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European Union describes Corporate Social Responsibility (CSR) as a "concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis".
Corporate Social Responsibility (CSR) is about business aligning its values and behaviour with the needs of stakeholders, not just customers and investors but also employees, special interest groups and the people in the community. CSR describes a company's commitment to be accountable to its stakeholders.
CSR demands that businesses manage the economic, social and environmental impacts of their operations to maximise the benefits and minimise the downsides.
Companies that do not have the capacity to manage social and environmental performance might be at a significant disadvantage when compared to companies that have the capacity to effectively manage CSR. (Ethical corporation magazine 2002)
Key CSR issues include governance, environmental management, stakeholder engagement, labour standards, employee and community relations, social equity, responsible sourcing and human rights.
As companies started getting bigger due to the economic boom, there was increased pressure on them to give back part of their profits to the society through various community based projects to show that they are not only concerned about growing bigger and making more profits.
There was also the environmental factor which came to the fore due to increased emissions of carbon monoxide into the atmosphere which was gradually depleting the ozone layer which led to the issue of global warming. This was becoming a serious concern for many governments especially in the industrialised nations as it was seriously affecting the environment negatively. It therefore became imperative for corporations to become sensitive to the issue of climate change and see how they could join the government in the fight to save the environment.
This led to corporations adopting a green house strategy to reduce carbon emissions in the course of carrying out their business activities even if it meant higher costs and a reduction in profits.
The U.K. government has an elaborate vision for corporate social responsibility which is to see U.K. businesses taking account of their economic, social, and environmental impacts and acting to address the key sustainable development challenges based on their core competences wherever they operate be it locally or internationally.
The government's strategy for advancing this vision is to:
Promote business activities that bring simultaneous economic, social and environmental benefits.
Work in hand with the private sector, public bodies, consumers unions and other various stakeholders.
Encourage innovative ideas and the continuous development and application of best practices.
Making sure there are acceptable minimum levels of performance in areas such as health and safety, the environment and equal opportunities.
Making sure there is increased awareness and encouraging open and constructive dialogue.
Creating a policy framework which will encourage and enable responsible behaviour by corporations. This would obviously support government's strategy for sustainable development and would also encourage sound business practices that would ensure successful and profitable companies that would also contribute optimally to the achievement of sustainable developmental goals.
In the recent years, CSR has gained a growing recognition as a new and emerging form of governance in business practice. It has also already been recognised and established on the global stage with international reference standards set by the United Nations, Organisation for Economic Co-operation and Development (OECD) guidelines and International Labour Organisation (ILO) conventions.
With the fact that brand imaging and reputation is becoming more increasingly one of a company's most valuable assets, CSR is now seen as a means of building confidence and trust amongst a company's employees, customers and its shareholders.
The U.K. government has been encouraging the adoption and reporting of CSR through best practice guidance.
In the year 2000, the Prime Minister challenged the FTSE 350 leading companies to make a report of their environmental performance by the end of 2001.
A survey done in September 2003 of the reporting performance of FTSE 250 companies showed that over half of them published reports on their environmental performance.
Although this showed that more companies were adopting CSR reporting in their annual reports, it still confirmed that CSR reporting was still voluntary.
Adopting CSR is largely viewed to be in the long-term interests of corporations because in this age of increasing consumer awareness, it certainly improves their perception by the public and helps win over new customers.
Companies now use the reporting of their contributions to the sustenance of a sound environment, a better and healthier society or more ethical business approaches in the countries where they operate as a strong public relations tool.
Corporations are now finding out that employees want to work for a company that not only offer them a financially rewarding and interesting career but that also cares about and contributes to addressing and improving communal and global challenges like poverty reduction and the improvement of the environment.
The aim of this report is to make a holistic evaluation of the extent, relevance and reliability of corporate social and environmental reporting in the annual reports of organisations.
To do a thorough review of arguments for and against the inclusion of corporate social and environmental reporting in the published annual reports of corporations.
To analyse the conflict of interests between the shareholders of a company/corporation and its other stakeholders and how these issues can be addressed.
A broad perspective of this report is to look at the future relevance of CSR both in the U.K. and worldwide by using three U.K. companies as case studies (TESCO, VODAFONE, AVIVA).
To also examine whether there is a need for stricter government regulation regarding corporate social reporting by corporations.
This report will be researched by making use of secondary data. This includes the use of the University of Bedfordshire learning resource centre, books, articles, journals, magazines; newspapers etc.The internet would also be made use of for the latest information on corporate social reporting.
