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Corporate social responsibility (CSR) is the process by which business negotiate their role in society. In the business world, ethics is the study of morally appropriate behaviors and decisions, examining what "should be done". Although the two are linked together in most firms, CSR activities can give no guarantee that a company is behaving ethically.A company's core values and codes of ethical behaviour should underpin everything that the business does. How a company then chooses to interact with its global and local communities in the light of its values and ethics is often known as Corporate Responsibility or Corporate Social Responsibility (CSR).
The overall aspiration is to provide evidence, indicating whether the organisations should adapt absolute (universal) or relative approach towards CSR and how sustainability can be measure effectively, whether sustainability should be absolute or relative.
In this essay, different articles involving different theoretical models will be critically analyzed under the qualitative research method and some empirical evidence would get evaluated under the quantitative research analysis.
In the phase of the research process, literature studies are an important element. The aim of evaluating the literature is to find previous research (Secondary Information) and theoretical frameworks which are necessary for the understanding of the subject. As the main source of the information, various databases, which specialized in business, ethics and economics, have been searched. The database most frequently used was Business Source Premier, Library Journal Catalogues and LIBRIS. National and international research has also been conducted with no limit concerning the point in time when the research was carried out. Moreover, internet search engines, mainly Google have been used to cover available research as comprehensively as possible. Key words and phases used for data base and internet search were for example "Corporate Social Responsibility" and "Sustainability". Mostly, these key phrases were combined in order to find the most accurate literature.
CSR has grown to a complex topic of debate. The empirical evidence required for the research will be old and might not still be the same now. This might effect the conclusion, which I will draw from the results. Also this essay will not be considering developed and developing countries individually but instead the regions of the world e.g. continents would be examined. However, the overall scope is to find a link, which can justify that whether it is possible for companies to adapt an absolutist approach or relative approach towards CSR.
I will look at the following aspects for my research:
If it is possible for companies to adapt an absolutist approach towards CSR or Relativist approach.
The issue of sustainability, how important it is for the companies to measure CSR and whether they should adopt Absolutist or relativist approach towards Sustainability.
Analyze the empirical evidence obtained from the previous research e.g. Graphs.
According to the CSR definition, 'CSR is a concept whereby companies integrate social and environmental concerns in their business operation and in their interaction with their stakeholders on a voluntary basis' (European commission 2004). Based on this definition, CSR can be interpreted as tool beyond the scope of pure economics. Half of the world's largest economies are not countries but companies. Therefore, it's obvious that the world's change regarding sustainability will be facilitated by a CSR effort made by companies (Anderson and Cavanagh, 2000).
"The social responsibility of business is to increase its profits" (Friedman, 1970). The neo-classical view concerning the responsibility of corporations provides an unambiguous picture; Corporations are only responsible to their shareholders. Profit maximization as the ultimate goal of corporations has dominated the business world throughout time. However, since the birth of the concept of corporate social responsibility (CSR) in the early 1970's and over the past decade, CSR has grown to a complex topic of debate in today's corporate decision making (Cochran, 2007).
The previous discussion leads to a question that why the business community should accept and advance with the CSR activities. However, to answer this question there is two sides to the answer. On one side there is a classical economic Absolutist view such as Milton Friedman, who is against the concept of CSR and emphasize on the concept of 'profit maximization' and on the other side there is a socio economic view, who look from a relativist point of view and are in favour of CSR.
CSR Absolute or Relative:
Absolutism and relativism are two extreme ethical approaches to reality. An ethical absolutist believes that there is a single or universal moral standard that is equally applicable to all people at all times, and each society must adhere to them. There is one moral law, one universal code, and one eternal standard that govern all people. Right is right and wrong is wrong; everything is black and white. In absolutism, everything is certain. Relativism, on the other hand, is more subjective. It includes concepts such as utilitarianism and idealism. Relativists feel that circumstances can arise, that can alter cases, and make exceptions to any rule. It is okay to have everyday standards to live by, but exceptions are always welcome since they are right and good. The judgment of good of bad is based upon the result of consequence of the act rather than the act itself. For example, under the Absolutist Concept if two people are in disagreement about what is right, then obviously one of them must be mistaken, since ethical standards are either right or wrong. However, Contrary to ethical absolutism, ethical relativism claims that if two individuals disagree on a moral view, both can be right, since moral views are not right or wrong. The two people can both be right because Cultural circumstances alter the way people think about their environment, thus emphasis of moral or immoral judgment is placed on differing actions in differing cultures.
