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The definition of corporate social responsibility has been given by different authors in diverse ways. CSR is basically a concept where business is done in such a way so as to balance economic growth of the company with the ethical, commercial, legal and public expectations that the society has of the business. CSR has been defined by the European Union as "a concept whereby companies integrate social and environmental concerns in their operations and in their interaction with their stakeholders on a voluntary basis."
Zadeck (2001) defined CSR to be fundamentally a business-driven movement which is based on self-regulation and voluntary compliance.
Over the last few decades, different self-regulation instruments have appeared to help corporations adopt CSR practices. These include social and environmental performance standards and limits, social and environmental management systems, codes of conduct, best practices, instruments for certification and labeling, transparency guidelines, and sustainable reporting and monitoring (European Commission, 2001). These mechanisms aim to equip the private sector with tools to control and manage their operations so as to minimize the level of social and environmental risks implied by their activity.
In 1991, Carroll states that a CSR company should make every effort to make a profit, be ethical, to obey the law and being a good corporate citizen.
Epstein (1987, p.104) defined CSR as being principally to achieve outcomes from organizational decisions relating to specific issues or problems which have beneficial rather than undesirable effects on significant corporate stakeholders.
In his attempt to define CSR, Epstein (1987, p.106) described corporate social responsiveness and business ethics and he then brought both together and called it the "corporate social policy process". He further added that the essence of corporate social policy process is "the institutionalization within organisations of the three elements; corporate social responsibility, business ethics and corporate social responsiveness".
Davis (1960) put forward his definition of social responsibility by arguing that it refers to the actions and decisions taken by businessmen for reasons that are at least partially beyond the organization's direct technical or economic interest. He argued that social responsibility is an unformulated idea but it should be seen in a managerial context. He further stated that some socially responsible business decisions can be rationalized by a complicated long process of reasoning as having a good opportunity for the firm to have long-run economic gain, therefore paying back for its socially responsible outlook.
McGuire (1963) stated in his book Business and Society that "the idea of social responsibilities believes that the firm has not only legal and economic obligations but it also has certain responsibilities towards the society that extend beyond these obligations". Later he elaborated that the company must take interest in the welfare of the community, in education, in politics, in the happiness of its employees and actually in the whole social world.
In addition to these authors, Johnson (1971) defined a socially responsible firm as one whose staff stabilizes a range of interests rather than trying hard only to make larger profits for its stockholders, a responsible enterprise also take into consideration its employees, local communities, suppliers, dealers and the nation.
2.2 Dimension of CSR
For decades corporate social and ethical responsibility has been an area under discussion for many business ethics academics and firms with revolutionary managers. Corporate social responsibility is basically a theory where companies and organisations voluntarily decide to have their say in the development of a better society and a cleaner environment. It can be viewed as the two sides of a coin whereby one side shows a company abiding to the laws of the land in which it functions to be accepted as socially responsible whereas the other side shows a socially responsible company which is purely benevolent in what it gives without expecting any return or benefit. (Ally, 2005)
Nevertheless, there has been different school of thoughts in defining CSR but though the definitions vary they possess the following common features:
Commitment to business - that is it operates in a way that adds value to the society
Benefits to society and stakeholders
Involvement in social issues
Urban investment and philanthropy
Companies which are engaged in CSR are most likely to display their environmental and social activities through Corporate Social Reporting.
Gray et al., (1987) described Corporate Social Reporting as being the process of communicating the effects of organizations' economic actions on the society and environment to particular groups in the society and the society at large.
As it is rather a philosophy than a set of accounting procedures, CSR will depend a lot on a theoretical base for its development and legitimacy. For this reason, theories like Political Economy Theory, Stakeholder Theory and Legitimacy Theory were set ahead by different school of thoughts in an effort to explain the concept of CSR.
2.3 The Political Economy Theory
The use of Political Economy Theory (PET) in the business field is quite recent and it is regarded as being a Social Theory as it tries to explain different notions of corporate social behaviour.