Literature review and researched articles on Corporate Social Responsibility (CSR)
This chapter focuses on the review of the theory and literature of corporate social responsibility with a view to providing a theoretical framework for explaining the main concept of corporate social responsibility and to develop the methodology for probing the relationship between social restructuring and firm performance.
John Hancock (2005) states that corporate social responsibility has become a very important business principle in today's business environment and both large and small scale organisations have started placing greater amount of importance to corporate social responsibility while setting part of their profits towards its development over the years. He also stated that organisations that embrace corporate social responsibility often see it as enhancing their business activities and it should be part of their business strategy that needs constant structuring.
Businesses are expected to make and use profit responsibly, not to endanger the society (Eberstadt, 1973). Corporate social responsibility is not how generous or kind hearted a business is, but showing profits made by responsible ways (McBarnet, 2008).
It is difficult to explain the social responsibility of any particular business because there is no clear cut definition of this function and it is to a large extent voluntary. However, CSR is about businesses and other organizations going beyond the legal obligations to manage the impact they have on the environment and society. In particular, this could include how organizations interact with their employees, suppliers, customers and the communities in which they operate, as well as the extent they attempt to protect the environment. (The Institute of Directors UK, 2002.) It can be said from the above definition, CSR refers to the capacity of a corporation to respond to social pressure. The literal act of responding or of achieving generally responsive posture, to society is the focus of corporate social responsiveness. These asked the questions: can the company respond? Will it? Does it? To what extent? And with what effect? One searches to organisation mechanisms, procedures, arrangements and behavioural pattern that when taken collectively would mark the organisation as more or less capable of responding to social pressures.
It then becomes evident that organisational design and managerial competence play important roles in how extensively and how will a company responds to social demand and needs.
According to Howard Sohn (1982), he suggested four main theories of CSR into four schools: the fundamentalist theory, the constituency theory, the legal framework theory, and the corporate citizenship theory.
The fundamentalist position is said to hold that corporations have no obligation beyond the pursuit of profits within a context of free and open competition. Sohn claims that Milton Friedman and Theodore and Levitt are the most significant representatives of this theory. Although Sohn gives each school its own unifying set of principles, it would be fair to say that the latter three Sohn's last three theories could therefore, be considered variations of a single category- the "social permission" theory.
The social permission theory holds that corporations exist and act by permission of society at large. Corporations are obligated to consider all possible constituents because all possible constituents were the ones who gave corporations permission to do business in the first place, and thus it is they to whom corporations are obligated (constituency). Also, if good behaviour is not exhibited by corporations, those corporations can be considered "bad citizens" and be made to conform to a model of good citizenship (citizenship theory). Finally, the legal concept associated with the social permission theory has most commonly been known under the heading of the concession theory or the legal creator theory. This theory holds that corporations are creations of the state.
Another theory that also buttresses the issue at hand is called functional theory. This theory tends to conceive of the CSR debate in morally neutral or amoral terms. Corporations are believed to have certain functions or structural principles that dictate their role in society. For example, the idea that corporations have met their social responsibilities merely by obeying the law would fit here, since determining social welfare is the function of the state and not the corporation
Their argument is that the integrity and nature of a corporation is its responsiveness to changing circumstances and demand. Those that respond properly (to economic factors or otherwise) will survive, while those that do not respond properly will perish. Thus, if the current climate of opinion demands that corporations must be socially responsible then corporations must do so. However, arguments that suggest that corporations must regulate itself to avoid doing business in an environment that is not receptive to free enterprise would also be classified under the functionalist theory. These arguments believe in their attempts to avoid appeals to moral principles in favour of appeals to the actual profit nature of businesses. This position was championed by Theodore Levitt.
Also there is the individual agreement theory. It was championed by Milton Friedman. It is majorly the opposite of the social permission theory. For instance, the stakeholders in a business are only those who have a direct relationship with the corporation. It only has a responsibility to live up to the terms agreed upon with these stakeholders. The only responsibilities that a corporation has to those who are not its stakeholders are to simply avoid violating their individual rights while in the process of serving its stakeholders.
In the above theories mentioned, the functional theory is the least attractive. It cannot be denied that this position has great short term pragmatic and rhetorical appeal. But in the final analysis, the functional view cannot offer any criteria for distinguishing the legitimate from the illegitimate claim or offer any form of consistent guidance.
One way to demonstrate this last point is to examine in some detail Levitt's argument.
Levitt's argument depends upon some background assumptions that must be understood before his thesis can be evaluated. In the first place, Levitt assumes that monolithic power can be avoided only if society does not become dominated by the interests of any one group.
The only way to ensure that no group becomes dominant is to have an atmosphere of vigorous conflict among interest groups. Cooperation (e.g between business and government) serves to entrench already established groups who then begin to monopolize power.
