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Corporate Social Responsibility Advantages and Disadvantages

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Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.

Published: Mon, 05 Feb 2018

Abstract

The report is endowed with detailed and exhaustive information about the essential for corporate social responsibility and reporting. The report draws from corporate social responsibility and reporting literature in other to conclude and recommend appropriately to businesses and authorities. Different theories (CSR-: Integrative, Instrumental and Ethical; CS-reporting:- Legitimacy, Political and stakeholder) theories were taking into consideration and compared with practices of organisation using case studies and secondary researched information.

One of the most important information emphasised on in the report was the need to understand who organizational stakeholders are, and understanding their needs in other to report legitimately to them. Cases from researched articles were drawn to compare with what authors said, and case of British Airways was also highlighted for its reporting contents. Case studies from Anglo and M&S were also employed to compare with theory.

The conclusion stated that the engaging in CSR is still vital for both economic and social and physical reasons and the benefits of participating outweighs the cost which may involve fines, loss of reputation. The social reporting concluded that it legitimate to report activities as it a huge step towards accountability and more importantly enhances trust. The GRI guideline was recommended as the best reporting guideline to employ for businesses and authorities as it the most widely used standard.

Chapter 1: Introduction

1.1 Introduction to subject

In spite of the vast amount of literature on corporate social responsibility and reporting, this area of study maintains it multifaceted, intricate and constantly developing conception which constitutes of diverse practices and theories. The last 20 years through increase in technology, globalization and global warming as seen more light shed on CSR and reporting.

Globalization has erected diverse kinds of markets for companies and also enhanced competition. Many large organisations today are taking unprecedented move from one country to another with cost been the prime driver. Profitability is the main objective of corporation as they seek greener pastures (cheaper resources and Cheaper Labour). This objective is usually met through large layoffs which arguably can be considered unethical.

Global warming has also played a critical role in enhancing CSR. Many practices of large corporation have come under intense scrutiny. Oil companies, Mining Industry and airline industry are all examples of companies that are influenced by CSR practices. People are becoming more environmentally friendly and this has affected the way many organisations operate. The subject of customer’s needs and satisfaction in many business practices now includes CSR as customer’s daily decision is influenced by this.

The research will tackle the essentials of CSR and reporting and explore the benefits and drawbacks of CSR and its reporting to businesses that engage in this activity.

It highly essential to clarify that the research does not seek to produce a generic right or wrong view to the many questions about CSR but seeks to produce it own argument from relevant empirical evidence which has been carried out by academics.

1.2 Aims & Objectives, structure of project

Aim of this project is to extensively explore the imperatives for corporate social responsibility and reporting and make recommendation to parties such as authorities and businesses who are undecided about his subject.

The objectives are:

  • To gain a comprehensive understanding of CSR and it effect on Public Sector, Private sector and Emerging economies
  • To explore the case for and against CSR and also discover its effect on organizational performance
  • To research in depth previous literature on CSR and reporting and compare with case study, secondary findings and draw appropriate conclusion

Chapter 1:- will give a depth introduction to CSR and how it has involved and some of the factors that has brought this subject to attention. It will also include how CSR is perceived in different sectors such as Private, Public and Emerging country.

Chapter 2:- will draw from academic sources and present the case for and against CSR. It will examine both side of the argument and show how debatable their findings are. It will also use examples to fortify statement or beliefs researched by authors

Chapter 3:- will build on chapter 2 and present theoretical assumption that academics have presented. It will show models, concepts and also argue them against other approaches illustrated by academics. Most significantly it will bring both opponents and proponents together to battle their findings.

Chapter 4: will also build on chapter 3 and will compare practices of organisation to what the theory state. It use both secondary research materials and case study and compare it to what academics have found out

Chapter 5 & 6: this aspect covers the corporate social reporting and examines what authors and academics have stated about this subject using theoretical backgrounds to compare what practices by organisations.

