meet the needs of the markets it serves through effective resource configuration, in order to build and sustain competitive advantage. In developing business strategy corporations are challenge by following iisues:
(Kotler and Lee, 2005) argue that managers and program planners are challenged at decision related to choosing a social issue, selecting an initiative to support the issue, developing and implementing program plans and evaluating outcomes. For example, defining the company’s corporate responsibility purpose is complicated by the fact that perception of responsibilities differ from country to country. In Germany it is priority that companies provide secure employment, in South Africa, it is priority that companies improve health education and other element of social welfare (Murray, 2011). The major challenges are following:
Choosing a social issue.
Selecting an initiative to address the issue.
Developing and implementing program plans.
Building CSR into Strategy:
Strategy serves as a foundation for a business firm's creation, while establishing its position in the market, its competitiveness and its on-going existence. To achieve these aspects, planning/programming is required in order to craft or formulate and renew/change strategy as conditions warrant (Andrew, 1971; Steiner, 1979; Mintzberg, 1987). In fact, integrating CSR more fully with strategy is likely to be an emergent pattern over time, rather than a time-bound, easily prescribed path (Carlisle and Faulkner, 2004). The Planning /programming largely take place within the context of the six following strategy dimensions.
Firm mission is a “declaration of an organization's fundamental purpose: why it exists, how it sees itself, what it wishes to do, its beliefs and its long-term aspirations” (Barnett, 1996, p.18). Given that mission signal to shareholders, investors, stakeholders and society a given firm’s intent (Pearce and David, 1987).
Porter (1980) identifies strategic groups and industry “clusters”, which are also important levels in the analysis of competition. Industry, strategic groups and clusters are vital to mission development in that they give firms a baseline or starting point for identity (Peteraf and Shanely, 1997). According to Porter (1996), strategy is as much about what not to do, as it is what to do – it is descriptively wrong to suggest that a given firm should address all social issues (Sethi, 2003).For example, a firm with the mission of building the most fuel efficient cars in the world who is, at the same time, dedicating scarce company resources to explore how to solve teenage smoking because it is a social issue, reflects a disconnect between CSR and its mission, and a disconnect between a social issue and a strategic issue for that firm
(Burke and Logston, 1996) argue that CSR should be strategized in the context of what the firm is trying to achieve, which takes into consideration specific actor expectations, industry and other levels of competitive reference (e.g. strategic group). Such an approach is vital to building CSR into strategy in a way that reflects its actual business importance to the firm's mission. For example, some firms signal that CSR is a fundamental purpose – mission – of their existence. As part of its mission, The Body Shop makes cosmetics that do not hurt animals. Here, The Body Shop has addressed a social issue – animal cruelty.
Building CSR in the fundamental purpose of the firm – its mission – does not necessarily happen without proper reflection and understanding of the environment. Andrews (1971) and Ansoff (1980) state that issues that firms must address consist of those that are both internal and external Ansoff (1980) argues that for an issue to be strategic, it must be a forthcoming development at a level of importance such that the issue can significantly impact on a firm's ability to meet its objectives.
There are unmet social needs and social issues which are needed to address on time before they become external. There are techniques like scenario planning; expert testimony and media coverage to analyse and assess unmet social needs. For example, the growing concern of obesity in America was evident in media for at least five years. Furthermore, the expert testimony, such as that of Harvard university’s Walter Willet, explained that obesity was in part linked to the marketing of junk food.(Lawrence, 2004). Now this problem shift from the individual responsibility to external , environmental factor like corporate marketing, As a result of this many fast food have been caught off guard and some lawsuits encountered damaging reputation and costing significant resources(Burros, 2006). But, with proper analysis and assessment problem can be anticipated much early.
A market consists of the set of all actual and potential buyers of a product or service (Kotler and Armstrong, 2005). However, according to Cahill (1997), for a firm to strategically address markets, they must address specific target markets. A target market is a group of buyers for whom an offering should be appropriate and to whom the firm will direct the major part of its marketing time, resources and attention. In order to develop market segment profiles that can be assessed strategically, a variety of variables need to be explored including demographic, geographic and psychographic and behaviorist variables (Bearden et. al.., 2003; Kotler and Armstrong, 2005).
However, an additional variable needs to be considered when assessing market segments strategically; namely, a “social dynamics” variable. Social dynamics refers to the underlying expectations that a given market segment places on the role of business in society currently or possibly in the future. For example, in the food and beverage industry, consumer expectations for detailed nutrition facts on packaging have increase significantly. Similarly, in the apparel industry, more and more consumers are interested in where and how clothes are manufactured given the backlash against “sweat shop” practices, which has implications for manufacturing location, supply chain standards and employee policies. So for firms to more adequately build CSR into strategy, the social dynamics variable becomes important (Kotler and Lee, 2005).
Some scholars have suggested that the sole purpose of any firm is to create value for the customer (Drucker, 1954; Slater, 1997). Although agency theory challenges such a purpose (Khurana et al., 2005), creating value for customers is certainly a strategic function of business. There are two key aspects for creating value for customer.
Customer orientation is defined as the actions designed to understand the current and latent needs of customers in the target markets served so as to create superior value for them (Narver and Slater, 1990). ( Davis, 1999) argue that analysis of unmet social needs and social issues appears to be just as important to the understanding of customer needs as traditional factors, such as age, income, personality characteristics, usage rates, education, price sensitivity and the like. Firms can embrace unmet social needs and social issues as a real opportunity for innovation, by introducing entirely new consumer offerings, developing new processes or creating new market segments directly aimed at fulfilling an unmet social need or a social issue (Schumpeter, 1934; Jacobson, 1992; Hill and Deeds, 1996; Chan Kim and Mauborgne, 2004). In this context, a firm can fulfill its responsibilities by meeting a societal demand, while in the process creating both economic benefit and consumer utility.
Learned et al.(1969) argue that major facet of strategy is concerned with matching internal resources with a changing external environment in a way that enhances organizational performance over time. The important point of departure for resources in a CSR-strategy context rests with resource specificity.
Specificity refers to the degree to which resources are leveraged to capture or internalize at least some benefits for engaging in CSR that are specific to the firm, rather than simply creating collective goods which can be shared by others in the industry, community or society at large (Rumelt, 1980; Porter, 1985). In this sense, firms not only take ownership for fulfilling their social responsibilities, but also capture exclusive benefits that can be of strategic value.
Porter (1980) cites that competitive advantage (CA) is largely concerned with how a firm will compete so as to earn and sustain superior performance. The two dominant perspectives of CA include the:
Resource Based View(RBV)
McWilliams and Siegel (2001) argue that it is possible to pursue strategy focus on capturing a market aim at social dimensions. For example, Whole Foods Market has become the largest retail food chain in the world specializing in health and organic foods. Whole Foods Market is not only meeting the welfare of society but is consistently growing sales and profits.
The main emphasis of RBV is on creating, possibly acquiring and leveraging resources that are causally ambiguous, socially complex, and difficult to imitate and that pass through critical time-dependent stages (Dierickx and Cool, 1989; Barney, 1991; Amit and Schoemaker, 1993). One way to create such resources is through demonstrating responsible management practices with the firm's stakeholders. firms who are able to engage stakeholders beyond market transactions – which can be imitated by competitors – to develop long-term relationships create socially complex, time-dependent resources based on reputation and trust; reputation and trust can enhance the value of these relationships, which is not so easily imitated by competitors (Fombrun and Shanley, 1990; Barney and Hansen, 1994)
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