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Milton Friedman would claim that responsible entrepreneurship of the 21st century is a socialist endeavor. His socially responsible entrepreneur was solely committed to increasing his revenue base. Conversely, responsible entrepreneurs of the 21st century must bear ethical values in mind lest they end up like the chiefs of Enron and other such failed organisations. There are tools and theories to practice corporate social responsibility. With a thorough understanding of these, a responsible entrepreneur of the 21st century may contribute to societal good and enhance the welfare of stakeholders of his or her organisation. There are many examples of good practices in the business world. Both Marks & Spencer and Haier are committed to corporate social responsibility. How far they have honored their CSR commitments is also discussed through this report as a reminder for entrepreneurs that society is watching their CSR practices.
Responsible Entrepreneurship in the 21st Century
Milton Friedman (1970) had stated that corporate social responsibility, as we understand it today, is based on socialism. Mulligan (1986) writes that Friedman has failed to prove this through his analysis. Besides, the socially responsible entrepreneur in Friedman's view is "a Lone Ranger-type," that is, one who utilizes profits in a way that is believed to be superior to the spending behavior of his or her customers (Shaw 1988, p. 537). Of course, Friedman refuses to diverge from his argument to consider that social responsibility includes compliance with ethical standards. His socially responsible entrepreneur may very well be the CEO of Enron or other such organisations that have been permanently disrupted due to fraudulent practices on the part of profit-seeking business executives. Fraudulent business practices translate into market failure, the antithesis of perfect competition required by the economy to thrive. Self-seeking behavior on the part of business entrepreneurs also fails to earn their companies a good reputation. A good reputation or community goodwill is necessary for a firm to survive in the long-run. As fulfillment of corporate social responsibility goals supports firms in their quest to attain a competitive edge, and the Fortune magazine nowadays ranks companies for this achievement, Friedman cannot even explain how investments in such companies are comparatively more lucrative nowadays (Hancock 2005, p. 115). In short, Friedman's argument is ridiculous given the significance attached to responsible management as we understand it today.
In the twenty-first century, managers must consider issues of sustainability in order for their businesses to thrive, even as entrepreneurs are accountable for delegating responsibility to managers who can develop corporate cultures based on ethical principles (Hawkins 2006). Crane et. al. (2008) refer to this as a trend in the field of management and further mention regulations that demand of organisations to protect the interests of the environment, the economy and society at large (p. 5). Firms must deal with expensive litigation if they have acted irresponsibly toward their employees or external stakeholders. Thus, there are guidelines for fisheries and the beverage industry as well as IT managers. Erbschloe (2003) writes that IT entrepreneurship must work in the best interests of employees, for example by paying them fairly, training them adequately and providing "ergonomic user environments" (p. 2). Additionally, socially responsible employers must use equipment that is energy-efficient and recyclable (Erbschloe, p. 2). Given that global warming is a matter of import in the 21st century, all organisations are expected to manage their operations in a way so as to render them environmentally-friendly. Firms are further expected to spend a portion of their revenues in taking care of their communities, for example by working on improving literacy and reducing poverty. International businesses are expected not only to contribute to build goodwill in global markets but also to take precautions so as not to hurt the sentiments of foreign nations where they are seeking to establish their markets. It is easy for an international firm to act irresponsibly in a foreign market, for example, through its advertisements. And, what if an international organisation contributes in a foreign country in a way to support criminal groups, albeit unknowingly? As irresponsible entrepreneurship is only a step away from corporate social responsibility in a foreign market, thorough research is required of firms hoping to branch out globally.
Feldman (2007) mentions "economic extremism" with reference to Milton's "illogical" argument (p. 125). It is not as though the modern-day business environment calls for corporate social responsibility because our time is very different from Milton's decade. Businesses around the world had their share of problems through Milton's era as well. The emphasis on corporate social responsibility in the modern-day business environment, therefore, appears to stem from advancements in the field of organisational behavior which seek to uplift the business world. In the era of globalization, businesses are continually seeking to improve their efficiencies, and governments are called to regulate them. International businesses such as the shipping company called Trafigura which poisoned the Ivory Coast, and others that dishonored their commitments to run Argentina's privatized firms in recent past have brought social irresponsibility to the fore. Undoubtedly, such issues were highlighted also at the time of Milton. All the same, with an emphasis on continuous improvements, the modern-day business environment would not tolerate self-seeking behavior on the part of entrepreneurs lest it turn destructive. Businesses that are socially irresponsible may not only hurt the interests of their employees, thereby leading to problems such as absenteeism, turnover and losses in productivity but also damage the community, for example, by mistakenly producing a batch of food items that is poisonous. Thus, education in responsible management is considered vastly important nowadays (Crane et. al., p. 503).