Chapter 7: methodology would show how this research was carried out, some of the resources used to carry out the research and why this research best fit this project

Chapter 8: will evaluate both chapter 3 and 4 and would present an appropriate conclusion and recommendation building from what has been found out in the main report.

Chapter 9: will show the references list from reference in text.

1.3 Corporate Social responsibility

According to Crane, Matten and Spence (2008) CSR is still a debated theme among many businesses and institution. They continue to write that CSR has evolved over the years and has become a key issue in every industry. Many academic hold different views on CSR, some believe that CSR is just a “superficial window dressing”, it just another medium through which large companies hide their mischievous deeds whilst appearing to be responsible.

Matten and Moon (2004) companies are realizing that in other to maintain it operations, they may have to abolish some practices such as Environmental pollution and violation of human rights as a result of growing pressure from media and regulation from government. Typical examples of companies are Oil and Chemical companies.

Crane, Matten and Spence (2008) discovered that other industries such as tourism and retail are encountering a high demand to ensure lawful practices to the environment through their business operation. This industries where previously considered to be sanitary, but face continuous pressure to legitimise their practices.

There are several millions of articles and journals that deal with CSR all giving different definition to CSR. The past couple of years according to McWilliams, Siegel and Wright (2006) have seen an agreement in most definition of CSR compared to previous years where definition has been exceptionally broad. Previous academic Davis (1973) cited in Spence (2008) addressed CSR as “the firm’s consideration of, and response to, issues beyond the narrow economic, technical and legal requirement of the firm”. Years later, Caroll (1979) cite in Spence (2008) took a broad approach to his definition which state “the social responsibility of business encompasses the economic, legal, and discretionary exceptions that society has of organizations at a given point in time”.

Current definition seems to have taken a different route to a generic view such as Brown and Dacin (1997) define it as “status and activities with respect to its perceived societal stakeholder’s obligation”.

As seen above, there are different complex definitions stated by different authors on CSR. In this research, the aim is not to use any of the definition or create another view or definition of CSR, the research will intensely evaluate and recommend to businesses and authorities based on empirical evidence made available by academics.

1.4 CSR & Private Sector

The private sector consists of large organizations to Small medium organizations. Brammer and Pavelin (2005) these organizations also play a critical part in CSR. According to Grayson and Hodges (2004) there is a notion that CSR is accustomed to large organizations who are owned by shareholders; they write that one of the key reasons for emphasizing CSR from the perspective of large organization is that, it raises the question on interest. Should the company be run on shareholders interest or from the perspective of the environment such as communities and customers?

Husted and Allen (2006) argue that large organizations compared to SME face higher scrutiny from public due to their visibility. Therefore, CSR policies may have to be imbibed in the organizational code of conduct to create a structured approach for employees to adhere to.

However SME as illustrated by Graafland, Van de Ven and Stoffele, (2003) present a dissimilar representation. Their study, as shown that 20 of Small Medium size Enterprise detailed their information on CSR operation compared to 62 percent of large organizations.

As further discussed by Spence (1999) chief reason for this is that SME are mostly run between a small number of people whom the manager entrust essential decision to. Therefore an informal approach to CSR will be seen compared to approach by large organization. Compared to large organization who are open to the public as a result of their size, SME are normally small and their relationship (business) are usually between manager, supplier and employees. This relationship as shown by Spence and Schmidpeter (2002), are highly imperative as good personal relation and trust in this context can be identified as CSR.

1.5 CSR and Public Sector

Agencies and government organization are examples of public sector who also encounter similar pressure to act in a socially responsible manner. Such examples according to Seitandi (2004) of this pressure are better equal opportunity and conscientious sourcing. He also noted that both public sector and private sector engage in similar CSR policies.

Gardner (2006) CSR within the public sector has immensely grown over the last few years. Chief to this growth are Schools and Hospitals who are obliged to social objective and needs. This has enhanced the need for greater accountability with the public sector.