However, Levitt sees the function of business to be profit maximization and the function of government to be concerned for the general welfare. His argument runs as follows:
Separate functions must be maintained if monolithic power is to be avoided
Any business firm that engages in activities appropriate to labour, agriculture or government is acting outside of its function.
Welfare activities are the province of government
Business firm should not engage in welfare activities
From the above argument, it is well understood why Levitt has been classed conservatives on the issue of CSR. Meanwhile, the argument could be used to justify the opposite conclusion.
Above all, if government decides that the general welfare calls for social responsible attitudes and actions on the part of business, then business would have no legitimate claim to resist.
The Two Dimensions of CSR
CSR can be classified into two dimensions. The first is concerned with the internal policies of an organisation while the second is concerned with the external environment within which a company operates.
Internal Dimension of CSR
This constitutes of human capital, health and safety, and restructuring. Companies influence employment through the quality of jobs they offer, employee relations and through investments. Internal CSR methods have to be based on a balanced approach that incorporates a robust set of policies and programs with regard to economic and social factors.
External Dimension of CSR
This deals with the local communities, suppliers, consumers, business partners, human rights and environmental concerns. It is quite important that there is a good relationship between companies and the local communities in which they are based. This is because to a large extent, the success of a company depends on the relationship it has with the community where it operates. While it is not the primary responsibility of a company to develop its host environment, it is important for them to show that they care about the community where they operate. Also if a company recruits its staff and gets its supplies from members of its host communities, it strengthens the bond between both parties.
3.0 Case Studies
This chapter looks at the practice of corporate social responsibility by studying the activities of three U.K. companies in this regard. This is done by looking at their corporate responsibility reports in their annuals reports. The companies this report will look at are TESCO, VODAFONE, and AVIVA.
Tesco believes that success only comes from behaving responsibly and earning the trust of its customers, suppliers and other stakeholders. Tesco manages every aspect of its operations by using what it calls the steering wheel approach. It is a balanced scorecard of the key elements of its business i.e. its customers, operations, people, finance and the community. They say at Tesco, corporate responsibility is not treated as a special function but is part of every staff's orientation. The community segment of its steering wheel includes:
Actively supporting local communities.
Buying and selling of its products responsibly.
Caring for the environment.
Giving customers healthy choices.
Creating good jobs and careers.
Tesco is integrating these principles into its day to day activities. Every staff from the shop floor to the management is expected to apply these principles in everything they do.
In 2009, Tesco announced seven projects which are:
Climate change: customers must be aware of the carbon occurrence
customer needs to be met by waste recycling
customers are communicated of what needs to be done on the environment
Trading Fairly - to ensure the values go-round the supply chain
Community Champions - make them a stronger part of more stores and communities
Community Fairs - a new Community initiative for staff and stores to give back to local communities and charities
Reducing emissions in the supply chain
It also announced several other projects in the other countries where it has a presence.
Tesco works with a number of organisations in order to improve its corporate social responsibility performance. These organisations include:
Business in the Community
Cancer Research UK
Carbon Disclosure Project
The Climate Group
Confederation of British Industry
Initiative on Ethical Trading
Food and Drink Federation
Forum for the Future
Gangmasters Licensing Working Group
Grocery Distribution Institute
Cancer Care by Marie Curie
Campaign on Muscular Dystrophy
Palm Oil Sustainability Roundtable
Supplier Ethical Data Exchange (SEDEX)
Tesco sets targets for every objective of its steering wheel and it uses Key Performance Indicators (KPIs) to measure progress made.
In 2009, Tesco claims to be the first retailer to carbon label 100 of its products in the U.K. and Ireland. As a global business, Tesco also believes it has an important role to play in helping to minimise climate change. Tesco has been working with its suppliers and customers in the areas of climate change, green revolution, waste, packaging and recycling and other sustainable products.
As part of its internal CSR, Tesco is committed to training and retraining its employees through career development programs and also rewards employees who take part in community service.
Vodafone gives time and money to benefit good causes from major long term partnerships with well known charities to matching funds raised by its employees and encouraging them to volunteer in the community. Vodafone is committed to being a responsible business by making profit in a way that minimises its negative impact, maximizes its positive impact and provides real benefits to its customers.
Vodafone believe that dialogue with stakeholders helps it to understand and prioritise corporate responsibility issues and to identify new challenges and opportunities. Vodafone talks to a key number of its stakeholders as part of its business practice. These stakeholders include community representatives, customers, employees, investors, government, media, pressure groups, regulators and suppliers. Vodafone also carries out research to help it understand and monitor its stakeholder views. Vodafone meets regularly with politicians and government officials and take part in many government-industry initiatives on corporate responsibility issues.