It has been argued, that every human being has a responsibility, either as a private individual or through the function of labour market. Individuals have this responsibility as member of society and companies consist of many individuals, therefore, companies have a moral obligation or duty to act responsibly. A company or an organization is responsible to various groups of stakeholders, who either can effect or get affected by the activities or decisions made by an organisation. 'Today, the public believes, that in addition to its profits, business should be responsible to their workers, communities and other stake holders, even if making things better for them requires companies to sacrifice some profit (Barnstein, 2000).
However, half of the world's largest economies are not countries but companies. Therefore, it's obvious that the worlds change regarding sustainability will be facilitated by a CSR effort made by companies. Therefore, CSR plays a vital role in today's modern economy. However, the importance of CSR is unclear and unambiguous. In some parts of the world, CSR is taken more seriously then other parts of the world. Some corporations do not consider society and environment in their decision-making and policies in their operations. The graph below shows the level of different activities of CSR covered from three different parts of the world. The research was carried out by Corporate Environmental Governance programme in 2004. The research was conducted by sending e-mail to companies in different countries and asking them to complete a simple questionnaire about CSR activities. The results have been plotted on the graph, where y-axis represent different activities in CSR and x-axis show the number of companies in % which replied back from different regions which comply with the relevant activity.
We can clearly see that Europe out pace America and Asia in CSR. The main reason for this is that CSR requires independent assurance, and however Assurance is not common in USA and ASIA. Other reasons for Europe performing better then other parts of the world could be the difference between roles of the governments, market organizations, corporate governance, workers rights, environmental protection and sources of capital and cultural differences. This has been further argued by Goldberg and Grant, (2008) that since formal require standards for CSR do not exist, companies have difficulty understanding what information and issues to report, what format to use, where to report the information, therefore, the disclosure remains difficult and ambiguous. Another reason for the difference between the regions are on the amount of disclosure requirement of the CSR activities from the institutional investors. In UK, it is a stock exchange requirement to disclose information on their CSR. This has been further discussed by Aguilera and Cynthia, (2006) that, in addition to corporate governance differences between UK an USA, another striking difference is the amount of attention being paid by both companies and institutional investors in the UK to issues of long-term social and environmental risks. The graph below represents the number of voluntary disclosure of CSR in two different stock exchange markets from two different parts of the worlds. The results were plotted in 2005, where on the y-axis it represents the number of companies involved on voluntary disclosure and x-axis represent the year. The FT represents UK stock exchange market and NYT represent USA stock exchange market.
We can clearly see from the graph above that since 1990's till 2000 there was a normal increase of the CSR disclosure in the UK. Since 2000 there has been a continuous growth on the disclosure of CSR in UK as compare to USA. This is because of the increase concern about ethics in British Society. It is also a requirement from the London stock exchange to disclose the in formation regarding CSR. For example, Pension act (2000) requires pension funds to disclose how social, environmental and ethical issues are taken into account in investment strategies. However, USA has no legal requirement of such disclosure but there are some voluntary guidelines, such as the Global Reporting Initiative (GRI), being implemented by some companies. This is because the US model of governance follows a rules-based approach, which instils the corporate governance code into law with appropriate penalties for transgression. However, the UK model is a principles-based one, which requires company's to adhere to the spirit of the law rather than then the letter of the law. The results above, shows that it is more feasible for company's to adapt a Relativist approach towards CSR rather than an Absolutist rules-based approach.
Corporate Sustainability Absolute or Relative:
The question of absolute vs relative sustainability is important to all companies, but crucial to multinational companies because they do not operate with many different people in different places but also in diverse cultures. Corporate social responsibility actions cover economic responsibility actions, socio-cultural responsibility actions and environmental responsibility action. Another issue which drives the concept of CSR is sustainability. According to Brundtland Commission report (1983) 'Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their needs'. Sustainability can be thought of as an attempt to provide the best outcomes for the human and natural environment aspects of human society, as well as the non-human environment.
However, by looking at the definition of sustainability, a company can only be sustainable if it is economically sustainable, environmentally sustainable and socially sustainable. In the light of ethics, sustainability could be either absolute or relative.
The idea of relativism in sustainability makes it impossible for anyone to criticize actions take by companies in another communities. This is because there are many sets of moral rules and those rules will change over time in one society and will be different in different societies. According to relativism, e.g., child labour, slave labour, dumping of hazardous waste and bribery are sustainable if the community in question accepts them (Ketola, 2009). Absolutism, on the contrary, bases its criticism on the universalism. Absolutism emphasize on the idea of one set of moral rules that is always true, hold true in all situations and common to all societies. For example, United Nation Universal Declaration on Human Rights, the United Nation Children's Fund (UNICEF) Convention on the rights of a child labour and the UN Convention Against Corruption.