Crane and Matten (2007: 488-498) write that government initiative in CSR is steadily increasing beyond it operation as bold steps are being taken to promote CSR related issues within among the public. They also noted that CSR is a voluntary act, therefore incentives and other benefits have been created by government to employ more businesses to get involved and espouse more socially responsible practices. An example of this as written by Moon (2004) is the UK government who have persuaded CSR among the British companies with initiatives such as Academy of CSR (training employees on CSR constantly) and Ethical trade (practicing fair trade).

The European Union has also invested a large amount of effort to promote CSR within the environment. This has met several restrain as CSR in EU can still be considered as an “Anglo-Saxon” idea as noted by Commission of the European Communities, (2002)

Ball (2004) finally, as there has been a continuous demand on private sector to asset more accountability in their reporting towards the public, so as also there has an increase in the public sector using some of the mechanisms for CSR e.g. social reporting to enhance more accountability to the public.

1.6 CSR & Emerging Economies

CSR in some emerging economies tend to take a very different approach. Crane, Laura and Spence (2008) argue that Russia and China are typical examples of economies that possess a classic approach to CSR. They write that Russia regime of privatization and switch to capitalism has stirred a shady and crooked government which has affected the concept of CSR in Russia. Grafski and Moon, 2004) in most popular places Russia, CSR is virtually an unknown concepts. China approach to CSR is quite different to Russia, even though it government still plays an immense role in directing and policing the economy: businesses have made effort significant effort in acting in a socially responsible manner. Some examples of action taking by Chinese businesses are endeavouring to build schools and housing for the less privilege in local communities. Miller (2005) depicted that CSR within the few years in China will rise due to it constantly growing economy.

Chapter 2 Literature Review

2.1 Introduction

Dyllick and Hockerts (2002) noted that there are two types’ of views when considering the debate about CSR. Authors with a narrow perspective on CSR strongly believe that the organization is not obliged to any society activities as far as it continues to pay rent which creates economic substance to stakeholders. Authors with a broad view contend that the organization through other means should certainly subject itself as an instrument of public policy

2.2 Case for CSR

The argument proposes that organization can benefit from an environment that is acting in a socially responsible way. An example is the reduction in crime has money will be invested to enhance the security of business properties. In conclusion, a good society will produce a good business Davis (1973) cited in Crane, Laura and Spence (2008). Generation of psychologists such as Likert (1961) also suggested that a key part of CSR is including employees in key decisions and business operations. All barriers that make employees feel alienated should be abolished as this can propel more money for the organization.

Brown and Fraser (2006) contend that engaging corporate social responsibility has more benefits to organizations and authorities than its total cost and strongly emphasis the need for organizations to embark on CSR for a good economic interest.

James and Maurrasse (2003) in their research in businesses discovered that companies who engage in social and environmental program to better their community possessed a higher financial rewards and better positioning in the market. He argues that it is a necessity for businesses who wish to expand with better reputable perception to engage in CSR.

Manning (2004) report highlighted that companies who are successful hold traits of CSR in the strategic goals. They understand the need to better their community, communicate with the public which can seal trust and avoid environmental and social pollution. He writes that organizations who fail to engage in CSR miss an a strategic avenue to re-affirm their position in the market

2.3 Case against CSR

Opponents of CSR place emphasis on trusts as major reason why corporation cannot be adhered to Vogel (2005). Cheit (1972) calls it “Gospel of social responsibility” created to enhance the power of owners through non-managerial system. Cheit also considers it to be all about organization “talking the talk” and not “working the work”.

2.3.1 Capabilities

Theodore Levitt (1968) argued that business owners and managers are not fully equipped to handle social related issues due to their nature of work. He cited that CEO’ are expert at their field not a social related issues as immense time and hard-work has been dedicated to his field. This has made the business person independent from the environment around.

Other major academics contend that the course of organization which is channelled towards effectiveness and efficiency will affect the business from dealing with social difficulties and needs.

2.3.2 Organizational Structure

Moir (2001) due to the scenery of culture, structure and regulations, it argued that social responsibilities may not be do-able in business organization especially large conglomerate. This is one of the most stinging assault on CSR.

