Corporate Social Responsibility Advantages and Disadvantages
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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
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”.
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
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 organisations amalgamate with the societies. He discussed that organizations generally rely on society for its survival, performance and expansion. In light of this, he argued that organizational management should incorporate social needs in its daily operations and decisions. One essential point drawn from this theory is:
3.4.1 Integration & Necessity of stakeholder administration
Emshoff and Freeman (1978) cited in Crane, Matten and Spence (2008) was one of the first academic to research this discipline. He write that organizations should place more emphasis on “stakeholder” and community at large who affected by decisions that the organisation conclude. He disagrees with the notion of “public responsibility” by Lockett, Moon and Wisser (2006). He disclosed two beliefs that fortify the “stakeholder administration”. First, collaboration should be established as the primary aim between stakeholder and goals of the organisation. Second, he stated “effort” is the main stratagem for dealing with stakeholders. Through effort, other problems with stakeholders groups are resolved.
Ogden and Watson (1999) also noted that stakeholder's administration is incorporating key stakeholders groups who are affected by company decisions into “managerial decision making”. Berman et al (1999) keeping a channel of communication with stakeholders eradicate any indication of uncertainty from the environment. Kaptein and van tulder (2003) cited in Spence, Crane and Matten (2008) also included that It “not only enhances company's sensitivity to its environment but also increases the environment understanding of the dilemmas facing the organisation”.
3.5 Ethical theories
Alford and Naughton (2002) the focal-point for these theories is on the “ethical Requirement” that seals the strengths of the organisation and the society. These theories explore the need to attain an upbeat society imploring organisations to establish the right thing. Two approaches have been taking into consideration from major academics:
3.5.1 Sustainable development
The idea of “sustainable development” has become very popular after the 1987 united nations meeting published a report called the “Brundtland Report”. It outlined that “Sustainable development” strives to “meets the needs of the present without compromising the ability of future generations to meet their need” World commission on environment and development (1987)
Spence, Dirk and matten (2008) commented that the difficulty in “sustainable development” is when businesses have to create the right tactics or stratagem to employ it efficiency. Nevertheless different academic have recommended solution to the difficulty that commonly arises.
Stead and Stead (2000) recommended a practical notion on broadening the famous “bottom-line accounting” which reveals the total profit (net) to “triple bottom line” which will take account of social, environmental and economical phase of businesses.
Van Marrewijk and Weire (2003) proposed a different view from stead and stead (2000) they propose that business sustainability is a bespoke procedure therefore, businesses should decide on appropriate goal and method for the sustainability. Final decisions on sustainability should be in ally with business scheme and goals.
3.5.2 Common good
Alford and Naughton (2002) argue that businesses are part of the society just like any other group and should add or give back to the society. In light of this, Fort (1999) write that organizations should be good ambassadors of the society and avoid engaging in activities that will harm the society.
Mele (2002) organizations add to the “social well being” of the society and create a choral environment presently and also for the future. He concluded that through providing goods, services and social programs etc, organizations contribute to the good of the society whilst respecting the differences in cultures and norms than govern different individuals.
Goodpaster (1999) commented on the Japanese “kyose” which interpret “living and working together for common good” is also similar to the common good idea. He buttressed that the common good idea is also similar to the sustainability development but differs from a theoretical foundation
Chapter 4: Analysis and discussion
Under the integrative theory, Emshoff and freeman (1978) and Ogden and Watson (1999) discuss the importance of incorporating stakeholders in company objectives. They claim that decision that organizations make affect key stakeholders and therefore it essentially important that stakeholders are included in strategic decisions. One of the vital case studies that support this view is the American mining company “Anglo American pl”
4.1 Case Study 1 Source: Article 13 (no date)
Anglo America functions in Asia, Europe and African. The firm holds its position as a major leader in the mining industries. The firms work requires it to extract natural resources which can have a negative impact on the environment; it also believes that through resources it can also create a positive influence to its environment and stakeholders. Anglo America commits itself to better environmental reputation when its join groups such as (VPSHR) “voluntary principles on security and Human Rights” and “UN global impacts”. One of the programs the organizations introduced to help secure communication with stakeholders was (SEAT) “social economic assessment toolbox” which will give the firm the “social license to operate”. This program enables the company to obtain and preserve the “trust” of it stakeholders via better organizational management “social and economic impacts” and “environmental stewardship”.
