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Corporate Social Responsibility is a term that has been very popular recently. It represents the obligation of an individual, or in this case an entity, to benefit to society. There is no longer consideration for profit only. Today society demands from companies to take care of them and the environment in which they operate. In simple words, Corporate Social Responsibility is a way of doing business by combining economic benefit with sustainability of the environment. Companies may contribute to environment in many ways among which there are: protection of the environment, by investment in social, educational or cultural programs or by getting the return on employed human resources. This paper analyzes the concept of CSR and it explains benefits that company may get if it pursues Social Corporate Responsibility.
Key words: business, company, corporate social responsibility, corporate strategy, environment, profit, society.
Corporate Social Responsibility (CSR) is a part of business ethics. Ethics represent the process of doing things that are morally correct. By CSR, companies are trying to maximize their positive impact on society and to minimize the bad one. CSR is very important to consumers all over the world. Increase in pursuing the products with "green" characteristics is one fact that proves it. Previously, in time of communism (social economy), social responsibility and increase of living standards were basically the government issues. By accepting the open (market) economy and privatization of the companies, this also became the issue of those who operate in the market. Another reason is that people demands are much higher nowadays and government cannot deal with all of it. Companies also saw their chance of being different by pursuing certain so called "socially responsible policies". Today, CSR represents a way of differentiation, a way of gaining competitive advantage in the market. Two main questions for the companies that apply corporate social responsibility are the quality of the management and the degree of impact of their operations on the society.
The general social belief is that companies are the ones who created environmental and social problems by their tenure of people and nature through the centuries. This is the reason why they are perceived as those who are responsible for these issues. Francois-Marie Arouet known as Voltaire (1832) was a writer, and according to certain evidences, he was the first one that used well known phrase "with the great power comes great responsibility". Later on, many artists, politicians and other people used this phrase in their speeches and it became a normal phrase for responsibility. In modern economy companies have the power so they should be responsible behavior toward the society in which they operate.
CSR may be seen as topic that is a new one, but this concept was developing through many years. After the Second World War, people started to put attention on the issues of environment and social situation. From several influences, companies also started to think about this concept. Through the years, this concept became important not just for people in society, but also for the companies. Today, they see it as way of diversification on the market. It is become a tool to attract and retain the customers. Being socially responsible also gives trust to investors, and more of them are willing to invest in corporation with ethical principles.
In the near future, it is expected for this tool to become a separate strategy by which corporations will be guided.
1.1 Objectives of the study
The CSR is a very important topic and issue in today world. Many conferences are done on these issues in order to raise awareness and to make programs and mechanisms to deal with it. For the wellbeing of not just certain societies, but also for the whole planet, it is out of essential importance that companies start to use the concept of Corporate Social Responsibility in order to make the environment sustainable. The core of this paper is to reach several objectives.
First one is define concept of CSR and those related with it. The paper will provide the information about development of this concept and what does it mean to today business world.
Second objective is to analyze benefits that company gets by having social responsibility towards its community. Furthermore, it shows the potential threats when applying the CSR and it show negative the consequences that may come from avoiding social responsibility.
Final objective of the paper is to show the challenges that societies and corporation are facing in the modern economy.
1.2 Significance of the paper
The main significance of this paper is that it shows the reasons why to apply CSR and why it is important to the consumers. Further, this paper provides several real examples related to the concept. It represents a quality literature on the topic and may be used for other researches in the future. The main findings and information that are provided may be useful for students, academic staff and businesses.
1.3 Structure of the paper
The paper is constructed out of nine chapters. First chapter, which is introduction, explains the topic, reasons and purpose of the paper. Chapter 2 deals with previous literature on the topic. Literature is based on definitions of CSR and relationship between CSR and business performance. In chapter 3, historical data has shown. By this chapter, paper provides information on how development process of CSR was done, which events have influenced people to start thinking about it and what obstacles it faced in its way toward the concept that is known today. Information about the approaches, principles and types of modern CSR are provided in chapter 4. Chapter 5 shows how CSR can be implemented as a strategy and additionally this concept shows the corporate manager tasks. Comparative assessments about potential benefits and costs of this CSR are provided in Chapter 6. In chapter 7, paper shows the main reasons why companies decide to implement CSR and how do they act in the market. Chapter 8 deals with new challenges that are present in the market. Here, it may be seen how globally powerful company may use weak economies in order to gain benefits for themselves. Conclusions about the topic are given in the final chapter.
2.1 Definitions on CSR
Even if concept of CSR is a modern one that started to create a real shape few decades ago, some initial literature and papers that were including parts of this concept are dating from an earlier period. Barnard (1938) defined this concept as analysis of five aspects of environment: economic, legal, moral, social and physical.
