Corporate Social Responsibility In 1950 Commerce Essay

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1950 marks the beginning of evolution of CSR. After more empirical research and different approaches alternative themes began to mature as a result there where some new definitions of CSR by 1980's. These alternative themes included Corporate Social Performance, Stakeholder theory and Business Ethics theory. However, in 1990's the same basis was used but transformed through different frameworks. Corporate Social Responsibilities can be defined as, the "economic, legal, ethical and discretionary expectations that society has of organizations at a given point in time." (Carroll and Buchholtz 2003, p.36).

According to ( Kotler and lee, 2005, Maignan et al, 2005, Sen and Bhattacharya ) (CSR) Corporate social responsibility has becomes a serious issues Among, stakeholders and in the corporate world. A Current understanding of Corporate Social Responsibility is based on the concept of stakeholders' expectations (Carroll, 1979; Whetten et al., 2001),

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This means that companies are not only responsible for getting profitable return to its investors but is also responsible towards the society and environment from which it generates these returns. Traditional view, of corporation suggests that companies had sole responsibility towards its owners and stockholders. However, CSR requires companies to have broader prospective of its responsibilities that includes not only stockholders, but many other constituencies such as employee's, suppliers, customers, the local community, government, environmental groups and other special interest groups.

History

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In the eighteenth there was more focus on classic economic model of business given by Adam Smith which stated that the needs and desire of society could best be met by the unfettered interaction of individuals and organizations in the marketplace. However with the introduction of new technologies there was more concentration of power among rich industrialist who followed the policy of "Social Darwinism" a simple idea of the survival of the fittest. This idea of running business did not work for long and by the beginning of 21st Century there was sharp recoil against large corporations began to gain momentum. Many laws were enacted in order to protect the interest those not in power. The idea was that those with greater power had greater responsibility and should go beyond their economic and legal responsibilities and accept responsibilities related to the better of the society and this became the prevailing view of today's Corporate Social Responsibility.

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Corporate Social Responsibility and Human Resources

Recently there has been move by corporate leaders towards viewing responsible business practice as a strategic issue rather than a peripheral issue related to brand perception and public relations. CSR is now being used by HR executives to help them position heir companies in tight labor, to help engage present employees and to increase productivity. Companies usually present their CSR information through Triple Bottom Line analysis (Model) which uses three leg indicators to present companies sustainability report i.e. "People, Planet, Profit". This people leg provides most direct impact for HR involvement.

In words of Willard, "HR is just starting to awaken to connections between what its role is in some of the sustainability issues". Willard further identified that there are seven business benefits for organizations of inclining sustainability into their strategy and three of which are related to HR i.e. enhanced recruitment, higher retention of top talent and increased employee productivity. Sustainability plays a very powerful role in HR by incorporating in it what it is already doing and integrating it with other functions of organization and tying the whole package to strategy and business. This allows HR to leverage its efforts in more strategic way employee engagement, employment branding package and enhanced productivity through environmentally friendly workspaces.

CSR plays very important role in employment branding within organization. For example, results of surveys carried out in North America among showed that 70% of students said that hey would not work for companies which are socially irresponsible and 68% were willing to sacrifice and average 0f $13,700 in salary in order to work for socially responsible organizations. Another example of it could be seen when top IT consulting firm Capgemini in Netherlands faced a challenge of recruiting 800 IT staff. Company's instead of awarding respondent with a T-shirt or mug of coffee decided to fund a week of housing and clothing for poor children in India through a fund set up in Kolkata. Company received about 10,000 applications out of which 2000 meet the criteria for job and selecting 800 of it. Hence remaining qualified candidates became part of Application Relationship Project. This not only allowed the company to recruit top talent but also enhanced it internal employee branding strategy through its two weeks of contribution to fund set up for poor children in India.

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CSR can also help in engaging employees. It has been fount that CSR and engaging employee is deeper if employee is directly involved. In words of Willard,

"After years in HR, I'm convinced that the only thing that motivates employees is employees themselves."

"One of the most important catalysts for that is the opportunity to contribute to society, to make a difference and do something that resonates with [employees] values".

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For example General Electronics few years before did not played that well in industry due to poor recognition of its employee's and pollution created in environment through its operations. However company has now regained its position through addressing the issue that company needs to look beyond profits. In words of Bob Corcorn, vice president of corporate citizenship at GE in Fairfield,

"The way we engage people in citizenship is living out three pillars of our citizenship philosophy: Make money; make it ethically; make a difference."