Baron (2000) claim that CSR cannot function appropriately as organizations are solely designed to erect the very problem (social responsibility) they desire to cure. He concluded by stating that “inexperienced and naive” is the word used for proponents of CSR.

2.3.3 Social Goals are evitable

This attacks stems from that organizations are not obligated to seek social goals. Hill, Stephens and Smith (2003) condemn proponents by stating that organizational managers are deficient of social awareness as they are elected for business purposes by shareholders and therefore possess no legitimate obligation to seek social needs or objectives. Strom (2002) write “At whose command”. He stated that a representative body should be appointed for this purposes not business parties.

Critics of CSR Bronn & Vrioni (2001) question the value that will be imbibed in social responsibility decisions of organizations. Will organization concept affect this socially responsible act?

“Dangers of Social responsibility” a paper written by Levitt (1958:44) cited in Crane, Laura and Spence (2008) highlighted that it “a strong urge which is driven by guilt that has stirred major organizations to re-think “Cultural, Social, Political and Institutional topography of society”.

Vogel (2005) outlined another essential argument, when he stated that the economic role of organizations will be immensely impinge on if CSR is taken on board as the competitive position of the firm will be weakened, through given shareholders wealth away instead of investing it in project with a high net present value.

Sahlin (2006) who possess a highly pragmatic view on CSR, questions who the organization will be responsible to? Employees or Customers? May supporting a part of the business community cause deficiency to another? why should hard-earned money be given to “customer”? This certainly illustrates a lack of clarity on the word “social” and also a clear definition of what “responsibility” is.

Liston-Heyes & Ceton (2007) noted that companies in the United states who operate within a government that is liberal tend to engage in the distribution of corporate profit, compared to its competitors that operate within government that are less liberal. It’s therefore theoretically possible to conclude that political and legal purposes are affected by CSR.

Niskonen (1971) argues strongly that some businesses use CSR as means to influence society standards and meet their needs. This may be done through direct political influence. De-Winter (2003) cites the example of multi-fabber the textile company who protected players in it sector instead of regulating them. The company did this by relinquishing key decision making to labour unions and companies such as GAP and Primark whilst at the same time simultaneously maintaining its power and growth in the textile industry. The company’s primary act was to prove ethical but the hidden process was unethical.

Strom (2002) directed his argument at firms who use their social awareness as an instrument for competitive advantage. An example of this act cited in Devinney (2008) was the mining company which indicted its multinational counterparts by exploiting it attained “reward on CSR position” to downside other competitors in the industry through parading measures that will impede the value of other mining firm and then approach them for takeovers at discounted price. Strom writes that “is the technique to CSR morally right?” In accordance with Bierce (1911) “pursuing private interest through public means”.

Maloney & McCormick (1982) research in the Unites States on the “Clean Act Regulation” further supported Strom (2002) evidence. Their research highlighted that although the “environmentalist” were favoured in the statutes and rules set by governing agency, it was erected in a way that will prevent new entrants from coming in the market. This gives an advantage to those who are already up and running as new entrants will be required to meet rigorous and expensive criterion. This research was further corroborated by Dean and brown (1995)

Lantos (2001) cited in () business are not built to act as delegate to the society. The impoverished and deprived are not responsibility for businesses neither is the society. Devinney (2008) affirms that unless there is an unequivocal profit opportunity, businesses will tend to be reserved on social matters. He also argued that businesses engage in product experimentation, but will boycott any social experiment. He cited the example of companies in the southern part of America who do not participate in any experimentation with sexually oriented groups e.g. Gay.

Friedman (1970) observed a good example of this argument among the Swedish government who when asked about the financial guarantee for Saab motor company, stated that “nursery schools, police and nurses is why voters voted me not to buy car factories going bankrupt”. This re-affirms the role of managers to the business and government to the society cogoi (2006)

2.3.5 Does CSR affect Performance?

There are various literatures on the connection between CSR and performance. A variety state that is difficult to measure what aspect of CSR can affect corporation performance Schimdt & Rynes (2006)

firstly there are not clear signs that acting appropriately by showing good behaviour influences the length of businesses value. This can be seen from two points of view.

