Corporate social responsibilities fall into four main areas. These are economic, legal, ethical, and discretionary responsibilities. These four responsibilities together form the total of a company's social responsiveness. A company's ethical and social responsibilities are increasingly considered as important as economic and legal responsibilities, with managers and organisations typically finding themselves involved in several such issues simultaneously (Daft 2006).
Regester and Larkin (2005) state that CSR is an emerging, as yet poorly defined, process used by some as a fashion statement through glossy reports and websites, and others as a potential framework for demonstrating a more responsible approach to doing business. Over the past two decades, the pressure upon business to become accountable and perform a social and environmental role has increased dramatically. Incidents such as the Union Carbide accident in Bhopal, India and the Chernobyl nuclear power station disaster in the Ukraine helped put corporate responsibility for environmental hazards on the international agenda. Western industrialised governments responded to such incidents, and established legal and regulatory frameworks for corporate responsibility.
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Pearlson and Saunders (2004) state that social contract theory means that the social responsibilities of corporate managers require to consider the needs of society together with the corporations business arrangements. Society bestows legal recognition on a corporation to allow it to employ social resources toward given ends. The meaning of this contract is that, in allowing a corporation to exist, society demands at a minimum that it creates more value to the society than it consumes. In this way, society changes the corporation to enhance its welfare by satisfying particular interests of consumers and workers in exploiting the advantage of the being a corporation. There are two components relevant to the social contract. The social welfare term arises from the belief that corporations must provide greater benefits than their associated costs or society would not permit their creation. Similarly the justice component holds that corporations must pursue profits legally, without fraud or deception, and avoid activities that injure society.
Maslow's theory of motivation of human needs covers five headings. In relation to its application in industry, the physiological needs are the basic ones to satisfy the requirements to be fed, watered and stay alive, the safety needs are the common desire for employment with security, pension and insurance, the social needs are those of belonging to a group, The esteem needs are a desire for reputation, prestige, recognition appreciation and importance. The final need is the need for self-actualisation, or self-fulfilment which is the tendency for a person to fulfil their potential. Applying Maslow's theory to industry requires the acceptance that work should provide at least the financial means for pursuing the all-important goal of self-actualisation outside the organisation, namely in leisure activities and family life (Adair, 2006).
There is often conflict between codes of conduct and the practical realities of applying what Western countries believe they constitute and their application in other cultures. Porter (2008) argues that there is a link between competitive business advantage and CSR. The CSR field remains strongly imbued with a moral imperative. In some areas, such as honesty in filing financial statements and operating within the law, moral considerations are easy to understand and apply. It is in the nature of moral obligations to be absolute mandates, however, while most corporate social choices involve balancing competing values, interests and costs. Google's recent entry into China, for example has created an irreconcilable conflict between its US customer's abhorrence of censorship and the legal constraints imposed by the Chinese government. Very recent events have shown that codes of conduct can be cynically ignored when they conflict with political attitudes towards criminal activities. As reported in 2010 Google has decided to end censorship in China following malicious hacking attacks in China against Chinese human rights activists who had used social networking to further their cause. This was seen as blatantly ignoring the obligation of all nations to keep its part of the Internet secure, and China's failure to criminalise such activities (Guardian.co.uk 2010).
The responsibility of a business is to produce the goods and services that society wants and to maximise profits for its owners and shareholders. The economist Milton Friedman held the view that the corporation should be operated on a profit-oriented basis, with its prime mission to increase its profits while staying within the rules of the game. However, this profit-maximising view is no longer considered an adequate criterion of performance in much of the Western world. This approach means that economic gain is the only social responsibility and can lead companies into difficulties (Daft 2006).
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There can be economic benefits in the application of codes of conduct, either directly, or by avoidance of potential cost at a later stage. Keinert (2008) states that proven benefits good CSR can bring include the achievement of competitive advantage, better reaching market segments like ethical consumers and socially responsible investors, and enhanced opportunities for strategic alliances or other partnership as major business opportunities. One source of major competitive advantage possibly achievable through CSR is the lowering of operational costs. This can be accomplished through saving disposal costs of IT or other equipment when donating it. Also investments in environment-friendly or otherwise socially beneficial business processes or products can incur cost advantages in case they later become either regulated, or an industry standard.
Esty and Winston (2006) believe that competitive advantages are becoming ever more difficult to establish and maintain because the traditional points of competitive differentiation are being constricted on all sides. Companies must find new ways to break out of the pack and those who don't will struggle to keep up in the marketplace. One opportunity is a refinement of overall business strategy by introducing an environmental sub-strategy. The business world is waking up to an inevitable and unavoidable truth that the economy and the environment are deeply intertwined. All goods depend on nature and the services it provides, and without careful stewardship, natural resource constraints will encroach on growing number of companies and industries. Concern about these trends is driving laws, rules, and expectations that will further restrain business. Major companies like Wal-Mart and General Electric have launched major environmental initiatives.