Further, GE initiative towards Ecomagination is driven by innovation from its employees resulting in enhancing both companies' financial and environmental performance. Company also realized that engaging employees directly in operational issues result in better results both for company and environment through production of greener products.

Employee solutions to environment can also be seen as another aspect of CSR. Organization does not need to spend millions of dollars as GE in order for employees to have positive impact on environment. Contribution to environment could also be done through functions such as, recycling or reusing material that would otherwise end up in a land fill, or retrofitting a building to make it more environmentally sound.

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For example a cart system designed by employee with different compartment to put scrap items which could be recycled back into the production process. Such incorporation of systems Help Company's to reduce their waste to landfills leading to reduced expense in manufacturing process.

Critical Evolution of the following statement;

Year on Year companies are spending more money on Corporate Social Responsibility initiatives. Yet this type of activity is often regarded by some as nothing more than expensive PR and that it adds no real value to society or return on investment for shareholders.

In order to address the issue raised in above statement arguments both, against and for CSR have been analyzed as follows:

CSR has been very debatable topic since beginning. As many consider it as an expense for organizations and hence see very little added value. Milton Freidman and other's have argued that corporations are there to maximize return for its shareholders and that only people can have social responsibility whereas corporations are only responsible to their shareholders and not to society as a whole. However, they do agree that corporations should obey the laws of the country in which they operate and have no other obligation to society. They view that CSR is the matter to be consider by politicians and not by organizations. Also considering that whether CSR is an expense and whether or not it adds any value to the society is very much debatable due to the fact of CSR being perceived by any group.

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Businesses are owned by shareholders any money spent on CSR by managers is the theft of the rightful property of the owners.

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This was the issue raised by Laisser-faire 1980's and is still given powerful voice by advocate Elaine Sternberg. She argues that there is strong case against CSR of human rights, that is the approach of CSR towards stakeholders deprive shareholders of there property rights. She states that conventional views of social responsibility are absurd, although not all aspects of CSR are guilty of it. Hence corporations are only bound to the amount of responsibility they are expected of its operations within the law.

This argument was criticized on the following grounds,

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The market capitalization of company can exceed its property value. For example - 96% of Coco Cola's value is due to its intangibles and major part of which is the reputation. This value is far more than its property value. Hence, it becomes very much apparent that no company would risk its reputation when it forms major part of its share value. Therefore, it can be argued that if shareholders are to be granted with the full property rights one would expect to see a balance between responsibilities of actions that enterprises take to increase this value. As shareholders are not actively involved in the running of the business and are unaware of any such responsibility it becomes apparent that management which is the controlling mind of the organization takes this responsibility.

Through CSR corporations give away money which belongs to its shareholders. CSR is a process by which corporations manage their long term healthy relationship with those who are in position of influencing on its license to operate such as well trained staff, government, environmental agencies etc. This aspect forms very important part of any corporation hence this business case becomes apparent. Therefore CSR can be seen as a way of managing relationship with its various stakeholders, managing the risk of failure of doing so and about assuring company's reputation.

The leading companies who report on their social responsibility are basket cases - the most effective leaders don't waste time with this stuff.

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From the survey being carried out of the most respected business leaders such as Bill Gates of Microsoft and Jack Welch of GE few years ago have not achieved their world class status by playing nice. Jack Welch was known for the brutal down sizing he led the business through and other environmental pollution incidents and prosecution. Also Microsoft was one of the high profile cases of market dominance allowing Bill Gates to achieve the financial status. Hence, this could be proved that "real men don't care about CSR"?!

This argument was criticized on the following grounds.

CSR says that Company's should go beyond the concept of making profit and become socially responsible. This fact was also realized by Jack Welch who later on restructured General Electrics making it look more socially responsible particularly of employee empowerment. Further the above statement was also criticized on the grounds that a company such as GE which did not address the CSR before is now doing it in order to bring it out of crisis. Further, since Jack Welch moved on GE has been working hard towards its EcoMagination initiative.

It can also be analyzed that most of the top successful companies such as IBM and Motorola have been long associated with CSR. Coco Cola on other hand as stated above has partially achieved that success because of its recognition of CSR. Further although the recent BP oil spill off the Gulf of Mexico has raised issue for CSR but the fact cannot be denied that BP has been long associated with CSR and was Sir John Browne was highly respected person for making BP not only market leader in energy but also for showing environmental leadership.

It's the responsibility of politicians to deal with all this stuff. It's not our role to get involved.