The program SEAT possess several steps for Anglo American as it gives a rough overview to its stakeholders on any social or environmental Anglo American operation that the firm is likely to undertake. It also gives detailed information on who is responsible and accountable for certain operation, matters that may affect local resident and who they can report local concerns to. This program by Anglo America has lead to a success as a number of enterprises have been established in Chile due to its partnership with local members. Other countries where this program has been introduced as seen a more concerted mutual relationship with stakeholders because it has enabled Anglo America to find out what the concerns of locals are and initiate appropriate strategies to deal with this issues. Anglo America write that SEAT program has bettered organizational management of community matters such as jobs recruitment schemes, housing difficulties and health matter such has HIV.
Based on Berman et al (1999) argument on communicating with stakeholders, Anglo America through communicating with its stakeholders in a translucent and methodical way is announcing the total accountability and survival of its business is dependent on its stakeholders. Some of the benefits that the firm has attained are:
- Better reputation as a company
- Clearer and improved understanding with key stakeholders
- Suppliers locally are available for business operations
- Fortified authorization to function as a firm without any difficulty.
The political theory (corporate citizenship) by authors such as carol (1999), Dion (2001) and Duffer (1994) argue that corporate citizenship shows the duties and responsibilities that companies holds towards the community. Marks & Spencer case on CSR strongly supports this notion
4.2 Case Study 2: Source: Article 13 (No date)
Marks & Spencer which hold values such as innovation, quality, trust and services has over 360 stores in the UK and 150 stores outside the UK. The organization provides both products and services ranging from food, electrical, clothing to financial services. CSR from the perspective of Marks & Spencer is based on “trust”. The firm believes that the only way to create a successful longetivity is to hold a good relationship with it employees, customers and suppliers. Marks & Spencer community program is centred on employment, after it carried out research about its community programme, both staff and employees stressed on the importance of employment. This new initiative enabled Marks & Spencer to partake with other local businesses which created 600 work experiences for people who were homeless all over England and Northern Ireland. The program did not focus solely on homeless people. Other parties involved here where disabled people, unemployed people and student from schools within the age of (14-16). The purpose of the programme was to give these entities the experience and confidence to attain employment. Expenses and lunch was covered during this programme. The experience constituted of the following stages-: Pre-employment training- Marks & Spencer give aid to charity organisation who build their skills in interview and Job Application, Work experience- here is where Marks & Spencer support charity organizations to find the appropriate placement for individuals and a mentor to support them. Post placement support- charity organizations who have partnered with Marks & Spencer support individuals here as confidence may drop after experience. Marks & Spencer funds the scheme and the resources needed to aid their performance. This community work Marks & Spencer enrolled in led to a major success as over 30% of individuals who partake in the program found employment in police force, Marks & Spencer, retail and others. This initiative gave the firm an added advantage within as employee's skills were broadened; over 76% said that the programme enhanced the perception of Marks & Spencer as a good environment to work; this led to more loyalty and retention.
This supports the view of matten and crane (2005) on “protect citizenship” where they argued that companies will step in to do what is right to protect the community if government do not. They also argued that protecting citizenship will increase loyalty and morale of employees working within the organization.
Instrumental theories perceive CSR as only a tool used by the organisation to maximize the shareholder value. Major academic who supported this theory was Friedman (1970) where he stated that the shareholders are the responsibility of businesses. This theory views CSR as a competitive tool which is different from other theories. Case study on Cadbury Schweppes wholly supports this view
Case study 3: Source: Article 13 (No date)
The case started with the background of Cadbury where it stated that Cadbury is one of the biggest distribution and manufacturer of confectionary goods ranging from chocolate to fizzy drinks. The company pride itself in the acquisition of brands and turning them into brands that “the people love”. CSR has always been the core of Cadburys business values as founders of the large multinational upheld the notion that businesses that are profitable need a healthy social environment. Some of it CSR principles are: giving employees equal right without any form of discrimination and giving resources to the communities. It CSR programs as immensely evolved over the years and is now centred on: Finance- funding activities and event to communities. Resources (time & Skill) - using organization skills and employees which may benefit the societies for specific activities. Donation- using materials, products, equipment etc; as a means of contributing and also a form of gifts to the society. One of the main factors behind CSR in Cadbury is it self-desire. CSR enables the firm to establish the society as they are a “consumer market” and a strong avenue for organizational growth. Although the firm as a strong legacy in CSR and understands that it repute may disintegrate if it does not do the right thing, but more importantly, the firm has employed fund managers whose speciality is to find good social investment opportunities that will enhance the value of shareholders and maximize the position of the firm.