According to Carroll (1983) profitability and obedience to the law are foremost conditions when discussing the firm's ethics and the extent to which it supports the society in which it exists with contributions of money, time and talent. He assumes that corporate responsibility goes far beyond the pure profit and that therefore it should take into consideration other aspects, mainly the social ones.
Because it includes corporate citizenship, corporate sustainability, business ethics, shareholders management, environmental management, and corporate social performance, Visser (2005) defined CSR as an umbrella concept.
According to Waldman (2006), company that practices CSR is the one that invests in employee development and empowerment. It is a company that shares information with its employees in order to give them better knowledge, so they could progress at the work.
Guthey, Langer, & Morsing, (2006) called CSR as latest management fad, which is referred to the fact that this concept should be developed even more in the future.
2.2 Relationship between CSR and business performance
As a time passed, and concept has been developing and started to be used the relationship among the CSR and business performance has been changing. Previously, due to different economic regimes in the world, it was hard to find the evidence on relationship among these concepts. Even in certain cases, there was a negative relationship meaning that the money that company invests does not give returns. However with open economy and open competition positive relationship is the one that researches find mostly. Nicholas Overton (2009) in his dissertation wrote the following: even though some studies postulated a negative relationship (e.g., Vance 1975) or no relationship (Aupperle et al, 1985) between the Corporate Social Responsibility (CSR) and business performance, more recent studies provided the empirical evidence that there is a positive relationship between those two constructs (Abratt and Sacks 1988, Russo and Fouts 1997, Waddock and Graves 1997).
Miles and Munilla (2005) explained the reasons of using CSR model through the table which holded Van Marrewijk (2003) framework and Carroll (1991) pyramid. There are many benefits that can be obtained from applying the concept of CSR. Detailed information are provided in the main part of the paper.
DEVELOPMENT OF CSR
Corporate Social Responsibility is often interchangeable with corporate ethics, corporate accountability or corporate responsibility.
3.1 Historical facts on CSR
History of CSR is closely related to the history of the companies. Some specialists in the field of social responsibility, link the origins of concept of CSR with an ancient times. According to them, countries that were dealing with trade such as ancient China or Egypt, were putting importance on wider public interests. Through the time, this concept was evolving and while companies were establishing themselves as market driving forces, importance on social responsibility was slightly growing.
Through the years many slaves were used. Children, women and men were all working for many hours in order to produce resources that owners needed. Many people died and got injured on their "work places", while others were tortured. Among the first biggest events that showed that CSR is important is related to the end of 18th century and British riot against British West Indian Sugar Company. The reason was the slave trade and more than 400.000 of people signed petition against it. The first legislative body that made decision about ending the slave treatment was British Common House in 1792.
Certain advance in the field of CSR was started in 19th century, simultaneously with Industrial Revolution. This was a time when many people started to work and being paid for it. This period may be described as the one of transition in people life; both in working and demographic conditions. However, CSR still was not represented as it should. In this time, the leaders of corporations were the "leaders" of societies. Most of them were using Social Darwinism as a policy to rule. This policy is related to selection and survival of the strongest. That was the way how companies acquired workforce. People were used up to the limits and certain "social giving" were done by subjective beliefs or will of the owners. From this, it can be concluded that approach to the society was not the company ones, but rather the individual.
With the new (20th) century, the situation was starting to change. Many riots were happening and mostly the reason was dissatisfaction with working conditions. Large corporations were perceived as exploitative ones. These riots were resulting in new laws that were aimed to protect workers, societies and consumers. These were the first significant facts that were indicating to the future CSR model. In the following period, companies' strategies were changing from purely profitable one to the strategies that were now looking to society and taking into consideration some other responsibilities toward the environment in which they were operating.
The mid of the century was characterized by civil right movements throughout the world. The results were not the same in each country, but what is common for all is that these actions lead to certain improvements in laws. The focuses of people dissatisfaction in that period were once again the large corporations. From them, it was demanded to be more socially responsible. This was mostly related to the two facts; that corporations were mostly the cause of societal problems and that they had the possibility to entail themselves in solving those problems. People were demanding equal job opportunity and safety for environment, products and workers.
All these initiatives are representing the large part of today phenomena known as Corporate Social Responsibility. In this period the line between traditional and modern approach to CSR started to be drawn. From traditional approach, that was representing the interests of the owners and stockholders, CSR started to represent wider public interests such as stakeholder (workers, consumers, inhabitants, and environment.