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Traditionally businesses have been running beyond morality and public policy. It is argued that government should make legal frame according to which corporations are expected to run and corporations hold no responsibility beyond this legally set up requirements. For example allowing smoking being legal, collecting huge amount of tax from its sales and than saying that tobacco companies are not being socially responsible does not make sense. If government things that it's dreadful than it should be made illegal and if not than tobacco companies are allowed to meet the demands of adults who can choose for themselves.

This argument was criticized on the following grounds,

However it can be argued that if obeying laws and paying tax is all about CSR than above argument is a fair comment. On other hand if it is about managing demands, expectations of customers, government and society as whole, managing risk of companies operations and investing in future sustainable resources than the above statement does not hold true. Further the fact can not be denied that tobacco industry is highly monitored for its operations and either voluntarily or in order to sustain organizations in this industry have to address the CSR such by investing in health related issues, in research of harmful influences its products can have on consumers etc. It can also be argued that even after addressing the CSR tobacco industries are still questioned of lack of their responsibility towards society due the deadly effects inherited in its products. Hence whether their products should be fully banned to address CSR is another aspect of this argument.

Assuming social responsibilities places those corporations doing so at a competitive disadvantage relative to those who do not.

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Addressing social issues comes at cost to the business. It has been argued that those companies which address social issue lose competitive advantage to those who do not in the same industry in another country, especially the business have international recognition. According to Carroll and Buchholtz, since CSR is increasingly becoming a global concern, the difference in societal expectations around the world cn be expected to reduce in the coming years.

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Outcome of the Analysis

It is difficult to comment on whether or not spending more money on Corporate Social Responsibility is worth or not based on inefficiency of research being carried out such as use of secondary data, lack of experience, availability of time and resources. After analyzing the above situation it can be concluded that any organization in order to run successfully needs to effectively address its CSR. However, it can be said that large organizations have greater responsibility than smaller one's to contribute more to the society due to huge amount of resources large organizations are able to generate. Also, although small organizations due to lack of availability of resources can not invest much but can still address CSR towards society through efficient use of resources, better quality products at fair prices etc.

On other hand, in relation to issue raised in above statement that CSR is an expensive PR and adds no real value to society or shareholders does seems to only one side of coin. From all the arguments raised above we can say that although contributing to society comes at cost to company but if we look from long term point of view then we can say that it does bring that cost back both to shareholders and to society. In relation to shareholders, when any company spend on CSR although it that is some else money but it does come back to company in form of goodwill enhancing company's overall value and leading to increase in its share, but problem is as it all in future this aspect is often overlooked. Not only that company shareholders also get return in form of enhanced brand image allowing company to compete effectively in market as compared to its shareholders. Now if we look from the perspective of society and say that this expense does not add any real value to society than even that does not sound true enough. When organization spend money on CSR in form of HR or charity then its actually improving the society we are living in. For example when we say that company links CSR to HR than what it is doing is bring those talented people on the ground who can add value both to company and society by bring clever ideas such environmentally friendly products etc. Also, when companies care for its employees not only is it looking after them but also their families. Another example can be seen of is British Petroleum which also runs its operations in South Africa. As, company is doing extraction of resources it has responsibility to contribute to that society. We can say that BP's in contribution to African society in form of water projects and education on environment and opening schools in area is for the betterment of the society.

Why Companies Engage in Corporate Social Responsibility activities?

According to World bank CSR has been defined as the commitment of business to contribute to sustainable economic development - working with employees, their families, the local community and society at large to improve he quality of life, in ways that are good for business and good for development. James Viray, director of the State Departments Office of International Labor and Corporate Social Responsibility says that some companies engage in CSR as they feel that being socially responsible is good for business for example enhances company's reputation, building brand, mitigating risk or improving employee retention and productivity. On other hand, some engage in CSR as they feel that it is the right thing to do or due to combination of reasons.

