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Origin And Growth Of Csr Management Essay

Origin and Growth of CSR

“While some authors do believe that CSR is a relatively new concept, CSR is perhaps as old as business itself and in some societies one cannot do without being socially responsible”. (Asongu, 2007).

According to Dick Jones Communications (2010), although the term CSR was not invented until 1953, new studies have shown that CSR can draw its roots back in the 20th century. This thought is also echoed by the famous editor of America’s business magazines, ‘The World’s Work’. From the early period in November 1900, The World’s Work was dedicated to social responsibility in the public interest declared by David L. Remund, a Legacy Scholar.

In 1979, A.B.Carroll wrote that the modern era of social responsibility may be marked by Howard R. Bowen’s 1953 publication of Social Responsibility of the Businessman, which was considered by many to be the first definitive book on the subject. Many writers of CSR also generally agree that the concept emerged in the 1930s and 1940s to finally become formalized with his 1953 publication.

Definitions of CSR

There have been a considerable number of challenges in order to create an insightful and a dynamic definition of CSR. While the concept of CSR has been easily defined by some authors, others have found this task to be a complex one. “The concept of CSR is complicated and, contested and unclear boundaries”. (Lantos 2001; Moon 2002).It is said that the best known literature review of CSR is that of Carroll’s (1999) definitions which can be found in the scholarly literature, dating back to the first formal definition of Bowen (1953), in which the groundwork definition of CSR is as follows; “it refers to the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society”.

“An organization’s obligation to maximize its positive impact and minimizes its negative effects in being a contributing member to society, with concern to society’s long run needs and wants. CSR means a good steward of society’s economic and human resources” (Lantos, 2001). “Corporate social responsibility refers to management's obligation to set policies, make decisions and follow courses of action beyond the requirements of the law that are desirable in terms of the values and objectives of society” (Mosley et al. 1996) .

According to Post et al (1996), CSR implies that a corporation should be held answerable for any of its actions that have an effect on people, their communities, and their environment. In addition, CSR is described as being the responsibility of a company to use its resources in such a way that it can be beneficial to the society and, this can be done by participating as a member of society at large, which will be free of the direct gain of the corporation (Kok et al. 2001).

The universal idea proposed in these different definitions of CSR by different authors is that companies should carry out their business by taking into consideration the social environment, and in turn, they should constructively cater the needs of society, so as to generate a feeling of satisfaction in society at large.

Aspects of CSR (Internal and external environment)

Many scholars and researchers have attempted to investigate into the concept of CSR, but few have focus on its internal and external implications.

As advocated by Audra Jones (2005), an organization should in reality reflect on two perspectives; one which relates to the internal behavior of a corporate and the other which relates to the external corporate behavior. Internal behavior refers to the approach that corporations employ in order to perform their daily main business functions. On the other hand, external behavior refers to a corporation’s engagements outside of its direct business interest and this has traditionally been defined as a corporation’s giving program.

By merging internal and external CSR perspectives, corporations do not assure only financial commitments to their shareholders, employees and consumers, but they also make provisions for social and environment obligations towards the communities affected by their activities.

Through the strategy, ‘Godfather’ Michael Porter, pointed out in 2006 that, “CSR can be much more than a cost, a constraint, or a charitable deed, it can be a source of opportunity, innovations and competitive advantage”. Drawing from this quotation, it can be said that irrespective of the stage of development a company is in, whether growing rapidly or just at the starting out, it should turn to using CSR as a smart strategic tool to win. Due to the importance of CSR, especially external CSR we can argue that, whatever strategy a company is using, an agent of execution within the organization should be established to act as the main coordinator for dealing with the CSR issues, both internally and externally.

CSR or “a commitment to improve community welfare through discretionary business practices and contributions of corporate resources,” (Kotler and Lee, 2004), is by now an essential element for the direct communication of the stakeholder-Company relationships. (Berger et al., 2007; Smith 2003). However, existing research indicates that CSR initiatives are successful in generating returns to the company to the extent that they foster strong and enduring relationships with stakeholders (Waddock and Smith, 2000).

CSR in today business

In recent decades, the concept of CSR has proved to act as a fundamental strategy in order to allow for companies to survive in a ruthless market environment. CSR has become one of the important rules on which contemporary business is built upon. It also remains a fact that many companies, all around the world, are now beginning to see the advantage of putting CSR into practice in their bottom lines. “On a wide range of issues corporations are encouraged to behave socially responsibly” (Welford and Frost, 2006; Engle, 2006).

