Even though all the organizations have defined corporate social responsibility differently however these are generally associated and connected with each other. Mallenbaker defines CSR as "CSR is about how companies manage business processes to produce an overall positive impact on society" (www.mallenbaker.net)
Over the years CSR has emerged as an imperative subject in the business and social world including media. As a result financial times, guardian and other online and print media have special correspondents for news related to CSR in the corporate world social. Now we can find news and articles related to corporate social responsibility in almost all weekly magazines and newspapers.
FIGURE. 1 CORPORATE SOCIAL RESPONSIBILITY (taken from http://www.mallenbaker.net/csr/definition.php)
The above diagram indicates that to achieve the quality of management in terms of both people and processes an organization or company has to take into account both the internal and external factors that will eventually leave a positive impact on the society. For example if the organization pretends to be environmentally friendly and wants to fulfill its responsibility towards the environment it has to consider the interests of the government, non-government organizations and the general public associated with the environment.
Get your grade
or your money back
using our Essay Writing Service!
The word stakeholder refers to individuals, group or organizations that have direct or indirect interest in the organization and the performance of the organization can affect these stakeholders and these stakeholders also can affect the activities and policies of the organization. These stakeholders generally include creditors, shareholders, customers, suppliers, employees, government, unions, and the community from which the business draw its resources (www.businessdictionary.com). Stakeholders have a significant influence on the activities of any organization and all organizations maintain relationships with their stakeholders for short and long term benefits usually. Companies consider it worthwhile to get their stakeholders involved in the processes and provide them information through communication appropriate channels. Long term relationship with stakeholders can be maintained if management does increase the role of the stakeholders that is not only inform and communicate with them but also to get them involved in the corporate social responsibility process.
In the business world the social responsibility is not new, it has been there ever since business activities started itself. For example almost 5000 years ago the law for the protection of forest during commercial operations was in existence. King Hammurabi introduced some laws for cultivators, builders and barkeepers in 1700 BC which is a sign that indicates that they would have had serious prosecutions in case of any damage or injuries to the citizens from their commercial activities. In the old Rome senators moaned about the failure of business to contribute adequate taxes to fund their military campaigns. (www.brass.cf.ac.uk)
After industrialization the impact of business activities on the society took new facet. The movement towards modern corporate social responsibility actually started in 1920s when the world began to discuss about social responsibility of the corporations.
European commission issued its communication on CSR in March 2006 which clearly delineates that the organizations should identify the issues related to environment and society in their business activities. The purpose of this statement was to make Europe 'pole of excellence' on CSR. Such activities were also encouraged by British government and British companies were rated the top 3 reporters in the global reporters' surveys. Almost 80% of FTSE 100 companies report on social and environmental issues. (www.corporateregister.com)
A huge part of this study deals discusses about the importance of the CSR for the companies, society, and government and specifically for the accountants who can play a significant role in terms of CSR reporting. The study has been carried out to achieve the following objectives.
What CSR is actually all about?
CSR importance today
What stakeholders expect from business world
Role of professionals
How businesses are doing
How to develop CSR
Existed legislation and amendments needed
The discussion on the CSR takes place almost in every organization and the debate on CSR in the corporate and social sector is increasing day by day. But in fact a significant number of people from corporate and social sectors do not really know the exact meaning of this term. Some of them think as a good business practice. Some say it is about reporting for public relation. Some recognize it as it is about to improve the competitiveness of the business. Few of them feel it as a type of warning. In the real world CSR is a structure relationship between business world and the society both within a country and outside the country. CSR is not only practiced in the big countries of the world but in all the organizations of the world because people live and exist everywhere in the world.
Always on Time
Marked to Standard
CSR is essential for the success of a business as well as for the well being of the society. As the corporations are making progress and expanding their operations the numbers of concerns for the community and society have also risen up. So it is required that business world and society should deal with these issues and concerns by mutual understanding and partnership. Government can play a significant role here by encouraging and enforcing the business world to fulfill their responsibility towards the society and react positively.
A single department, organization or community cannot be held liable for CSR but all fields of life like government, business world, NGOs, professional accountants, and civil society should feel their responsibility and role in this respect.
Priority to CSR
Although CSR has a been matter of concern for the corporate and social world in the recent years but in fact it has not yet gained the attention which is required and the real value of CSR is still not being recognized. There are numerous organizations that overlook the interests of the most of the stakeholders to use CSR as a tool to make money for their shareholders that is not what CSR demands.
In the past many public and private corporations set their preferences to begin work on corporate social responsibility. They specified criterion by following which they could get required output related to CSR. For instance the CSR department of Great Britain announced on media that the significance of corporate and environmental responsibility will be underlined that will help small and medium businesses to get involved in this perspective. It was also cleared that Britain will continue encouraging the transparency related to CSR information and make sure that not only the corporate sector in UK but all over the globe will be kept aware with this information.