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CSR is viewed differently by different stakeholder groups. However the nature and benefit of CSR depends on the nature of operation organization is involved with. It seems difficult to quantify the benefit of CSR in short term, therefore on developing strategies for CSR most companies aim to consider long term benefits. Many enterprises engage in CSR because they forced to due so such if they don't do their license to operate can be taken away such as pharmaceutical or tobacco industries. On other hand some do because it looks good and because they are appreciated by their customers it allows them to get financial benefit and enhance their goodwill. CSR with in organization can be based in different departments but mostly it could be seen in human resources, business development or public relations department. Few of these arguments of a business case in company have been addressed as follows:

Human Resources

Employees are seen as key to success for many organizations, particularly in service sector where they are regarded as a Human Capital. As, it is very much understandable that employees can not be controlled it become more important for organizations to address this issue effectively. Most of the organizations use CSR to address this issue. CSR program can help companies in recruitment and retention of highly well trained staff. Further it also helps to improve company's perception among its employees and can also be seen as a tool for making sure that workplace culture and brand align with organizations strategic goals. On other hand we can also say that, HR plays an important role of leading and educating firms regarding the importance of CSR together with strategically implementing sound HR management practices that support the company's business and CSR goals.

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Brand Differentiation

This forms very important aspect for those organizations which operates in international market. For any organization brand helps customers and other parties to differentiate it from its competitors. CSR can play very important role in helping companies in building customer loyalty based on ethical values. For example Body Shop which has built its loyal customer base on grounds of originality and quality of its products. M&S can also be seen as very good example of company in retail industry successfully addressing the issue of CSR through its initiative such as Plan A. CSR for brand differentiation can also be seen in service industries such as KPMG which addresses CSR through investing in Fair Trade.

License to Operate

Many organizations can be seen as addressing CSR not because they care too much about the society or environment in which they operate but rather because they are forced by government to comply with this in order to reduce the harmful effect of operations such organizations can have. The most current issue of this can be seen as BP oil spill off the Gulf of Mexico where when company became bit reluctant to clean the mess it created due to its risk venture was forced by US president to clean and if not will not be allowed to carry out its operations. Hence many times it can be seen as a legal requirement to comply with. Another example of it can also be seen in Pharmaceutical industries which are highly regulated in by various NGO's in order to ensure that companies in such industries fully address CSR issues.

Risk Management

It takes ages for organizations to build on their reputation and can take seconds to ruin it either because of wrong action or because company fails to address some issue. CSR helps organizations to avoid this risk by doing the right thing. For example Royal Dutch Shell was well known British brand but got involved in bad publicity because of misreporting of oil reserves a company which was already known for its CSR and was the pioneer of Triple Bottom Line reporting. Hence company can reduce the risk of bad reputation by effectively addressing its responsibility towards society from which it generates profits and environment from it takes resources.

The future of those Organizations which choose not do CSR at all?

Today people have become more aware of social issue. Times are gone when companies were there just to make profit and enhance its shareholders wealth. Same business concept is used today i.e. of increasing its shareholders wealth but together with making companies to look beyond the profit. Society today expects from companies in way of betterment of society. Some have perception that businesses do CSR because government wants it to do or we can say in need for license to operate. But, in reality it not the whole truth many companies do CSR because it makes them look good in eyes of those from whom they make profit. It is about commitment to values and doing the right thing in what ever you do.

However the best analysis of above statement can be done through example of a case study of Exxon Mobil and British Petroleum. Exxon Mobil was once one of largest oil company until the incident of 1989 when one of its Exxon Valdez oil tanker, entered the Prince William Sound, on its way towards California and the ship ran aground resulting in huge amounts of oil spilling into the sea. Company which was number one on stock exchange with in few weeks came down to number three. Company was not only hit by bad press but rather it lost its reputation and as result huge decline in its share price. This was the incident which happened back almost 21 years ago and is still highly remembered making it hard for company to regain the same position. What went wrong with this company was not because of the inherent risk of its operations but was due to ineffective operations. Company further also failed to address the issue problem and as a result lost trust of people in terms of business value.

Similar was the incident which happened with British Petroleum in April 2010. BP was known before its CSR in terms of environment. This company was already doing CSR had good reputation as a British company and high share value. But after the incident of oil spill off the Gulf of Mexico Company got bad press. BP failed to keep up to its CSR when it entered in to risky venture of deep drilling with in efficient equipments. As, a result company lost 11 of its employees, got bad reputation as Beyond Pollution and its share price with in 50 days was down by 50%. Although company was able to survive after this disaster by acting quickly but did suffered intense pressure from different groups of stakeholders. As, a result company had to made a provision of $20 billion for dealing with it after all cleaning up cost.

Both examples look at company which either did lots of CSR or did little. But it becomes apparent that company CSR is an ever going process and considering expectations both from point of view of shareholders and society no business can survive with addressing CSR. Any business in order to run successfully either directly or indirectly, either legally or on its own have to be socially responsible. One cannot survive in business world unless you are ready to give away part of share of profits to those from whom you earn it.