As maintained by Samuel Abiola (2007) “CSR is understood only from the perspective of business generosity to community projects and charitable donations”. Certainly, earlier researchers have turned up with the fact that companies can benefit from better goodwill by maintaining a nearer arm’s length relationship with their charitable organization, which is in normal contact with the stakeholders (Westhues and Einwiller, 2006). On the other hand, from the viewpoints of Visser, Matten, Pohl & Tolhurst (2007), the perception of CSR is another name held for the belief that due to the ever-increasing number of citizens towards contemporary businesses, they now consider that contemporary businesses have a duty towards society that goes further than their obligations of making and maximizing profits for the stakeholders, especially for the shareholders or financers of the company and this responsibility of businesses is also towards the societal stakeholders which generally include the staff, the customers, society at large, the government as well as the environment. Balabanis et al. (1998) added that a company should be held responsible for any of its actions that has an effect on people, communities and the environment in which those people or communities live.

Nowadays, businesses which indulge in CSR are trying to develop strong and enduring relationships with stakeholders by providing those benefits which have solid footing in the stakeholder theory.

Accordingly, CSR implies that companies do have not onnly financial and lawful obligations, but also certain responsibilities towards its stakeholders that extend beyond these obligations (McGuire and Joseph, 1963). Since stakeholder theory has emerged as an important area of research in the field of business and society, it is regarded as one of the most imperative tenets in today’s organization.

Stakeholder Theory

The literature on CSR and stakeholder theory has been widely embraced by academics and businesses in the 1990s. Writers such as Clarkson (1995), Donaldson and Preston (1995) and Wood and Jones (1995) have specifically focused on the stakeholder view of CSR.

An increased of theoretical development has taken place over the several past years, all related in one way or another to stakeholder theory, and the term ‘stakeholder’ has always been paying great importance. “Corporations today cannot operate alone, but are connected to complex multi-stakeholder networks in society” (Key, 1999; Rowley, 1997; Steurer, 2005).

According to Carroll (1996), the term stakeholder may be categorized “as any individual or group who can affect or is affected by the actions, decisions, policies, practices, or goals of the organization”. Stakeholders can also be referred to as “individuals or groups who have some type of stake in or relationship with a corporation; this can be one of support, influence on or being influenced by the corporation in some way”. (Carroll, 1995; Freeman, 1984; Mitchell et al., 1997).

As stated by Stark (1994), stakeholder theory of the firm is probably the most popular and influential theory to emerge in the CSR area. Stakeholder theory was developed and presented in the 1980s by Edward Freeman. The stakeholder approach begins by analyzing the different groups towards whom the company has a responsibility.

Stakeholder Theory is an explicitly systems-based view of the organization and its environment which recognizes the dynamic and complex interplay between them. It views the company not as a mechanism for raising the stakeholders’ financial returns but instead, as a vehicle of bringing together, controlling stakeholders’ interests and also seeing management as having a fiduciary relationship towards them. Whenever stakeholders are been mentioned, this should not be restricted only to shareholders or investors. A stakeholder consists of many other groups of actors such as suppliers, competitors, local government and so on.

By gathering the work of other CSR critics, Clarkson (1995) found that stakeholders can be classified as primary and secondary stakeholders. He grouped primary stakeholders as those "without whose continuing participation, the corporation cannot survive as a going concern, suggesting that these relationships are characterized by mutual interdependence.” He also considered shareholders or owners, employees, customers, and suppliers, as well as government and communities as primary stakeholders. Capra (1995) predicted that the “web of life” perceive firms as essentially relational, that is, as a "system of primary stakeholder groups, a complex set of relationships between and among interest groups with different rights, objectives, expectations and responsibilities" (Clarkson, 1995).

A study carried out by Agle et al (1999) revealed that stakeholders that possess attributes of legitimacy, power and urgency are perceived as primary stakeholders. For example, in Australia and Indonesia, they identified customers and investors as being primary stakeholders whereas employees, government and suppliers were seen as dormant.

Alternatively, secondary stakeholders were defined as “those who influence or affect, or are influenced or affected by, the incorporation, but they are not engaged in transactions with the corporation and are essential for its survival”. In short, secondary stakeholders are those on which the survival for of the firm is not dependent. These stakeholders do have any influence on the firms but they are not involved in the firm’s daily transactions. Clarkson (1995) lists the media and various special interest groups as forming the secondary stakeholders.

