The Notion Of Corporate Social Responsibility Business Essay

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Corporate Social Responsibility (referred to as CSR from here on in), has never achieved a solid definition; there are however, many subjective theories offered by academics and professionals alike. For many, the subject of CSR surrounds itself by ethics, integrity and a social awareness. It is believed that companies should bear the responsibility of the ways in which they maximise profits, not just reap the rewards. Catherine Pendamon argues that 'businesses values such as profitability and efficiency should work together with ethical values such as honesty, integrity, fairness and transparency' [1] . Many would view the concept of social responsibility as making the right choices in the interest of the shareholder. Companies must however, branch out further in the broader sense and include employees, the local community, the government, suppliers, the consumers etc. It can be said that there is a 'contract' between society and businesses. There are laws and regulations that the businesses will strive to abide by, and in return there is a mutual understanding of each other.

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CSR is a fairly recent conception, only becoming acknowledged during the 1950s. Bowen, a leading scholar, first discussed CSR by stating that businesses have the obligation to 'pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society' [2] . At this time companies developed into including employees as a part of their social responsibilities, which included the introduction of benefits such as pensions, medical insurance and retirement programmes, etc.

Since this time, discussion surrounding CSR has increased over the years, making it now a hot topic. Although businesses may offer reports outlining their performance surrounding social responsibility, many companies have now incorporated these reports into their existing annual reports. An interesting definition offered by Joseph McGuire is one that can be said to have 'hit the nail on the head'. He said that,

"The idea of social responsibility supposes that the corporation has not only economic and legal obligations, but also certain responsibilities to society which extend beyond obligations." [3] 

This is an interesting definition because it encompasses both the company's legal and economic obligations working together; it recognises that businesses still need to make a profit. Therefore, it offers a situation where both economic and legal obligations exist as one entity. Carroll gives a definition which provides four different aspects to CSR. They define CSR as,

"[e]conomic, legal, ethical and discretionary (philanthropic) expectations that society has of organizations at a given point in time." [4] 

The economic responsibilities involve the company producing and providing goods and services that society wants and needs and offers said goods/services at a fair price, one that society believes to not exceed the value of the product. It should, however, be at a price so as to offer the company an opportunity to maximise profits.

Secondly, the legal responsibilities cited within the definition refer to the rules and laws of which a company governs itself. A company must comply with the law upon conducting all aspects of business, which include employment laws, consumer and product laws, environmental laws, etc. These can also be viewed as 'codified ethics', which is a common conception held by society. I will discuss the legal responsibilities that companies face in more detail further on.

Next are the ethical responsibilities. These responsibilities go further than the legal responsibilities in that they conduct their affairs in a fair and reasonable way towards society. There are expectations upon a company to engage in activities that protect the shareholders', employees and consumers' moral rights. These expectations may even be of a higher standard as standardised by law.

Lastly, the definition cites discretionary/philanthropic responsibilities. There are expectations upon a company to be engaged in activities which aid to develop communities and organisations in a beneficial way. Companies voluntarily concern themselves with environmental concerns. This could include environmentally friendly production and distribution as well as an environmentally friendly company policy, such as using environmentally friendly products and recycling etc. Being a good corporate citizen is a desired attribute.

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There are many advantages for a company to implement CSR into their daily conduct. Having a long term dedication to social responsibility maximises profits, as well as the company's credibility, both of which make for a successful business. The main advantage is undisputedly that awareness of social responsibility returns a higher reputation amongst society which creates an improved company image, aided by increased consumer satisfaction and loyalty. This will in turn maximise profitability and corporate sustainability meaning that the company would have better future prospects, including growth and development should this be an option. This would also make the company more attractive to potential investors as the company would have a strong reputation, and stand them in good stead against competition in the market. There are also many internal advantages such as a better reputation could increase employee productivity and loyalty, increasing production followed by an increase in profits. Potential employees would also find a company with a better reputation and a low employee turnover more attractive to work for than a company with a less than positive reputation.