Cadbury Schweppes views the society as a “consumer market” who that they need to support in other to attain the best from them. The case study really highlights key words such as business growth, business opportunity and social investment which strongly show the motive of the firm. The key objective is to enhance the growth and value for shareholders, use CSR as a medium for strategic opportunity which in return will benefit the shareholders of the firm. There is a distinct difference between other case studies above than this present one. This case really highlights a firm that has an ulterior motive than what it actually present.
Chapter 5: Corporate Social Reporting
The term corporate social reporting has evolved over the years. Different words have been used inter-changeably such as “social accounting” Gray (2000), “Corporate social disclosures” Belal (2001). Gray, Owen and Maunders (1987) first defined CS-reporting as “the process of communicating the social and environmental effects of organisations economic actions to particular interest groups within society and to society at large”. Due to the importance of stakeholders in CS-reporting, he modified his definition to gray (2000 pg.250) “the preparation and publication of an account about an organisation social environmental, employee, community, customer and other stakeholders interactions and activities and where possible, the consequences of those interactions and activities”.
CS-reporting or widely known as social accounting has been around since the 70's, but attained a more global attention in the 1990's Gray (2001). Factors that have led to this rise have been the reports prepared by the global firms such as Ben and Jerry, British American Tobacco, Body Shop, Shell and BP Amoco. Belal (2008) write that British American Tobacco is a notable firm operating in this field as they have lead the way by reporting on it social activities around the world. The British American Tobacco in the year 2001 issued its first social report and ever since as continued to report yearly on its social activities. The firm has also encouraged it multi-regional base companies to follow suit.
Belal (2002) also found that PWC (Pricewater coopers) amongst other top accounting firm have been researched on this field. He writes that some of the chief reasons why organisations such as this are interested in this field:
-ACCA created the corporate social reporting scheme which is presumed to be one of the key motivator why organizations join the group of organizations who publish the social account. The ACCA board recently added the “social reporting” aspect as a result of the re-materialization of CS-reporting. The ACCA changed its program to “sustainability reporting scheme” due to more organizations welcoming the notion of “sustainability reporting” by GRI and the announcement of “triple bottom accounting” Elkington (1998).
Deakin and Hobbs(2007) another reason which has enhance the spot light of this discipline was the recent business scandal by WorldCom and Enron which caused a new cry for better corporate governance which is targeted at “ethical standard” and “transparency”
Owen et al (2002) creates a new chapter in this field; his discussion stated that “uniformity” in standards for reporting will impede the success of social reporting. He argued that organizations need consistency in rules and guidelines for CSR reporting. While on this subject, it may deem right to outline some of the current standards which are discussed below:
SA8000 - Social Accountability International - Belal (2000) the foundation of this standard as written by belal is derived from the international labour organisation. The standard limits its focus to workers and “communities”. Examples of matters that may affect this theory are hours of work, conditions where employee work, child labour and health & safety.
Global reporting initiative (GRI sustainability reporting guideline) derives it idea from Elkington (1998) “triple bottom line”. Belal (2002) also write that this standard has expanded consistently with continuous standard been issued. Key to this change has been the “multi stakeholder group”. He stated any corporation that write it sustainability report under the GRI guidelines most possess the following element:
Profile - this aspect covers the nature of the organisation such as structure, report overview and operations.
Governance Structure - this broadly entails an account policies, stakeholder activities and management system.
Strategy - this will include a declaration from chief executive officer of the firm and an explanation at the firm strategy to “sustainability”.
GRI content index - this section requires a tabular format were corporation show the data on “part of GRI guideline” is located in the report Belal (2000).
Performance indicators - assess the outcome of the corporation which is classified into environmental performance, social performance and economic performance GR1 (2002).
Apart from the standards listed above, codes of conduct have been created by large organizations and international business associations. Menawat (2006) pointed out diverse codes of conduct shown below:
- Trade association: business association establish codes such as this. Typical examples are “responsible care” which was orchestrated by chemical business to enhance safety and health. Emerging countries are now introducing these codes in their business operations even though they were created by developed or western countries. Some of these codes consist of and prohibit child labour, ensuring legal employment contract. Though this code strives to better employee's health and safety, it must be noted that there have been diverse occurrence of fire hazard specifically in Asia countries where lives have been lost.
- Multistakeholder: this codes is created from communication with key individuals or groups who affected by business practices or decisions. The objective of this code is to certify that organisations who import goods for UK consumers are creating the right working atmosphere from employees and surpassing “internal standards” UNRISD,( 2000 pg.5)
- Model: organizations can use these codes as a yardstick to measure their outright performance. Essentials in this code include “equal opportunity”, “wages for living” and “minimum wage”
- Company Specific Code: corporations have also devised creatively their own codes. Prominent example as Menawat (2006) stated are “Business partner terms of engagement” by Levi and “marketing code of conduct” by British American Tobacco.