Gray et al. defined the Political Economy Theory as being the "social, political and economic framework within which human life takes place". According to this theory politics, economics and society cannot function separately and an organisation cannot work in isolation but it should instead take into consideration its stakeholders, the society, the government and the environment.
By considering the Political Economy, it is argued that researchers better able to consider bigger societal problems which have an impact on the way an organisation operates and the information it opts to divulge.
Gray et al. believed that since the revelation of financial statements have social, political and economic repercussions, these will influence accounts users' perception in favor of the organisation. Hence, even though accounting reports are believed to be unbiased, PET clarifies the fact that certain parties' interests might be at times cornered in the process of voluntary reporting. With the adoption of a political economy theoretic point of view on Corporate Social Reporting (CSR), one is openly making efforts to introduce wider universal factors into the explanation and analysis of the CSR experience.
2.4 The Stakeholder Theory
Referring to Milton Friedman's viewpoint, conventionally, an organization's exclusive moral duty is profit maximization. The idea can be justified by saying that managers are not prepared with economic and social knowledge so as to guide the company in a socially responsible way. Consequently, managers focused at the maximization of profit arguing that it might be detrimental to both society and their business if they opt to take risk and undertake any such activity.
Nevertheless, the circumstances have changed in the modern era. Over the past two decades, business companies and their management have come across many new demands which are based on the changing societal expectations regarding appropriate responsibility of the organisation in a larger community, therefore, leading to the stakeholder theory.
Stakeholder Theory is said to be a clear systems-based view of the organisation and its environment which is aware of the active and intricate nature of interaction between them. Undoubtedly, it has a vision of the firm as a medium for synchronizing stakeholders' interests and views management as having an ethical relationship towards them but not as a mechanism to increase stakeholders' financial returns.
Whenever stakeholders are concerned, it is not limited to only shareholders or investors but it also include competitors, local government, suppliers, industry bodies, stock markets, future generations, foreign governments, non-human life and so on.
Stakeholder Theory persuades to understand voluntarily unveiled CSR examples as indicative of which stakeholders are more important to an organisation and, consequently, those which an organisation may be looking for to influence.
2.5 Legitimacy Theory
The legitimacy Theory argued by Gray et al. (1996) is an alternative of the Stakeholder Theory, which puts in disagreement and conflict to the picture and can be utilized to give more details of specific information about corporate social practices. Legitimacy theory is regarded as a systems oriented theory, where the company is said to have an influence on the society in which it operates and also is influenced by it.
Making allusion to other theories, the Legitimacy Theory put forward a relationship society's expectations and corporate disclosures. The concept is that management reacts to the community needs and changes within it. That is, companies seek to function within the norms and limits of the society, so that society has a legitimate perception of their actions. Moreover, firms have to react quickly to the constant changes over time as these norms and limits are not static.
Shocker and Sethi (1973) provided a better overview about the overview of social contract. According to them, any firm functions within a community thru a social contract, may it be implied or expressed, where its growth and survival are founded on:
The allotment of social, economic or political gains to group from which it gets its authority and
The distribution of certain socially desirable ends to the community in general.
Neither the requirements for its services nor the sources of institutional authority are permanent in a dynamic society. Thus, an organization should regularly meet the twin tests of relevance and legitimacy by showing to the society that it needs the services of the company and that the groups being compensated by the company have the approval of the society.
If an organisation is found to be working in an illegal way, the organization's contract to carry on its functions will be successfully revoked by the society. Similarly, it could be observed that citizens are attempting to influence the State for laws, fines or increased taxes to forbid those measures which are not in conformance with the expectations of the society. Therefore, Legitimacy Theory stresses on the fact that companies should be more on their guard if they want to keep away from these sanctions.
2.6 A Holistic Approach to Social Responsibility
Throughout the past century, the subject of economic and social responsibilities of corporation and their accountability to the society has been constantly debated. Earlier, corporate social responsibility was only defined as either: 1) giving profits to philanthropic programs that may or may not be related to the business or 2) promising to operate in a better way that is, being more efficient, having a cleaner working environment or being more transparent.