Crane et. al. define responsible managers delegated by responsible entrepreneurs thus:
The term responsible management covers honesty and integrity of managers, corporate citizenship and corporate social responsibility, fairness and justice in stakeholder relationship management, ecological sustainability of the planet, a rising global concern for human and also animal rights, and sustainable development for a growing world population. (Crane et. al., p. 503)
Modern-day climate scientists and governments have opined that it was industrialization that changed the climate for the worse, and businesses degrade the environment if they do not adopt environmentally-friendly practices. Business negatively impact environmental sustainability this way. Hence, regulations have been developed so as to moderate economic extremism and the culture of self-seeking. Of a certainty, these regulations compel entrepreneurs to deviate from Milton's argument. Then again, entrepreneurs who manage to evade taxes may also find a way to fool regulators when it comes to social responsibility. After all, Milton also has his own definition of responsible entrepreneurship regardless of current trends. Green washing, whereby firms deceive their external stakeholders into believing that their business practices are environmentally-friendly, is an unfortunate development of the twenty-first century. Furthermore, even if it is considered essential today to manage cultural diversity and cultural conflicts in the multicultural business environment, Milton's argument would demand of organisations to manage these only if it does not conflict with the interests of the employer. Likewise, he would advise the self-seeking international business to entirely disregard the statement that there is extensive corruption in India and China, so long as there are enormous profits to be made in these developing nations. Hence, Milton's view of social responsibility stands in stark contrast to responsible entrepreneurship of the 21st century.
Tools, Theories and Practices of CSR
There are umpteen definitions of corporate social responsibility (Ward and Smith 2006, p. 3). The definition preferred by the European Commission considers CSR "a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis" (Ward and Smith, p. 4). If social responsibility is not implemented by law, it must be a voluntary decision on the part of management delegated by a responsible entrepreneur to incorporate it into the organisational mission to gain goodwill of internal and external stakeholders, including investors (Ward and Smith, p. 4). In terms of international business, social responsibility entails minimizing threats and maximizing opportunities as firms dedicated to the principles of CSR take environmental, social and ethical concerns of the foreign environment into account whilst formulating their strategies to fulfill their social responsibility goals.
Of course, the Internet serves as a reliable tool for CSR communication (Ihlen, Bartlett and May 2011, p. 374). As business intelligence software is used to collect information about competitors, information technology also provides a research base to inform the business about CSR practices of other firms, regardless of whether they are in the same industry. Businesses that gather knowledge about CSR practices of other firms may either modify them before they are adopted or straightforwardly adopt the CSR practices of other firms so as to compete in the global marketplace where CSR is already in vogue.
Champion and Gendron (2003) describe three tools of corporate social responsibility: codes of conduct, labels and certification (p. 5). Codes of conduct impact the relationship between a business and its stakeholders; labels get attached to products even if they are not developed by socially responsible firms; and certification expresses that the quality of products and production processes is either good or merely acceptable by standards established by supervisory or regulatory bodies. These tools serve to inform both society and the government about CSR practices of a firm. If, for example, a business is environmentally-friendly, the tools of CSR are enough to reveal this to the public. However, these tools may be fraudulently employed as in the cases of developing countries where regulation does not necessarily stop entrepreneurs from unethical business behavior. Even so, an ethical business opening its market in a corrupt country is obligated to maintain its ethical stance. Perhaps this would lower its profits in competition with corrupt businesses. Or, it may inspire unethical businesses to adopt good business practices as modeled by the profitable, foreign firm.