Although some of the codes are firms own trading decision, Menawat (2006) criticized corporations as he believed that this activity is only used to influence TU (trade unions) ability in bettering standards for labour.
5.2 Corporate Social - Reporting Theory
The subject of CS-reporting has obtained a growing attention has more organizations unite with other organization on CS-reporting. Although there has not been agreed a theoretical model. Several academic have suggested inspiration why businesses partake or disengage in CS-reporting. This subject has evolved over the years as the diagram below shows, has more organizations are presently producing sustainability report that includes both social and environmental performance
Source: Deloitte Touche(2001)
Sweeny and Coughlan (2008) the medium through which companies report to the owner is through annual report as this is demanded at least once a year from the organization. Lantos (2001) stated that the way organizations publicize their report has evolved over the years: past years have seen companies including report from directors and auditors; but presently, the report have evolved and firms are now reporting on their social activities around the globe or locally.
Martinez and Crowther (2008) research showed that organizations cannot solely be accountable to shareholders only as their activities and decisions influences and affects the society at large and therefore should be liable to a larger society. One of the first authors who researched this field Ankerman (1975) contended that “social responsiveness” is been hampered due to business objective and financial result and most importantly large organizations are yet to fully understand the new environment of social accountability. McDonald & Puxty (1979) present a different scenario, they state that organizations live within the society at large and therefore should not be answerable to shareholders solely but to the society, and this is a better move towards “accountability”.
Meltacafe (1998) write that examining the consequence of a firms act in the society does not only cause unease to owners but to other parties which are diversity of stakeholder who also are affected by the decisions and activities which the company engages in. Martinez and Crowther (2008) introduces the idea of “quasi-ownership” to stakeholders has they possess the ability to culture the organisations actions and activities. The diagram below examines further who firms target the most in
Source: Deloitte Touche (2001)
Rasche and Esser (2006) the field of “social accounting” as really emerged and still gaining more grounds even though executive in organizations influence the report which enhances the scepticism around the subject. Gray et al (1996) confront role of traditional accounting in corporate social reporting outcome and unwrap the idea of “stakeholder approach than Ownership” which includes other key members of the stakeholder group.
Gray et al (1995) cited in Belal (2000) introduced “political economic theory”, “legitimacy theory” and “stakeholder theory”. Other academics have introduced theories which can also support CS-reporting, examples of this are: accounting theory Ness and Mirza (1991), and decision usefulness theory Belkaoui (1980). Gray et al (1995) dismisses the notion of this theory and calls “economic theory” which only draws attention to “free market outcome” and counteract the core foundation of corporate social reporting. Gray et al (1995) argued that “political social theory” which includes stakeholder, legitimacy and political theory give better astute towards CS-reporting theoretical outlook
5.3 Political economic theory
Gray et al (1996, pg47) describes PET as the “social, political and economic framework within which human lives take place” Deegam and Unerman contend that the political economic theory point of view enables associate to broaden the depth of their study as there are other wider “social political matter” which may have influenced the way organizations function and the type of information that the firm may choose to disclose.
Gray et al (1996) outlined two perspectives of CSR: “classical and “bourgeois” which he linked to former work of Marx and stuartmell former economist. Gray write that “inequality”, “state role” and “structural conflict” are what constitute the foundation of this practice. While bourgeois eliminate grouping such as conciliation between organizations and pressure group.
Deniz and Cabrera (2005) holds that it “mandatory” for organisation to publicize social information. The state government can extract key conditions or target organizations through setting “disclosure rules”. Belal (2002) write that “economist” from classical political perspective may understand this move by government to be working with groups such as women and other individuals who may be disadvantaged.
Gray et al (1996 pg.48) also write that the classical perspective does not have much to utter on corporate social reporting practices; it hold that “corporate social reporting practices is produced voluntarily and can only be the cramps of legimation dropped from the table of capitalism and therefore largely irrelevant, other than as another mechanism by which capital protects it own interest”
Guthrie & Parker (1990) employed the “bourgeois perspective” when examining corporate social reporting practices by different countries. They affirm that bourgeois perception gave several significant insights when examining “social disclosure practices”. Williams (1999) research also supported Guthrie & Parker (1999) his research found out that the number of social disclosures ranging from energy, products and services to environment gave key organizational aim in arbitrating and accepting the desire of different “pluralistic” recipient. He found out in his research that high public interest may be behind why organizations disclose their social activities. Williams (1999) research in this countries (US & UK) argued that “political economy rationale” concur with where there was least or no disclosure.