There is a chance to decrease costs, which would benefit the company, by using environmentally friendly products which would result in resource and energy efficiency.

There are, however, also disadvantages to a company's adherence to social responsibility. Through research it would appear that in many cases, companies are not 100% dedicated and only adhere to the concept through growing social expectations. John Ruggie, a Professor in International Legal Studies at Harvard Law School, can be quoted as saying that "Companies are doing it. It's one of the social pressures they have absorbed" [5] . This would let us believe that companies do not regard corporate social responsibility as having any advantage over competitors, and they only adhere to it through social and governmental pressure. Many companies such as Boots and Coca-Cola have dedicated sections on their websites outlining their ethical and philanthropic objectives, and both companies are extremely successful. On the other hand, there are companies that do not exploit these objectives, who also enjoy massive success such as Ryanair and Primark [6] . These would lead to us to believe that adherence to social responsibilities could not be wholly responsible for the aforementioned companies global success. It can be argued that a company's main focus should be on maximising profitability and that they should leave social issues to others. Many corporations feel that taking on the responsibility of social and moral issues is not economically feasible. In the words of Bryan Husted, a Professor at York University, this argument can be supported. He argues that it would be,

"[w]iser for firms to act strategically than to be coerced into making investments in corporate social responsibility." [7] 

CSR also does not put companies at an equal footing, as many small and medium sized businesses fail to address social issues as it does not create any return for them. There is a danger that as awareness of CSR rapidly increases, as has been the case in recent years that this would hold back the smaller companies from developing and put them at a competitive disadvantage. However, larger companies can also have a competitive disadvantage through taking on social and moral responsibilities as it can cost a vast amount of capital through the effort to address these issues. If they do not see a return on their efforts through increased profits for example, then the company will be at a loss. Another argument is that many personnel within a company are incapable of addressing these issues to their full extent. Many do not understand societal issues fully due to lack of training. If a company was to spend capital on training personnel, equipping them with the skills and knowledge required to address these issues, then this would not only increase the costs of the company, but will also cost them in time as personnel take leave to attend such training.

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We cannot ignore the situation in which companies profess to adhere to corporate social responsibilities, but only in the rhetorical sense. Corporations have been known to publicise their social responsibilities to the public, however they still engage in harmful business practices. For example, the well-known company, Shell, publicised their CSR policy but still at one point misreported their oil reserves in 2004, causing huge damage to their reputation [8] .

Although there are many arguments both for and against a company embracing the responsibilities of societal issues, through research it would appear that there are huge benefits to be gained should one adhere to these responsibilities, in the event that they are taken on correctly and with 100% dedication.

Much speculation has surrounded section 172 of the Companies Act 2006 and its importance in the context of corporate social responsibility. Section 172 [9] details a non-exhaustive list of duties which directors must have regard to when conducting business affairs and promoting their company, as well as incorporating this with the 'enlightened shareholder' concept. A 'director' can be defined as any person occupying the position of director, by whatever name called [10] , including any person who is the manager of a company or otherwise concerned in the management of the company's trade or business [11] . The concept of 'enlightened shareholder' was first developed under the Blair government, when the Company Law Review Steering Group (CLRSG) was created. In a consultation paper issued by the CLRSG in 1999, the concept that company law existed to benefit shareholders. The paper stated that its main objectives were to "provide straightforward, cost effective and fair regulation which balances the interests of business with those of shareholders, creditors and others" [12] . The 'enlightened shareholder' concept can be defined as that the shareholder's interests prevail. It is argued that long-term profitability can only be achieved if the company, and directors of the company, have good relationships with the shareholders. A general criticism of British companies is that they prefer making short-term profit over long-term [13] , which is argued to be a damaging attitude to possess.

The most recent Companies Act 2006 attempts to clarify the law surrounding directors' duties. A study conducted by the Institute of Directors in 1999 found that many directors believed that the law required them to maximise short-term shareholder benefit at the expense of long-term profit [14] .