Vogel (2005) argues that many people are attracted to firms whose values and behaviour are similar to theirs and the leadership and employees of successful companies often share a common vision. A survey in 2004 of more than 800 MBAs from leading North American and European business schools showed that ninety-even percent would be willing to forgo an average of fourteen percent of their expected income in order to 'work with an organisations with a better reputation for corporate social responsibility and ethics'.
Businesses are expected to fulfil their economic goals within a legal framework which recognises what society thinks of as appropriate corporate responsibility. The legal requirements are those which are imposed by local and governmental authorities. For example intentionally manufacturing defective goods of submitting a bill for work which is not carried out is illegal (Daft 2006).
Corrupt practices can be ignored, or even connived at, by unscrupulous management and in some cases aided or at least connived at by political interests. These corrupt practices can and do bring about the downfall of seemingly successful businesses. Forster (2005) argues that historically, unethical, corrupt and illegal practices have been part and parcel of doing business for centuries, in spite of the considerable damage that such activities have caused. In more recent times, following the notorious Enron bankruptcy case in 2001, it was found that the senior managers of Enron had been lining their own pockets prior to declaring the company bankrupt. The collapse of Enron also led to the extinction of one of the world's biggest accounting and consulting firms, Arthur Andersen and the company was found guilty of shredding documents in 2002, and several other criminal trials involving Andersen employees, who were supposed to have 'audited' Enron prior to its collapse, were the subject of court cases. An even larger collapse was the case of the telecommunications company Worldcom, with nearly forty billion dollars unaccounted for and 17, 000 redundancies in 2002, where again, the senior managers of this company had also been lining their own pockets prior to declaring the company bankrupt, and several politicians in the US had sold off their stock in the company prior to its collapse.
Demonstrating ethical responsibility means that organisation decision takers should act with equity, fairness, and impartiality, respect the rights of individuals, and only alter treatment of individuals when relevant to the goals and tasks of the organisation. Unethical behaviour occurs when decisions enable an individual or company to gain at the expense of other people or society as a whole (Daft 2006).
According to Torrington et al (2008) the key issue with ethical codes is the extent to which they are supported by the people to whom they apply. They are not rules that can be enforced by penalties for non-compliance. It is necessary that they are understood, appreciated and willingly honoured by the great majority of those who are affected. There will then be considerable social pressure of the few who do not wish to comply. A disadvantage is that such a code may not be equally administered or supported, especially in the case of international companies. This is illustrated by the case of an American company with a high-profile commitment to positive action to seek out and employ members of disadvantages groups, reinforced by a program of employment and development for minorities. In The UK, however, was widely ignored on the basis that it was not an obligation on the part of management. In this way, it is clear that ethical responsibility can be interpreted in differing ways by different cultures.
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May et al (2007) state that when a company voluntarily elects to be responsible and by its activities, goes beyond what is strictly required of them, then that constitutes ethical conduct. It exercises its social responsibility in a committed manner, and, with that, demonstrates not only that it considers itself responsible, but also that it recognises the importance of the others around it. Among the major benefits of this type of ethical behaviour, the World Bank mentions the following advantages for companies: it generates a social license to function; it provides sustainable development that improves reputations ad trademarks, yields more efficient operations, boosts sales and preserves customer loyalty, and provides greater capacity to attract and retain employees; it creates new business opportunities; it attracts and retains investors and partners; it avoids crises from bad conduct; it generates government support; and it creates relational and political capital.
The issue of ethical behaviour and its acceptance has been radically highlighted by the growth of unregulated communications in the form of the Internet. The massive increase in the use of the Internet by companies have led some to develop a code of ethics regarding non-work-related Internet use, and a policy covering Internet usage and making it known to all employees. Without a formal policy, it is much more difficult to enforce desired behaviour and deal with violators (Turban 2006).
Accepted work conditions and practices differ markedly on a global basis. One disadvantage occurs when a major corporation in an advanced economy does business in a developing country; it may have established a level of corporate virtue consistent with the host country's expectations, but employs workers in Southeast Asia in accordance with local customs and practices. This is the case for Nike, who run athletic footwear plants in Southeast Asia and has opened themselves up to changes of operating sweatshops, and averaging down its level of corporate responsibility. Once an image is established, it is difficult to dislodge in the minds of the public (Werther and Chandler 2006).