Williams (1999) further concludes his research stating that as a result of political and most specifically social pressure, and to secure self -interest, corporations voluntarily publicize their information. His argument also touched on factors such as political and economic factors of a country that defines an organization view of corporate social reporting which is a necessity for meeting social expectations and also shunning “government regulation”
5.4 Legitimacy theory
Belal (2002) this theories shows that businesses tend to justify their actions by employing corporate social reporting to seal the right from the community for their business operations or existence. Deegan et al (2000) argued that in other for organisations to be recognised as “legitimate” they must be able to respond to the social expectation of the public. Lindblom (1994) discusses different “legitimate strategies” that corporations can employ when encountering “legitimate threats” such as scandals on financial activity or serious environmental pollution:- Lindbolm outlines the following strategy
- Educate and notify key stakeholders on the overall position of the firm
- Alter stakeholders idea of any activity but ensure it does not affect the firm
- Divert interest from matter at hand
- Alter the external prospect on the overall performance or position of the firm
Lindholm stated that corporations can use corporate social reporting with one or all the strategies cited above.
Belal (2001) also introduced the idea of “social contracts” as essential when analysing the legitimacy theory. Deegan (2002 pg.292) cited in Belal (2000 pg.15) write that organisations and different member of the community possess a “social contract”. Community gives organizations the right and mandate to employ and hold resources and also recruit workers as corporations depend on the society resources for its goods and services.
Deegan et al (2002) stated that “social contract” is a medium through which community communicate to the organisation about it expectations. Deegan (2002) noted that organizations legality could be in danger if it contravene the “social contract” and fall short of social expectations. He stated that social contract can be rescinded if community is displeased with actions of the organisation which can cause grave dilemma for the firm. According to Deegan (2002 pg.293) some of this punishment could range from lobbying to government bodies imposing heft fine or possibly laws which can cause the rejection or reduction of goods and services.
Gray et al (1996) outlined two alternatives for legitimacy theory. He stated that the first theory shows “legitimacy of individual organisations” e.g. an organisation engaged in a major accident or financial scandal. The other alternative he states was to “take a wider perspectives” on the arising matter. The first idea as stated by Lindblom (1994) can discover diverse pictorials where corporate social reporting is used to shut “legitimacy gap”. The second gap portrays a different scenario, where corporate social reporting is delicately used. Such examples of this in accordance with Gray et al (1996) is where a firm describes their evolving relationship with workers in the firm which on the outside seems like an endeavour to inform stakeholders but in reality is an effort to enfeeble the power or influence of TU (trade unions). Other patterns in corporate social reporting are firms who publicly uphold the significance of the organisation, its division and scheme in generating occupation and prosperity for the community, but in reality are seen as efforts to ensure the continuity of “legitimacy of the system” gray et al (1996 pg.47)
5.4 Stake-Holder theory
Stakeholder in general paten to the individuals or group who can be influenced by the corporation's decisions. The term stakeholder has really evolved from its traditional state which typically includes shareholders & Lenders to new and emerging stakeholders as shown below on Fig 3. Examples of stakeholders are supplier, customers employees etc. Any corporation is likely to have a vast amount of stakeholders who may be affected by its operations. A lot of wide research has been done on this topic. During the course of this research, there were more journals on stakeholder theory than any other theoretical assumption.
This theory in accordance with Ruf et al. (2001) hold the view that organization can sustain the support of its stakeholders only if there is a mutual balance between the desires of shareholders and stakeholders. The stakeholder theory understands that Spence, Coles and Harris (2001) organizations have enormous and diverse stakeholders which must be taken into account as vital in other to function effectively. Phillips (2004) write that the characteristic of stakeholders has come to light over the last few years, as organizational managers endeavour to know how to distribute their resources and time to diverse groups of stakeholders. Maclagan (2007) discussed that stakeholder theory can also be employed as a “management tool” which enables managers to examine which stakeholders possess more influence within the category and therefore channel their effort towards this group. Nevile and Menguc (2006) research on stakeholders showed that a vast array of stakeholders can show a diverse and divergent requirements and desires.
One of the prominent definition on stakeholder theory was by Deegerman and Unerman (2006 pg302) “we think of the term stakeholder theory as an umbrella term that actually represents a number of alternatives theories that address various issues associated with relationships with stakeholders, including considerations of right of stakeholders, the power of stakeholders, or the effective management of sta
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