As asserted by Fairness 2006 and 2008 and O’Riordan 2006, one form of contract with stakeholders is known as ‘stakeholder dialogue’. Such a dialogue could offer firms and their stakeholders an opportunity to identify and debate over what each of them consider as ‘appropriate business behavior’ in relation to economic, social and environmental matters. Consequently, firms will tend to attach their stakeholders with their CSR activities.

Stakeholders’ engagement in CSR initiatives.

In fulfilling CSR obligations, organizations are expected to engage with their stakeholders through different types of activities and initiatives. “CSR activities have been seen as influencing the stakeholders of a firm” (Zagenczyk, 2004). CSR is also considered as a stakeholder’s obligation (Maignan and Ferrell, 2003). Stakeholder Theory usually focuses on the different aspects of different players which are normally involved in the Stakeholder-Company relationships.

It is beieved that a company does not exist in isolation. Instead, it depends on a multitude of relationships with its customers, employees, suppliers, communities, investors and others. Stakeholder engagement involves different means and ways of remaining connected to parties who have an actual or potential concern or effect on the company. A stakeholder-oriented approach to CSR emphasizes that an organization exists within large networks of stakeholders, all of which stake claims on organizations (Theaker, 2004).

Andriof and Waddock (2002) claim that stakeholder engagement join together stakeholder thinking with ideas from CSR and strategic networking. Stakeholder engagement has been listed as being the most essential aspect to assess the standard of CSR, alongside other features such as stakeholder commitment, management system, reporting, audit and certification (Tencati et al., 2008).

In the limelight of these two main principles, a stakeholder can be characterized along the following approach: A stakeholder of a corporation is an individual or a group which either is harmed by, or benefits from, the corporation; or whose rights can be violated, or must be respected by the corporation. It is said that a company has primary stakeholders, that is, stakeholders that are significant for the continued existence of the company and secondary stakeholders that are influenced directly or indirectly by the corporation’s decisions (Rosam and Peddle, 2004). A stakeholder-oriented approach to CSR emphasizes that organizations exist within large networks of stakeholders, all of which stake claims on organizations. Within the organization, the interests of these various stakeholders meet and interact with one another and the interests of the organization. When organizations face demands from stakeholders to recognize the importance of CSR, they generally translate those demands into CSR objectives and develop CSR policies for the stakeholders.

Stakeholders perceptions of Company’s CSR initiatives

Maignan and Ferrell (2004) put forward the idea that if companies are expecting to benefit from CSR, “they must intelligently communicate their initiatives to related stakeholders”.

There have been several studies (Bhattacharya and Sen, 2004 ;Sen et al., 2001) which revealed that the perceptions of a company’s CSR initiatives are anything but uniform responses. Even single initiative differs from person to person because each and every stakeholder develops different assessments of such initiatives.

Recent research points out that there are at least two characteristics to these perceptions. First, stakeholders assess CSR initiatives based on the extent to which the initiatives are successful in improving the lives of the future beneficiaries, which are none others than the stakeholders themselves. For instance, according to Du et al. (2008), beneficiaries of a corporate-sponsored dental hygiene program have perceived intention to acquire its company’s product, when they feel that the program is effective in improving theirs and their children‘s oral health. Therefore, stakeholder’s perceptions of CSR programs are the extent to which the program is considered to be effective in benefiting the society and or the beneficiaries.

The second characteristic of stakeholder perceptions of CSR initiatives is attribution. In previous researches, (Ellen et al., 2000, 2006; Forehand and Grier, 2003), it can be seen that stakeholders respond to CSR based on the motives they attribute to the company’s participation in social responsibility initiatives. These motives can be of two kinds (Batson, 1998): firstly extrinsic, in which the company is distinguished as attempting to improve the profits, and secondly intrinsic, in which it is seen as acting out of a genuine concern for the essential issue.(Lichtenstein et al., 2004). Moreover stakeholders are often broadminded of extrinsic motives which may be due to the fact that extrinsic motivations often provide stakeholders with functional benefits that are highly valued.

In addition to the outcome of functional benefits, stakeholders, such as employees can also derive psychosocial benefits as a direct result of their knowledge or participation in their employer’s CSR initiatives. (Bhattacharya et al., 2008) .As a result of CSR, stakeholders can also achieve values. Values are of particular interest because when stakeholder achieve desirable values through CSR initiatives, they are likely to identify with (Bartel, 2001; Sen and Bhattacharya, 2001), and trust the company (Bhattacharya et al., 2005) which are indicators of the quality of their relationship with the company.