3.2 Sustainable Development
The important thing that happened in the following period, and is hugely important today is Sustainable Development. In 1987, UN committee defined sustainable development as a pattern of growth in which resources use aims to meet human needs while preserving the environment in the way that these needs can be met not only for current situation, but also for generations to come (UN, 2012).
It represents holding the balance among consumption, savings and regeneration of all our resources because not only current but also coming generations will be dependable on them. Sustainable development is a process of change and it has to start from each individual and it continues by transmitting it to each area of our lives.
International Institute for Sustainable Development (IISD, 2012), states that all definitions on sustainable development require that we see the world as system - a system that connects space; and system that connects time. According to this institute, process of SD is constructed around two key concepts.
First one represents the needs of "poor part" of the world, low budget people and those who live in regions where there is no or very little life resources. In year 1970, World leading countries made an agreement to allocate 0.7% of their total gross national income in order to help those countries which were struggling.
Second concept represents ability of planet to meet future generation's needs. Sustainable development represents a system of interrelated global issues that in future could threat to total collapse of the planet if people do not act in the present.
On this definition, all international polices related to protection of environment are built. Since 1992 and a conference in Rio de Janeiro sustainable development became a leading term in field of politics about environment. From this point there is much clearer relationship among environmental, economic and social problems.
Sustainable development implies:
Consolidated use of resources
Consolidated technical development
Consolidated institutional changes
During the process the understanding of sustainable development has been spread to two more fields: economic and social. All three are making so called "magic triangle" of the process.
From the figure above, it can be seen that only in a case when all three dimensions are satisfied, or that problems are being solved at the same time, country can reach sustainability.
Corporate Social Responsibility (CSR) is an issue that is working its way into many policy debates and corporate agendas. CSR is an evolution in the approach towards sustainable development; while the 1992 Rio Earth Summit focused on environmental management, the 2002 World Summit on Sustainable Development (WSSD) focused on a broader set of issues, including poverty reduction and social development. (IISD, 2012). Here, it may be seen how issue become important for the countries and how much importance is given to the topic. Now, people are aware of potential threats to the earth and they are trying to develop programs that may help in sustainable development of the world.
CONCEPT OF CSR
4.1 Approaches to CSR
There are several perspectives from which people, organizations and governments look at CSR. According to Marrewijk (2003), there are three basic approaches to the CSR that were developed through the time.
Shareholder approach refers to the one that is based on economic reasons. Main idea behind this approach is to maximize profit and to prong benefits to those who "own" the company. The centre of the approach is the company and its future. Those who manage should focus on well being of the company, to strength it and to find the way for improvement and expansion.
Stakeholder approach refers to the approach that includes certain others parts of the company that are also important. This approach does not see its owners as the only ones that are important, but also puts importance on other stakeholders such as employees, customers, partners and others. It is taught that each actions of the company does not affect just the company itself, but also other entities that are connected to it.
Societal approach refers to the wider approach of all. It puts importance of company's responsibility toward the society, because without society approval company could not operate. This "modern" approach shoes that company is fundamental part of the society so they should support and invest in it.
When summing all, it can be distinguished that Shareholder approach is the oldest and the strongest one. If there is no will for profit neither of the other two approaches may be used. So, company should apply all of three approaches in order to satisfy each side that is affected by its actions.
4.2 Principles of CSR
CSR is among top issues in the current corporate world. As already stated there are two sides of public view regarding this concept; one side is the one which supports it and the other one is against it. In order to evaluate CSR activities, in most cases, three principles are used.
Sustainability as a principle deals with the effects that current actions have on future. Resources should be used in a way that they satisfy the current needs and that they will be there in a future. The best way to explain this principle is the example of forestry. For each action of cutting trees there should be an action of planting the new ones, in order to have those resources in the future. The big issue with this principle is related to the resources that "cannot be planted" such as coal, silver and others. Sustainability dictates that those resources should be used carefully and that programs should be developed in order to find substitutes that could be used in the future, when there are no more supplies of certain resource. Companies that do not care about sustainability will not survive in the future. If company represents the vital part of current economic system, it therefore should use the resources in the amounts that can be generated.
Accountability refers to the principle by which company shows that they are aware of the effects that their actions may cause in internal and external environment. The most appropriate way of using this principle is to give knowledge to the parties which are part of environment (both internal and external) about the possible consequences of company's actions. Further, this principle may be described as a system of evaluating and reporting of measures taken regarding the actions done in the environment. In any case, benefits that are gained from those actions must be above the costs, for the company and society. Report should be understandable and available to all parties included and they should represent the situation as it is (information should be correct). Information should include quantitative and qualitative data and it should be explained in a way that ordinary citizen may understand it.