From the financial market outlook, stambaugh and Levin (2005) argued that between 1% and 2.5% of corporations that are enlisted on the “ethical indices” lose their value compared to other competitors as a result of “anti-liquid trading effect”. A different approach was also used by Ter-host & Zhang (2007) they also achieved a similar result.

Devenney (2008) stated that the value of equity may not be affected by who possess the equity when trading effect is absent. He cited that the example of COIPERS who chose to remove tobacco from its portfolio. After this move, it did not affect the “operational” performance of the firm, despite it costing pension holders $700 million.

Chapter 3: Corporate Social Responsibility – THEORIES

3.1 Introduction

The arena of CSR maintains its broad, complicated and debatable position. The last ten years has seen a surge in research on CSR than ever before. This surge has created new vocabulary, hypothesis and assumptions on this subject. Some of the new vocabularies used in conjunction with CSR are corporate governance, corporate accountability, and sustainability development. Wood and Logdon (2002) also established corporate citizenship.

Diverse approaches to CSR have enacted different theory. Votow (1972) write that CSR possess different meaning to different individuals. Federick (1998) discussed four theoretical stages associated with CSR:

CSR 1 theory – “Ethical – Philosophical concept”

CSR 2 theory – “Action-oriented managerial concept”

CSR 3 theory – “Ethics and valued base on normative element”

CSR 4 theory – “Effects of science & religion”

Another academic who contributed to this discipline was biummer (1999) who introduced four types of theory from six criterions (Intention, relationship to profits etc). His theory was widely criticized because it breadth and depth was limited.

For the purpose of this research, the most significant theories will be used and explained to attain more depth on CSR as stated in our objective.

In addition to the work of Parsons (1961) Crane, Matten and Spence (2008) developed four different theories that can be connected to the political, cultural and economical aspect of CSR.

Instrumental theories – these theories consider business as a vehicle for wealth. They believe that businesses will only relate with the society if there is an avenue for profit. Theory also state that the only mutual relationship that business has with the society is for economic substance.

Political theories – these theories buttress on the power of the organization socially. Its emphasises on the role that business hold socially and its duty in the political field.

Integrative theories – these theories stem from the notion that organizations most include the needs and objectives of the society. Its strongly state that since organizations need and depends on the society at large for profitability and growth, therefore society in return should considered when making decisions that may affect it.

Ethical theories – these theories realizes the connection with CSR and Ethical values. This theory dictates that business must perceive and accept CSR from an ethical perspective.

3.2 Political theories

The focal point of this theories deal with how organisation and society interrelate and the influence the organisation possess. Smith and Higgins (2000) write that there are two significant approaches amongst other approaches that can be drawn from this theory.

3.2.1 Corporate Constitutionalism

One of the first academic that researched on this subject was David (1960). He extensively examined the part of influence that organisation holds in the society and the result of their influence. He writes that this influence is critical when debating on the subject of CSR. His understanding holds firm on the notion that companies are “social institution” and appropriate use of the influence in the society is indispensably important.

The idea of companies participating in the society solely for maximization of wealth Davis (1960) disagrees with Bethoux, Didry and Mias (2007) which is the economic theory. “The social power” and “Iron law of responsibility” where the two standards that Davis (1967) established to show how firms can administer their social power. Iron law of responsibility refers to companies who misuse their social influence. He writes companies who misuse their social influence in a way that not appropriate to the society will end up losing their overall influence and a responsible party will fill the gap left void. Social equation according to Davis (1967, pg 48) cited in Spence, Matten and Dirk (2008) refers to “social responsibilities of businessmen which erects from the power they possess”

Davis noted that the balance of social influence and responsibilities must be thoroughly appreciated and recognized by organizations and business owners. In light of this, he discards the notion of “no responsibility of businesses”. Davis (1967, pg 68) extensively argued that constituency entity possess the ability to pressure organisational functional power. In addition, he stated that this entity posses similar ability that “government constituency” hold but differ as they do not obliterate the influence or power the organization hold but channel them in a way that it can be used for the benefit of the society.