Carroll (1999) names three theories of social responsibility: stakeholder theory, business ethics theory and corporate social performance (p. 268). The stakeholder theory demands of the entrepreneur to take the interests of the following into account: "employees, shareholders, consumers, government, community and the environment, as well as groups such as suppliers, trade unions, business associates and even competitors" (Amaeshi, Osuji and Nnodim 2004, p. 224). In the international context, the firm has much to learn about a foreign nation before it can behave responsibly towards stakeholders in an alien environment. The business ethics theory considers ethical considerations beyond those demanded by (Keinert 2008, pp. 56-57). If, for example, Coca Cola goes beyond recycling, which is required by law, to incorporate other environmental projects into its corporate social responsibility mission, and the media reports on this development, the company would benefit by further satisfying its stakeholders. Likewise, if an IT firm goes beyond ergonomic requirements to spend more of its income on making employees physically comfortable in the workplace, it would have added value to its internal environment. Management is made easy if employees are motivated to work as productively as possible.
Yet, another way to put the business ethics theory into CSR practice is to educate poor people in a developing world once an international firm has entered it. Apart from its corporate social responsibility to support the developing country in economic growth, this firm may be interested in measuring its corporate social performance, and share the results with the industry to serve as a role model at the industry level. As opposed to an organisation's financial performance, its corporate social performance measures its attitudes and behaviors toward society (Cooper 2004, pp. 2-3). Thus, corporate social performance is akin to labels, certification and codes of conduct, that is, tools for corporate social responsibility. Responsible entrepreneurs should use the theory of corporate social performance to advantage their firms. They should seek to raise their corporate social performance. Morimoto, Ash and Hope (2004) write on a corporate social responsibility auditing system. With this system in place, the practice of corporate social responsibility would be made far easier and competition would turn stiffer as each company seeks to outdo the other in terms of corporate social performance. Moreover, this system would make it easier for companies boasting the highest corporate social performance to raise capital.
As literature offers plenty of examples of corporate social responsibility missions and goals, firms that simply incorporate each other's goals to practice CSR may not do as well as organisations that take an innovative approach to its practice. Indeed, a company that seeks to gain a competitive advantage by boasting the highest corporate social performance would have answered the social, economic and environmental needs of the hour. Its employees would be motivated to continuously increase efficiency, and its investors would be willing to invest more. Such companies would build trust-based relationships with their customers. After all, good deeds sustain our world just as harmful and unethical practices seek to destroy it.
Honoring CSR Commitments
Certainly, Marks & Spencer is a trusted name. If this organisation informs its stakeholders that it is successfully - and lucratively, as in the case of Marks & Spencer - honoring its corporate social responsibility commitments, stakeholders would most likely believe this to be true. But, what if the company is telling a falsehood to its stakeholders in order to increase its market share? It was not regulation that prompted the development of Marks & Spencer's Plan A. According to the company website:
Through Plan A we are working with our customers and our suppliers to combat climate change, reduce waste, use sustainable raw materials, trade ethically, and help our customers to lead healthier lifestyles.
We're doing this because it's what you want us to do. It's also the right thing to do. We're calling it Plan A because we believe it's now the only way to do business.
There is no Plan B. (Plan A 2012)
Apparently, Marks & Spencer is honoring its commitment to complete Plan A on time. Most importantly, the company reports on having substantially increased its revenues through this plan. Just as environmental management supports business efficiency, profit augmentation is directly linked to economic growth. Mike Berry, the sustainable business boss at Marks & Spencer, states that his company has not undertaken Plan A in the spirit of philanthropy. Rather, innovation is at the heart of this corporate social responsibility mission. Marks & Spencer has introduced new products, thanks to Plan A. It has also entered new markets in the quest to become the world's most sustainable retailer (Nichols 2010). The company regularly reports on the progress of Plan A, adding that even its suppliers are now inspired to take corporate social responsibility seriously, seeing the gains made by Marks & Spencer through this endeavor (Nichols; Your M & S 2010). Yet, in the absence of corporate social responsibility auditing, readers of Marks & Spencer's reports on its success story may not find them entirely believable. How shall the reader know that the company is telling the truth?