The professionals who we think are liable for financial and social information have been pursuing a set of principles and regulations set up by GAAP and related institutes. But these rules set by GAAP are not helping the professional accounts in a great deal to transmit the information regarding environmental and social concerns. These professional normally used to prepare reports on the past like last year's cost, discretion etc and they overlooked the tendency of global changes. Elimination of waste is one of the management accounting principle that also complies with CSR but there are numerous issues related to CSR which have been looked by these accountants. They should actually realize that the set accounting principles can only provide guidelines but to make the things more better they need to use their own moral standards as well.
The information about the priorities given by the organizations to CSR related issues are claimed to be more than the actual steps taken in this perspective practically. The priorities do not seem to be resembling with the practice. Communication related to CSR is becoming a common practice in organizations today but still there are lack nesses. Companies seem to be caring for their own interests and overlooking the benefits of a number of other stakeholders. It seems as these companies are following Friedman's idea who says shareholders are the only owners of wealth and money of an organization and they can make decision regarding the investment of this money. These companies are actually thinking about short term benefits and missing long term advantages. If they realize that the money investing in the social work like development of the local community, charity institutes, employees development, customer care, and in the environmental concerns is not only a way to get publicity but also is a source of long term benefits for them.
There is too much has been written on CSR and hundreds and thousands of articles and news releases can be found on this but practical steps taken in this regard are very less. This is still very healthy sign that this much has been done for CSR but there is much more required to get done.
This chapter will provide the academic literature on corporate social responsibility. The questions which have been focused in this chapter are what actually CSR is, importance of CSR, related laws, performance of the organizations from CSR perspective, role of professional accountants and what stakeholders expect. CSR is very important part of business ethics. CSR is defined as "tantamount to corporate philanthropy and considered strictly as relating to environment policy has different meaning and importance for everyone". (McWilliams, Siegel, Wright, 2006)
This Essay is
a Student's Work
This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.Examples of our work
"Through the power of collective action, the global compact seeks to advance responsible corporate citizenship so that business can be part of the solution to the challenges of globalization. In this way, the private sector - in partnership with other social actors - can help realize the Secretary-General's vision: a more sustainable and inclusive global economy". (www.unglobalcompact.org)
The CSR concept
According to www.davidgreyson.net "JCI believes that CSR is about what business can do - not about what business must do. It is about opportunities not about obligations or new rules".(www.davidgreyson .net). In the mid of twentieth century CSR concept first started to develop when emphasis were given on the issues of the society and labour. But afterwards discussions kept spreading and extended this subject area by covering the environmental issues also. Businesses started to consider the socio - economic and environmental factors while operating.
CSR actually demands that all the businesses should also feel their selves responsible to the stakeholders including local community, customers, suppliers, environment, government and investors etc. There has not much law enforcement been observed in CSR case.
Value of CSR
Ever since the business activities started the mismanagement and exploitation has been there in the business world. It could be in the form of local community's inconvenience, exploiting the employees' rights, environment, exploiting the interests of the stakeholders and shareholders. But over the years CSR has emerged as an important subject in the business world and the world is now like a global village where such comments like "Profit is the only responsibility" are not acceptable. (Husted, B.W. and Salazar, J. 2006). Where the force cannot be used to get things done, managers cannot make selection of the stakeholder like special supplier, creditors on the basis of personal likes or dislikes, interests of the community, environmental factors and employees cannot be overlooked.
It is believed that the role of corporations in respect to social issues is going to grow in coming days. Last decade is witnessed that those institutions and public and private corporations who worked more closely in the context of global field of activities experienced more admiration, supremacy, financial and nonfinancial benefits. While the institutions like law enforcement including police and judiciary and other government departments did not achieve much appreciation. Nevertheless the pressure on the corporate world to do more in respect of CSR is mounting.
Governments seem to be putting pressure on the corporate sector to play an active role towards environmental and social issues. And the governments have confessed that the state of this world cannot be changed without the support of the people who live in that world especially the corporate world that is actually benefitting from the society. So the society and community expects and deserved the return from the corporate world. Business world have realized too that the long term respect and advantages are not possible without an active role and an upright approach towards CSR.
CSR and intangible
The importance of intangibles cannot be ignored as the new International Financial Standards (IFRS) stated that from 2005 all listed companies must report acquired intangible assets. The intangible assets includes brand value, goodwill etc. (www.csr.gov.uk).
Tangible assets are said to be very important for a firm. CSR really helps to maintain value of these assets. For instance a business does not have any brand value in the beginning but later on activities related to CSR like customer service activities, supporting community development schemes, and social health care activities add value to the business.