Transparency refers to the process of providing the information to the society about company's business, results and others. This is especially important for the actions that affect the society. This principle may be described as the one that follows the previous two principles. It represents the process of society's familiarization with business of the company. If company uses transparent policies and ways of reporting, it is easy for people to get knowledge about sustainability and accountability of the company. As already stated, all principles are taken from CSR framework and that is why there is importance on corporate governance.
4.3 Types of CSR
As the companies see CSR as diversification tool, they engage in many different areas by which they try to get more benefits. Carroll (1979) argued that companies have to look outside of their core responsibilities (economic and legal). In his work from 1991, he added two more responsibilities that each of the company has to take into consideration. Based on this, and further discussions, today Corporate Social Responsibilities is constructed out of four main responsibilities.
4.3.1 Economic area
Through the history, the main responsibility of each company was to maximize the profit which means that they must reach their financial goals. This responsibility is called economic or financial one. It represents the most important responsibility of the company. Everything is dependent on this process (produce and sell). In order to be able to fulfill any other of the responsibilities, this one has to be satisfied, either company faces crisis, which may results in many negative events in the society. Based on everything stated, economic responsibility is at the bottom of the pyramid, since business which does not gain profit, does not stay in the business for long.
4.3.2 Legal responsibilities
Economic responsibilities have to be reached in accordance to the law and regulations of the society in which company operates. So, corporations are operating in accordance to the rules imposed by the governments. Those companies who gain economic benefits with obeying laws are perceived as socially responsible. Customers perceive those companies responsible in the way that they believe that those companies use quality materials and production processes that pass minimum legal requirements and that their final goods are safe and will not harm the environment.
4.3.3 Ethical area of responsibility
Those companies who are believed to be ethical are expected to do the right things for the society. Society expects them to reach their financial goals by doing it in a right way. Companies should avoid the actions that are against the society norms even if they are not forbidden by law. If we take an example of less developed countries that have not strict laws about environment protection, it is still not good for the companies to use it and harm society.
4.3.4 Philanthropic responsibility
This area of responsibility represents the one where investments are made in society in which company operates. Philanthropic responsibility gives big credibility to the company. Society expects from those successful companies to invest the money in projects that brings benefits to them. Most investments are done in educational and scholarship programs, cultural programs, renovation of certain institutions, green fields, parks, sport centers and clubs and others. Based on these types it may be assumed that there are two forces that drives social responsibility: company and society. Economic and legal responsibility are more important for the company, while on the other side, society perceives ethical and philanthropic responsibility as the important ones. However, all of them combined make one important part of the society and each should contribute to the other.
CSR AND MODERN BUSINESS
Strategy is a Greek word that has meaning of command or generalship. This term is known from ancient times, where battles between empires were done. This is mainly known as military strategy that is even used today. On the other hand, strategy is used in any other part of life.
Corporate strategy is referred to the overall scope and direction of a corporation and the way in which its various business operations work together to achieve particular goals. (Business dictionary, 2012) Those who are charged for implementing of these types of strategies are managers of the corporations.
Drucker (1986), sometimes called as a father of manager, defined the management as independent of ownership, rank, or power. It is objective function and ought to be grounded in the responsibility for performance. It is profession; management is a function, a discipline, a task to be done; and managers are the professionals who practice this discipline, carry out the functions, and discharge these tasks.
5.1 Principles of business process
Drucker (1954), in his book Practice of Management, defined five main principles of management that are widely used today. According to him, manager or group of managers as leaders in implementation of a corporate strategy should deal with following five tasks.
Set objectives - This refers to responsibility of manager to identify what are the objectives of the company. Then, manager determines goals as a part of objectives, it opts for the ways by which those objectives should be accomplished and it introduces the people (workers) that will be part of implementation process with the objectives in order to have efficient work. By this, manager reduces possibility of future misunderstands of employees.
Organize - This part is related to the analysis of the decisions and activities related to purpose of the company. Further, manager divides work into activities and assigns people for each job. Through classification, these jobs become a part of organizational structure. Good organization prevents time consuming, saves money, makes more relaxed atmosphere and it gives more time to managers that can be used in the implementation process, which at the end demands the most commitment.
Motivate and communicate - This refers to the most difficult part of implementation process. Manager needs to be the one that "starts the engine", the one that puts fuel in it. Team of people that were chosen for the job must be motivated. This is done through several ways such as pay, placement and promotion. The important part here is continuous communication with upper and lower levels of the company. Through this, manager gathers information and slightly directs people in a way that he desires. In modern organization, motivation is playing a big role. It is believed that through motivation several benefits can be obtained such as increased efficiency, easier way to reach objectives or better relationship among employees.