However, over the last decade remarkable changes has been seen in the ways organisations view and practice CSR. Companies are gradually recognizing that they can no longer argue to create societal values merely by being engines of prosperity that complements the job of government. Likewise, those that approach CSR mainly as a reputation enhancer - enclosed for public consumption and wrapped up in oratory about serving society have begin to understand that this downgrades them to the limitations of their business model. Instead, a best possible CSR program starts with and complements a company's core work, operating at the interests of both the company and the society.
Responsible companies are now taking hold of and creating opportunities to help in solving societal problems that are deeply linked to their core business. They are incorporating socially responsible practices in their fabric of their operations, from the suppliers they deal to the products they sell.
2.7 CSR in the Tourism Industry
The dedication to social responsibility in the Tourism sector is very important as the actions taken by a firm will have an effect on a large number of stakeholders. The typical stakeholders of a hotel are shown in the figure below.
Special Interests groups
State & Federal Govt
Source: (Woods, 1995)
Figure 2.1: the typical stakeholders of a hotel
Tour operators and academics have been showing great interest in green tourism in this industry. Steps have been taken towards societal marketing, where codes of conducts are being included in brochures for both tourists and tour operators. Green tourism is the response of the industry for ethical concerns. It makes people aware of the impacts on environment and that natural resources are not infinite.
Organisations in this industry are coming up with messages of recycling, water metering and the use of eco-friendly detergents. We now get to see more often messages like 'save the species', 'preserve our heritage' or 'look at the countryside'. (Chiniah, 2002)
CSR in the tourism industry can only be possible with the collaboration of tourism, hospitality investors and local communities. According to Kalisch (2001), fair negotiation and consultation should be there to keep in mind the interest of the local community. Business operations should be crystal clear through social and environmental audits. Tourism firms should employ the local inhabitants to give them the opportunity to develop their potential.
Ecologically sustainable materials and products that are produced locally should be more often used according to Angela. Tourism firms should share their revenues in order to enhance the public social and environmental resources, therefore, showing that they are socially responsible.
Further, these firms should adopt code of ethics and equitable trade that adheres with international agreements such as "The World Tourism Organisation Code of Ethics and the UN Resolutions on sustainable tourism". The tourism industry is one of the most interactive industries where there is high contact among people. According to Hall (1990), there are people serving people, providing comfort, amusement, transport, conviviality, employment and more.
2.10 Limitations of Corporate Social Responsibility
As Ally (2005) mentions in his study that the society, institutes and other stakeholders all expect companies to adopt CSR in their activities. However, there are also some limitations and challenges that come across. These are likely to be cost, efficiency, legitimacy and, scope and complexity.
To engage in social activities requires funding. An organization's benevolence or structure of building in society necessitates costs from someone. These expenses could have been used for increase in wages or distributed to shareholders.
The costs of engaging in social responsibility, similar to all business expenditures, can likely reduce a company's efficiency and can have a negative influence on its competitive edge in its market.
Social expenses made by companies can be explained and are believed to be a legal use of stockholder's fund, if they uphold the interests of the company and at the same time as helping the community. This legal principle was established in 1951 in a famous court case where the judge regulated that businesses proved that by donating the company funds to a university, these business gifts do good to the company in the long term. Verdicts concerning the legality of any social activity are generally in the hands of senior management who, in the court terminology, has to take a long term vision of the matter and exercise clear leadership and direction.
2.10.4 Scope & complexity
The fact is that certain societal issues are too significant and complex that even the most socially responsible organisation cannot resolve such problem. To be more precise, these issues could be ozone depletion, acid rain and so on. To solve the problem, the cooperation of government and different organisations is as well required. Moreover, there exist certain social issues such as sex discrimination, race relations and religious and ethnic enmity which leave organisations incapable to get rid of them. All that companies can do is adopting socially responsible approach and guidelines concerning these problems.
Therefore, the problems stated above frequently hold back companies who want to be socially responsible corporations. Firms cannot do much because of these restrictions.