The relativist approach to sustainability believes that the measure for environmental, socio-cultural or economic sustainability varies from one individual, organisation or culture to another. In the light of modern economies, large multinationals and other large stock-exchange-listed companies emphasize on continuous economic growth. Corporate sustainability has also been seen as sustainable growth and many researchers, when they talk about sustainable growth, they be underpinning the concept of economic growth. The concept of economic growth is a Relativist approach (Ketola, 2009). Most of the multinational companies adopt a teleological approach. This is a 'cosequentialist' approach whether a decision is right or wrong depends on the consequences or outcomes of that decision. Companies such as NIKE, believe that as long as the outcome is right, then the action itself is irrelevant e.g., Child Labour. Another issue with the relativist approach to sustainability is the concept of 'Utilitarianism'. It is sometimes thought as the idea of 'what is best for the greatest number?' An action is morally right if it results in the greatest amount of good for the greatest number of people affected by that action. Tarja (2009) further argues that," the supporters of sustainable growth are techno-optimist; they trust that we can develop technologies to solve all the problems we humans are causing for our ecosystems, including the human systems". While technologies can bring solutions to some environmental, socio-cultural and economic problems, these solutions tend to create new environmental, socio-cultural and economic problems. For example, it was predicted that the internet would eliminate the use of paper as newspapers and print-outs, and save energy, but newspaper still exist, the number of print-outs and paper copies has multiplied significantly and the constant use of computers uses more energy then ever.
On the other hand, the absolutist approach toward sustainability would believe in one global measure for environmental, socio-cultural or economic sustainability. Environmental sustainability can be achieved by having international limits on the resources that can be consumed. Companies would have to mandatory disclosed information on environmental footprint. Companies would have to use quotients approach to disclose information. For example, water usage can be compared with the amount of fresh water being generated and if usage > generated then the activity is not sustainable. Progress toward sustainability can be measured by comparing water usage over a period of time; the activity will become sustainable where usage is less then production.
Social sustainability can be achieved by imposing strict legislations on human rights, labour rights, equal gender and ethnic rights. Companies can aim at zero occupational and product incidents, as well as equal pay and equal opportunities in the work place, in company chains and networks, in business environments and different societies. Social footprints evaluate sustainability in the following areas, 'Social', 'Human', and 'Constructed' activities. Organisations would need to ensure that their activities are sustainable in each of these three areas. For example, regarding social capital, the government will set taxation rates, with those taxes being used to provide various services. Where the amount raised is less than the amount required for the provision of social capital, then the activities of society as whole are unsustainable. Sustainability would be achieved where the social capital needs of society are being met.
Economical Sustainability can be achieved by staying with in the limits of the financial resources and global, regional and ethical norms of the society. Princen's (2005), further argues, instead of aiming to maximize profits, companies can aim at sufficient profits. Companies should not only comply with the legislations and corporate governance norms and ethical standards but they should also give fair rewards to all their stakeholders. Leftover profits can be invested in projects and enhance environmental and social sustainability.
CSR has been considered as a strategic orientation for corporations. It enables corporations to implement social responsible behaviour while pursuing their activity. Through the means of non-financial reporting, CSR also make organisations become more accountable towards relevant stakeholders. CSR also allows organisations to follow ethical codes and instil moral values in their culture and operations. From the ethical perspective and results obtained, it is more beneficial if the company's adapt a Relativist approach towards CSR. This is because of the culture variances and ethical variances in different part of the world. A relativist approach would enable CSR to be flexible with regard to new and changing societies and environment. A principles- based approach would require the company to adhere to the spirit rather than the letter of the code. The company must either comply with the code or explain why it has not through reports to the appropriate stakeholders. Where as on the other hand, a rule based absolutist approach would be expensive and inadequately flexible. This is because the standards in are developed based on rules and different society and culture rules differ from other societies. Therefore, it is not probable to adopt an absolutist approach towards CSR.
Another argument against the CSR is the implied assumption that the positive correlation between carefully chosen CSR initiatives and firm financial performance is not everlasting. This is supported by Mintzberg (1983) where he argues that beyond a given level of CSR investment, the market will cease to reward it. Mintzberg asserts that the stock market is willing to reward social responsibility only to a point "It pays to be good not too good".
On the other hand, sustainability should be absolute. Companies should consider being sustainable in all three sectors which are Economical, Environmental and social. Sustainability is not only important for the companies but also equally or more important for the survival of natural habitat and environment. There should be more regulations requirements for the sustainability issue and the requirement to disclose sustainable activities report should become mandatory. There should be universal law on the issue of sustainability and it should be global.
According to my findings the concept of CSR should be relative because it gives greater flexible but on the other hand the concept of sustainability should be separated from CSR i.e. there should be a special independent report on Sustainability and it should be Absolute to disclose the information regarding sustainability.