As far as Marks & Spencer's commitment to fight climate change is concerned, its How we do business report 2010 states the following:
We've cut our carbon emissions by 8%, equivalent to 20% per square foot against 2006/07, by improving energy efï¬ciency and reducing emissions from our store refrigeration systems. In 2009 we also gained certiï¬cation to the Carbon Trust Standard (based on 2008/09 performance). (Your M & S 2010, p. 6)
Given that certifications serve as CSR tools, this report is likely to support Marks & Spencer in increasing its market share. What is more, the fact that the company earned a new certification reveals that its statistics were verified by an external authority. However, everything stated in Marks & Spencer's report may not have been verified. What if the company is indulging in green washing as far as the following facts are concerned? According to Marks & Spencer:
By the end of 2009/10 we'd achieved levels of 88% recycling and reduced the total amount of waste by 16% against 2008/09. Since we launched Plan A we've reduced the amount of waste we send to landï¬ll by over 20,000 tonnes a year. Food waste has been reduced by 29% compared to 2006/07 with over a quarter of what is left being sent for energy recovery processing. In February 2010 our Birstall store near Leeds became our ï¬rst 'zero waste to landï¬ll' store. We collected 133 million clothes hangers in-store and reused 76% with the remainder being recycled. We also recycled 89% of our construction waste, up from 65% in 2006/07. (Your M & S 2010, p. 8)
Regardless of these figures, the fact remains that corporate social responsibility auditing by an external agency is a brilliant idea. Just as financial reports are verified by external agencies, corporate social responsibility requires external auditing to protect stakeholders from being deceived. Unfortunately, corporate social responsibility is not a regulatory requirement except in cases where regulation demands it. The government would not waste its time checking on CSR reports just to make sure that stakeholders are not being duped. Hence, there is no way to check whether Marks & Spencer is actually honoring its commitments in entirety.
In the case of Haier, however, it is perfectly simple to check on facts. Unlike incredible statistics, schools are physical structures, visible to the naked eye. Anybody may check on the schools that Haier had planned to build before the Olympics in China. According to its "One Gold Medal, One Olympic Hope School" commitment, Haier was going to build a school for disadvantaged children for every gold medal won by a Chinese participant in Olympics 2008 (Olympic Games). The company had promised to build a total of 51 such schools - seeing that education positively impacts economic growth - had Chinese athletes collectively won a total of 51 gold medals at the Olympics. The "One Gold Medal, One Olympic Hope School" program should have commenced with the first Olympic Gold medal won by Ms. Chen Xiexia for weightlifting in 2008 (One Gold Medal). Yet, there is no report available to convey that Haier has already fulfilled its commitment to build a school for every gold medal awarded to a Chinese athlete at the Olympics held four years ago. According to The Independent, Haier had already built plenty of schools for poor children in rural areas before the Olympics (Beijing Diary 2008). Whether or not the company's Olympics commitment was fulfilled goes unreported, however. Unlike Marks & Spencer's detailed report on corporate social responsibility, Haier's report is barely intelligible as it has been translated from Chinese to extremely poor English (Social Responsibility 2012). Like The Independent, this report reads that Haier has been building schools for the impoverished. Nevertheless there is no mention of the number of schools already built by Haier in response to its commitment to build a school for every gold medal earned by a Chinese athlete in Olympics 2008.
Shall we assume that Haier must have honored its commitment because it is dedicated to corporate social responsibility, according to an international report? - Of course not. Although Haier must be applauded for its promise to deliver, there is no way for the researcher to confirm whether or not the commitment has been honored. It would take a trip to China to check on those promised schools, but only after Haier has been contacted for an answer to the query.
All ethical businesses add to economic growth. Whenever their entrepreneurs engage in fraudulent business practices, however, the economy is negatively impacted. The society - comprising organisational stakeholders - must similarly suffer the negative consequences of fraud. Conversely, entrepreneurs who delegate responsibility to ethical managers are rewarded by society. Their businesses thrive as they employ CSR tools to support economic growth in addition to social welfare. As the examples of Marks & Spencer and Haier illustrate, CSR policies and practices may be keenly watched by society demanding the truth. Entrepreneurs must, therefore, guard their reputations against allegations of business fraud.