CSR as marketing tool
CSR is not only related to responsibilities of the corporate world but businesses also can utilize the CSR principles as competitive advantage. For example a business that maintains a close relationship with its customer can have more information about the tastes and demands of the customers and this information is helpful for the business to identify the requirements and demands of the customers and meet these demands better than competitor. A business can be more efficient and competitive by reducing the waste that is also CSR's demand. Recycled products can help the environment as well as the business in cost reduction of the products and low cost means low price for the customers and the business generates revenues as well.
Approaches towards CSR
There are different views and approaches available. This part of the chapter will present some contradictory approaches and analyze them. Corporate social responsibility is one of those topics like- Manchester United and the New York Yankees- that raises passions both for and against (Simon, 2005).
Milton Friedman (1962) has been known as the villain in the business and social literature. His notion that, business are owned by their shareholders and they have to decide about their money if they want to give it to the charity or not, has been criticized (Husted and Salazar, 2006). He further had an argument that CSR is indicative of self-serving behaviour on the part of manager and reduces shareholders wealth (Abagail , Donald and Patrick 2006). But without explanation the idea looks logical that more money spent on social concerns can assist the businesses to more benefits. There should not be any problem for the shareholders to pay out a reasonable amount on such kind of social issues.
In contradiction to this, some others have diverse views. Like Jones says in stake holders' theory that the firms which are loyal and honest to their stakeholders ultimately create incentives for their own firms. Some say that CSR is only used by some companies to get competitive advantages. (Abagail, Donald and Patrick 2006)
Some are with the viewpoint that CSR is not about giving charity only but it is more than that. It is about helping the community, taking steps to save environment, taking care of the rights of employees, improving relationship with customers and about contributing towards other social issues. (www.mallenbaker.net)
One thing is quite sure from the previous experiences that companies cannot maintain business success and shareholders' value by maximizing short-term profits and the importance of the CSR cannot be ignored in the recent time. (Oketch, M. 2004). Therefore it is interest of the companies to participate in the activities where they have a chance to get a long term advantage and that they should contribute towards the society as much as they can. With this they can be win-win state.
Poverty reduction and CSR
In some countries of the world people are desperate for food and water they do not have basic necessities of life while there are some other countries where people have spare as compare to their needs. The CSR does not seem to be directly associated with reduction of the poverty but still a business that is socially responsible can play a part in reducing the poverty to some extent more importantly in developing economies. Creating jobs for the poor people, providing training, raising the concerns related to child labour, equality of gender, social development, increasing the minimum wage rate and other related steps that come under the umbrella of CSR can drop the graph of the poverty to a definite point.
Role of Accountants
The role of the professional accountants has been very important in the recent times related to the adoption of CSR principles and their interest to contribute towards the issues currently related environment. But whatever they have been doing related to the information sharing has not been appreciated. The information they have been sharing with stakeholders is not what stakeholders required and for that reason these accountants have been criticized. The report on the CSR is proven to be illogical which does not generate the comparative facts and figures related to environmental issues, uncertainties and risks etc. that is very important for the comparison of past and present performance of the business and helps to set future expectations.
"The main objective of corporate reporting is to communicate economic measurement of the information about resources and performance that would be useful to users who have a right to this information. To fulfill this objective, corporate reports have to posses the following qualitative characteristics: relevance, reliability, comparability, objectivity and timeless" (Barry Elliot and Jamie Elliot, 2004).
The base for all these financial reporting what these accountants are responsible for, is the set of principles laid by professionals and related bodies. The rules and principles set by these authorities do not provide the appropriate direction towards the environmental and social concerns. One aspect of their reporting is that they have been paying attention to the past and forgetting the current and future trends. For example their primary areas of interests have been the past costs, discrete data, representational faithfulness etc. So the reporting on environmental and social issues does not really get any help from these concepts.
For a long time these professional bodies and government have been criticized eventually they have established specific criteria to deal with these types of issues. The professional accountants should consider these new issues while preparing the reports on monetary performance, despite of truth that there are some provisions in the standards of accounting and some limitations imposed by the government. These standards of accounting are the principles that guide the system to work accordingly worldwide and to make this world a better place there should be a balance between theoretical standards and their better practice. Also the professional accountants should use the ethical standards before unfolding their reports.
The role of the government
The government can play a massive role to persuade the businesses to increase their contribution towards the development of the community and society. Many scholars are on the believe that the organizations get forced to take responsible steps towards the social issues if there is a specific law related to that particular area. The laws are available related to health and safety, wage rate and unfolding to shareholders but the laws related to social and environmental issues need some amendments by the government. While the opinion of another class of people is that the legislation related to CSR will persuade the businesses to do only that much work in respect of CSR what is required by the law but no more than that. Recently companies have been doing whatever they can voluntarily but there is a possibility that legislation may create a negative impact on their motivation to do more and it can result opposite.