Mullins (2008) states that personal integrity and individual values are important elements in ethical decision-making at work, but the increasingly common company, professional or industry codes of conduct may also provide support and guidance. These ethical resources do not always provide a clear and comfortable guidance, and sometimes, people in organisations will experience tension between the conflicting demands of their own personal values and the demands placed on them by the organisation. If these conflicts become intolerable and cannot be resolved through normal means, then an individual may decide to become a 'whistleblower' in the public interest, by taking the high-risk approach of placing the problem in the public domain for resolution. Codes of conduct can help to reduce the risk of painful situations like this by providing a published set of values to which an individual can appeal, rather than taking the risk wholly personally.
Discretionary responsibility is purely voluntary and is guided by a company's desire to make social contributions not mandated by economics, law, or ethics. Discretionary activities include generous philanthropic contributions that offer no payback to the company and are not requested by those who are recipients (Daft 2006).
Fisher and Lovell (2006) state that corporations are increasingly subject to scrutiny via international codes of conduct, such as the UN Global Compact, the Organisation for Economic Cooperation and development (OECD)'s Guidelines for Multinational Enterprises, the Ethical Trading Initiative as well as various industry-specific or issue-specific codes, such as the Sweatshop Code and the Breastmilk Substitutes Code. However, while the number of codes increases, concerns regarding the efficacy of such codes also grow. Christian Aid provided three case studies of alleged double standards, hypocrisy and /or duplicity by, respectively, Shell and the continuing problems of the people on the Niger delta from Shell's exploration there; British American Tobacco (BAT) and the medical ailments of the tobacco pickers of Kenya and Brazil; and Coca Cola and its alleged use (or misuse) of a village water source in India. Each of these companies claims high ethical standards. They each produce a social accountability report and BAT and Shell have been recognised as being leaders in social reporting. However, the form of voluntary reporting and accountability argued for on the Global Compact has been criticised by Christian Aid as, at best, of little significance, but, at worst, providing a façade of social responsibility for its members, while behind the façade little appears to change.
Pride et al (2008) argue that social responsibility is the recognition that business activities have an impact on society and the consideration of that impact on decision-making. In the first few days after hurricane Katrina hot New Orleans, Wal-Mart delivered $20 million in cash, 100 truckloads of free merchandise, and food for 100,000 meals. The company also promised a job elsewhere for every one of its workers affected by the catastrophe. Social responsibility costs money, but what is not so obvious is that social responsibility is good for business. Customers eventually find out which companies are acting responsibly and which are not. And as a result they spend their money on a product made by a company that is socially responsible just as easily as they avoid a company that does not display this behaviour.
The philanthropic approach has produced a competitive advantage for the Body Shop business. The main products of the Body Shop are cosmetics, in an industry that has been strongly criticised for animal testing of products, its use of ingredients that have questionable origins in terms of environmental damage, and its negative effect on women's self-esteem through marketing. To counter this, the Body Shop has designed its products around a strategy of no animal testing, fair trade with third-world suppliers of raw materials, environmental concern in product development and packaging and products that keep their promises and whose prices reflect their contents and manufacturing costs more that inflated brand name prices. In addition, the Body Shop donates parts of its profits to various causes and idealistic organisations. All of these elements have been successful in attracting loyal customers who would not consider buying a pricey branded product that might have been tested on animals (Andersen 2004).
Schaffer et al (2008) relates that the Levi Straus & Co. Global Sourcing and Operating Guidelines are generally recognised as the first code of conduct created by a multinational corporation and made applicable to its foreign suppliers, and their basic ideas could be applicable to any firm that does business through a global supply chain or with a supplier or contractor in a developing country. These guidelines represent an effort by Levi Straus to control the activities of more than five hundred overseas contractors and suppliers. in the 1990's the company discovered that twenty-five percent or more of its subcontractors had abused employees in some fashion, and one plant in Bangladesh was using child labour. The response by Levi Straus was to develop guidelines to ensure that its contactors could not do it again. Levi Straus provides its suppliers with manuals and training programs to implement their standards. The company also developed its Country Assessment Guidelines, which are factors to be considered in deciding in which countries they will do business, including whether the human rights record of the country would be damaging to the Levi Straus corporate reputation or brand image.
There is increasing pressure, particularly for companies in the Western world, or those based in the West, to adopt codes of conduct which affect their economic, legal, ethical and discretionary actions as they pursue their business objectives. There is a proliferation of such codes, and while there are penalties for non-compliance in the economic and legal areas, adhering to ethical and discretional codes can vary with the cultural expectations of the areas in the world where they are employed. This is illustrated by difficulties experienced by international companies in conducting business activities in the underdeveloped areas. There are significant competitive advantages to be gained by the adoption of codes of conduct, but equally, there are pitfalls in that they may conceal hypocrisy on the part of companies who espouse their adherence to them. Deliberate flouting of widely-accepted ethical codes and responsibilities is also demonstrated by some national governments.