Measure - This is a part through which manager follows the process of achieving the goals and objectives. Two main part of process are evaluated: the process itself (is it a good one) and employee assigned for the task (are they perform well). So, manager analyzes progress and writes reports that are submitted to the parties involved in the process (superiors, subordinates and others). Also, good monitoring process give possibility to managers to react and prevent further damages, in cases when process goes in the wrong way.
Develop people - Since, especially today, people represent one of the most important part of the company their development is important. Modern, knowledge economy demands from people to upgrade their knowledge and skills each day and that they follow the current trends. This applies to the employees at all company's levels, including managers. Tomorrow, when company needs people for certain position it is much easier and safer to choose from its own pool than to bring someone from outside.
The traditional way of management (business) planning is constructed in a very similar way.
From the figure above we may see two additional circles to Drucker theory. While FIVE of his principles are sorted in four circles, there are two other steps that are included at the start and at the end of a cycle. First one is to gather information which is mostly related external information (market, law, competition). This step helps managers to assign better and more feasible objectives and goals for the company. On the other hand, evaluation plan refers to the step of having feedback, which is used in order to stop or modify the initial planning process.
5.2 Business as corporate strategy
Today, CSR is referred as an integral part of corporate strategy. In the future, it is believed that it will be a separate strategy that may be ruled by independent department. To be profitable each part of business must be carefully measured. CSR gives certain direction, or maybe it is better to say that it gives certain performance indicators which create standards for the business. There are many examples of corporations that integrated CSR as a strategy into their business. Some of them are supporting educational programs, some of them cultural some of them are related to the environment. Nestle Company, from Switzerland, deals with production of healthy and nutritional products. Founded in 1866, today this company reports the highest revenues in the world. Among the most known products are Nesquik, Nescafe and KitKat. According to them, they incorporate CSR in order to get best ingredients for their products. It is done through continuous work with their supply chain throughout the world. They try to use the best technologies and practices which give them results of high quality products, loyalty of their suppliers and sustainability.
Ethical behavior of top management is very important since it reflects the ethical culture of the company. According to Business Case Studies (2012) ethical behavior may:
attract customers to the firm's products, thereby boosting sales and profits
make employees want to stay with the business, reduce labor turnover and therefore increase productivity
attract more employees wanting to work for the business, reduce recruitment costs and enable the company to get the most talented employees
attract investors and keep the company's share price high, thereby protecting the business from takeover.
Managers represent the company and they behavior reflect company's image and reputation. Those who avoid this behavior, sooner or later, will face consequences of it such as customer disloyalty or sales and profits decreases.
Case provided below shows how corporate unethical behavior can damage the business.
From the case above, it may be seen how business ethics should not be applied. Because of this, Enron Corporation went to bankruptcy and if we take the example that somehow they survived this scandal, their reputation would be destroyed, providing them very low possibilities to continue the business (with customers and partners).
Similar case, we have with so called Greek crisis, where government officials used so called creative accounting in order to cover bad countries financial situation.
Such frauds and collapses of the some biggest corporations in the world have put even more importance on CSR framework. So, each manager should put attention on his behavior in the business. As ethical behavior is "to do what is morally right", every individual in the business should try to maximize its efforts to do it like that. This is not just pure theory, but certain researches have shown positive relationship between ethical business and profitability, which means that; more the company (managers) applies ethical behavior, there is higher possibility for profit.
Another important thing is corporate governance which represents the system by which companies are directed and controlled (Cadbury Committee, 1992). It is a system of networks between all parties included in the corporation (narrow and wide aspects) and corporation purpose for which they all work. There are two main parts of corporate governance:
Internal corporate governance refers to the system of monitoring internal activities of the company in order to follow current progress and to interfere in certain stages so the final objectives should be reached.
External corporate governance refers to the monitoring activities that happen outside of the company. The main focus here are competition moves on the market, then market itself, suppliers and other forces related to the business.
In time of globalization, where most of the companies are trying to become a global one, it is essential to do it and to stay sustainable. So, if spreading of business will hurt the company then plan should be revised. There are four main corporate governance principles which are all related to CSR principles. Here we have transparency, accountability, responsibility and fairness.
Among the main goals of good corporate governance there are increased credibility, creation of sustainable value, more effectiveness and efficiency of the management, holding the balance among benefits for company and society and etc.
In order to implement the concept of CSR efficiently, corporate management has to take into consideration each aspect related to the business. Maybe the best way to illustrate the factors that influence the daily business is the figure below.
There is no perfect CSR. There is only a good and bad willingness to deal with the issues.