There are two challenges in front of the government. One is to find the ways get the businesses to involve in CSR and the other one is to persuade the organizations to contribute more towards CSR. The government has dealt with the first challenge by setting a criteria for the organizations to work accordingly and reconsider their role in respect of CSR and that CSR related issues should be in their priorities. On the other hand the organizations that have already been playing their part in CSR related concerns have been appreciated and encouraged by the government.
The guidance policies, necessary regulations and encouragement and motivating the companies through incentives and rewards where needed all these activities and steps by the government in respect of CSR can make it better and more effective. Some critics have also suggested that there should be a separate department in every organization for CSR. The reason for this kind of opinions is that in their view the accountants should not be dealing with CSR specifically issues related to environment and society.
The corporate world of United Kingdom is doing pretty much in respect of CSR as the global reports 2006 survey shows that "U.K companies were rated the top three reporters (www.csr.gov.uk)
"since I became minister for CSR in may 2002 we have seem=n rapid growth in interest in the application and implications of CSR. What has impressed me most has been the level of creativity and enthusiasm brought to the subject from all quarters. We have seen encouraging progress. I'd like to highlight some significant recent developments and look at where we need to focus for the future." (www.csr.gov.uk)
The government is playing a significant role to encourage the companies to report their performance related to CSR in multiple ways that could be in the form of:
Guidance manuals related environmental reporting
The ACCA sustainability reporting awards
Support for the global reporting initiative
The government of the United Kingdom has been updated with the regulations also. From 2007 quoted companies must also disclose the information about employees, environment, social and communities' matters. Company act 2006 also has shown some legislation in this respect. (www.corporateregister.com)
Role of European union
European commissions also considers corporate social responsibility an important area and have already started working. In 2001 the European commission developed a strategy on CSR which resulted in the establishment of a multi-stakeholder forum on CSR in October 2002. In March 2006 European commission published its communication on CSR which states that CSR can make a significant contribution an make Europe a " pole of excellence". During its presidency of EU in 2006, Finland held a conference with the name" Corporate social responsibility policies promoting innovation and competitiveness" which also emphasized on the importance of the corporate social responsibility. (www.csr.gov.uk)
There has been summit and seminars on CSR in different parts of the world where the participants have been promising for the development of the community and society. A world summit was held in Johannesburg regarding the 'sustainable development' all the participants in that summit made a commitment that they will play their part for the promotion of CSR and its future.
There is some criticism on the government that government does not want to come at front is trying to escape from its responsibility and puts all the responsibility on the NGOs. Government does not want to lead from the front and is trying to push forward the NGOs. This is fact that governments today are actively taking part in the prosperity of the community and doing their efforts improvement of CSR but their efforts are not quite enough as compare to the NGOs. It has been revealed in the different surveys that the non-government organizations are paying more attention to CSR and taking effective measures for the betterment of society and environment than the governments and their agencies. The practical efforts from the governments are have been very poor and they have been failed to implement their theory related to CSR.
CSR and consumer
The role of the people living in the community is also very significant. Sometimes organizations try to do best for the CSR and make it as a mainstream of their activities but they get don not get the equal response from the public. For example the supplier of chlorine-free toilet tissues, Seventh Generation and Ben & Jerry's, the eco-friendly ice-cream makers, have not received a good response from the consumers. Only a very small number of people responded by paying for these products. This is actually a step towards CSR by these marketers but the behavior and response shown by the consumers is disappointing that can discourage the companies not to take as much interest in CSR related activities. Some critics are also on the view that the consumers should not only be blamed for not welcoming the CSR efforts because this is government's duty to create awareness in the minds of the general public about the CSR. How a general consumer can support the CSR if he does not know what CSR is, and how to encourage these kinds of activities.
CSR and NGOs
International government bodies have been criticized by different NGOs and trade unions for their negligence and lack of interest towards the CSR related issues. And this is also a fact up to an extent that the organizations have not been guided properly in this regard and have not had appropriate assistance from the governments.
It has been observed that the role of non-government organizations has been more active than the governments. NGOs have always done a great job for the social and environmental causes. For example in many parts of the world NGOs and different charity organizations are well in front of the governments' agencies, professionals and corporations. Some of the names of the NGOs that are working efficiently and effectively for the social and environmental causes are: Amnesty international UK, Saferworld, Oxfam GB, Refugee Council, save the children UK and world Development Movement. These NGOs are playing a vital role in respect of CSR and without making any profit.