As a fact, much empirical research has embarked on to examine what determines the achievement or failure of stakeholder-company relationships. This has been done by scrutinizing both the characteristics of the company as well as of the precise groups of stakeholder along with the nature of communication connecting them (Pfeffer, 1981; Jensen & Meckling, 1976; Morgan & Hunt, 1994; Williamson, 1975, 1985; Parsons, 2001).

Empirical evidence From Iran on “Stakeholders’ Perceptions of Corporate Social Responsibility” depicts that CSR means various things to various stakeholders, but in general it refers to protecting society at large and the environment in an approach that goes further than what is legally required of a company.

According to the survey, there prevails an expectation gap between the present and the predictable level of CSR from the perspective of stakeholders. Therefore, in such a case, the majority of stakeholders search for higher CSR. Conclusively, the authors found, from the opinion of third parties, that Iranian corporate sectors have very less CSR. Hence, it not only tarnished third parties confidence but corporate performance as well.

According to Al-khater and Naser (2003), CSR is imperative to different users of corporate information such as employees, customers, local community, government and its agencies, pressure groups and society as a whole. Therefore, it can be said that in the study, an attempt was made to examine the actual levels as well as the perception levels of various user groups in Iran regarding CSR. Different user groups such as external auditors, internal auditors, accountants, bankers, investors and academics participated in the survey. According to the result, in almost all statements there was an expectation gap between the actual level of CSR and the expected level among the participants. The results of the survey can be considered as an evidence for the Iranian corporate sectors which had paid attention to CRS. However, according to the perspective of third parties, it is very far from the expected level. In addition, the authors reach to the conclusion that if such conditions persist on the part of Iranian corporate sectors, this will hinder not only the stakeholders’ benefits but the corporate performance as well. Therefore, to avoid such impracticalities, the Iranian legislators should force corporate sectors for following more corporate responsibilities at large scale.

In many empirical and conceptual works, it has been highlighted that developing and maintaining relationships are desirable objectives for both the stakeholder and the company. (Dwyer, Schurr & Oh, 1987; Wilson 1995). Therefore, together with the Stakeholders perception, the quality of stakeholder-company relationship also is an essential component in determining how CSR benefit stakeholders.

Stakeholder-Company Relationship quality

According to Waddock and Smith (2000), CSR is, among other things, the most important stakeholder relationship-building activity and the success of CSR initiatives is based upon building strong and long-lasting relationships with stakeholders (Clarkson, 1995). The definition of relationship quality in accordance with Palmatier et al.’s (2006) is known as the “overall assessment of the strength of a relationship, conceptualized as a composite or multi-dimensional construct capturing the different but related facets of a relationship.”

It is acknowledged that the quality of the stakeholder-company relationship is influenced by the degree to which the stakeholders acquire benefits from the CSR activity as well as the nature of these benefits. When stakeholders learn about or participate in CSR initiatives sponsored by a company, it sets in motion reciprocal exchanges of information and action that can strengthen the relationship among stakeholders and company.

Based on preceding research on relationship quality and CSR, there are four main types of stakeholder-company relationship quality, sorting from the strongest to the weakest. These are identifications (e.g. Berger et al. 2006; Maignan and Ferrell, 2004; Sen and Bhattacharya, 2001), commitment (e.g., Morgan and Hunt, 1994), trust (Morgan and Hunt, 1994), and satisfaction (e.g., Crosby and Johnson, 1999).

As indicated by Dutton et al. (1994), identification can be defined as a “cognitive link between the definitions of the organization and self”. Identification is improved by means-end benefits related to CSR because when stakeholders gain benefits from CSR initiatives, it signals to the stakeholder that the company understands their needs and is therefore “like them”. In case where the company and stakeholder relationship is not a close one, such as stakeholders having limited communication with the company, the relationship quality may be manifested as increased levels of trust and commitment rather than identification.

As stated by Morgan and Hunt (1994), trust is a perception of “confidence in the exchange partner’s reliability and integrity”. Moreover, trust is closely associated with commitment which is defined by Moorman et al. (1992) as “an enduring desire to maintain a valued relationship”. Commitment, in turn, means that stakeholders hand over resources to the relationship over the time because of psychological attachment to the organization (Gundlach et al., 1995).

Overall, stakeholders will want a long-term relationship between themselves and the company due to the increased levels of trust and psychological commitment in order to maintain interaction with the company. Therefore, by engaging in the CSR activities, companies can find out the perceptions of stakeholders in the form of benefits and, consequently, these benefits will have a direct influence on the quality of stakeholder-company relationship.

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