3.2.2 Corporate citizenship

Several factors which range from globalization to enhanced technology have given rise to this new notion. In concurrence with Andriof and McIntosh (2001), these factors have given organizations more power socially and economically than governing bodies.

Matten et al (2003) established three perceptions on corporate citizenship as different individual’s posse’s different interpretation of this conception. Matten et al (2003) the first one is the “limited view”- from this view corporate citizenship is employed similarly to social activities, investment or when the organization embarks on community project. Second, the “equivalent to CSR view” carol (1999) outline that “corporate citizenship” from this perspective illustrate the duty of organization towards the society. Third, “extended view” matten and crane (2005) this view stem from the notion that as a result of failure to protect right “citizenship” by major institutions such as government bodies, organizations may have to step in to “protect citizenship”. Authors such as Dion (2001) and Duffer (1994) admittedly write that corporate citizenship portrays the duties of organizations towards the community. They hold that corporate citizenship to organization is partnering with local community to better the environment.

3.3 Instrumental theories

The approach this theory takes is somewhat different from other theory listed above. The instrumental theory believes CSR is only a stratagem for business which will eventually lead to the maximization of wealth for shareholders. One author who distinctively supported this was Freidman (1970) he stated that “the only responsibility of business toward society is the maximization of profits to shareholders”

Windsor (2001) achieving profitability objective means taking into consideration the interest of stakeholders. Mitchell et al (1997) argued that when the concern of stakeholders is met, it can aid in increasing value for shareholders. In light of this, several researches has been done on the relationship between financial performance and CSR. Key and Popkin (1998) and Roman et al (1999) both carried out major research and identified a positive relationship in financial performance whenever a company engages in social responsibilities.

However, Griffin (2000) pointed out that such research done between CSR and CFP should be examine more extensively as they can be difficult to appraise. Instrumental theory can be identified and divided into two main groups according to Spence, Crane and Matten (2008):

3.3.1 Maximize value of shareholder

Rowley and Berman (2002) maximizing return for shareholder is primary reason to invest in any social obligation or needs. They continue in stating that an honest investment should be made to benefit shareholders and if any weighty cost may affect the firm, the project should be discontinued. Friedman (1970) cited in Spence, Matten and Dirk (2008) gave a typical example where he stated that it will benefit a business that is situated in a small community to dedicate essential resources to the community. This enables the firm draw potential employees, build good image and loyalty with public and possibly reduce “wage bill”.

3.3.2 Tactics for attaining competitive advantage

Husted and Allen (2000) Examine how business can attain a competitive advantage and meet it “social needs and Goals” through allotting it resources. Two major approaches where discussed

Investing in a socially competitive context

Porter and Kramer (2002) strongly argue that in other for a company to sustain its competitive advantage, investing in benevolent or charitable movement is essentially required. They concluded that this action can enhance the value of a company socially. Burke and Logsdon (1996) noted that greater wealth and other key benefits are received by the company who employ charitable activities together with the goal of the organization.

Resource based view – dynamic capabilities

Barney (1991) introduced human capital, physical resources and knowledge as essential prerequisite for an organisation to possess a competitive advantage over its rivals. This according to Barney is the resource based view. Teece et al (1997) presented a different approach to “dynamic capability”. He discusses factors such as innovatively, development and tactics behind resources used to create competitive advantage. From this perspective, petrick and Quinn (2001) and Hillman and Keim (2001) developed a social and ethical resource capabilities which firms can use to gain competitive advantage. They propose that firms can posses an added advantage by enhancing their relationship with key stakeholders such as suppliers, customers, communities and employees.

3.4 Integrative theories

One of the first academic that carried out an extensive research on these themes was Preston & Post (1975). He noted that these theories examine how organi


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