Vodafone is committed to reducing the energy and natural resources it uses and it is committed to reducing the amount of waste it creates in the environment. Vodafone's environmental policy includes:
Improving its energy efficiency
Increasing reuse and recycling
Vodafone's environmental management system has been accredited to the international environmental management standard ISO 14001. Vodafone group has set a global target to reduce carbon dioxide emissions by 50% by 2020. Vodafone aims to improve energy efficiency in its offices and stores and across its network. Vodafone aims to reduce its effect on climate change by improving energy efficiency in its offices and network. Vodafone also purchases renewable energy when possible. Vodafone encourages its customers to receive their bills online or through text messages. This is meant to reduce paper wastage which goes a long way in helping to preserve the environment. It also helps to reduce cost which when passed to the bottom line can help reduce service cost.
Regarding internal corporate responsibility, Vodafone aims to provide its employees with a working environment that motivates them to give their best and also feel a sense of belonging. It uses the Hay employee engagement index to assess staff satisfaction by comparing its result with that of peer companies. Vodafone has an employee consultative council which has employee representatives that meets quarterly to share information with management.
Vodafone through the Vodafone foundation supports good causes in the community. It also matches every penny contributed by its employees towards any of its partner charities or match their fundraising up to £350 for any of their other favourite charities.
Aviva is the world's fifth-largest insurance group and the largest insurance services provider in the UK. The life and general insurance businesses are based in York and Norwich respectively, serving 50 million customers across Europe, North America and Asia Pacific (India and Sri Lanka.). The main business activities are long-term savings, fund management and general insurance.
Through its worldwide operations, Aviva is the first insurance company to be carbon neutral. 77% of people working at Aviva think responsibly towards the environment. Aviva have 54,000 employees in 27 countries and72% of them says that Aviva is a great place to work.
Aviva business belief anywhere around the world - responsibility means taking positive action. It means that believe by acting responsibly for long term in how business is done helps meet their ambition to provide prosperity and peace of mind to the customers. Many people and enterprises felt the impacts of financial crisis that occurred recently. Sustainability is the major question that was asked during the crisis about the business practice, market recovery and customer loyalty.
Aviva's approach to corporate social responsibility (CSR) while many organisations were left battling with those issues and challenges in the financial crisis. The group Corporate Responsibility team manages the policies and programmes that drive it corporate responsibility agenda forward. The team works closely with subject experts and regional CR representatives throughout Aviva who, in turn, network with local managers. A key part of the team's role is to engage with Aviva's stakeholders and keep them informed of Company's approach.
Aviva places great emphasis on influencing sustainable behaviour among it customers, suppliers and the companies in which it invest on the environment and society. Carbon emissions are reduced and the company status as a carbon neutral insurer is maintained. Climate change remains a key issue and as an indication of continuing determination to tackle it, Aviva now directly link environmental performance with incentive and remuneration through setting carbon reduction targets in its executive directors' personal objectives.
Aviva's purpose of providing prosperity and peace of mind to customers' mean listening to what's important, and understand changing attitudes that relates to insurance, investments, pensions or corporate conduct. Aviva delivery plans and commitments requires more than a strategy but also energy and belief of the employees towards the company summit about Talking Talent programme or community and environment initiatives.
Aviva was awarded gold status by Business in the Community in their latest corporate responsibility index and ranked 9th in the Observer Good Companies Guide 2008. The company promised to continue to ensure that its Corporate Social Responsibility approach remains a key element in achieving twice its business value.
3.3.1 Social Responsibility in Aviva.
It was more than just doing business in the economic world and making some profit to survive or prosper rather, Aviva is a member of corporate bodies responsible for the well-being of the communities in the area of insurance, employer or consumer of goods and services. Aviva makes social responsibility as part of the cores in its business even when the economy was hard and each individual company was trying to survive.
That's why the initiatives described here include not only customers, but all the stakeholders, from employees to local communities. On environmental issues, the company also aim wide and high, working both internally and externally. Aviva actively manage it direct impacts (carbon emissions, energy use, paper use, water and waste) but also encourage others towards responsible, sustainable choices. Go to appendix A to see the Spotlight for Aviva Plc, UK.
3.3.2 Aviva strategic focus on CSR
Embed CR: working to ensure that social, ethical and environmental opportunities and risks are part of every business decision.
Take a leadership role in the industry to encourage responsible corporate citizenship.
Engage with key stakeholders.
Recruit and develop leaders.
Develop the talent of all it staff.
Implement a global community investment strategy.
Manage it environmental impacts.
3.3.3 Things to achieve
Meet or exceed the tough global targets to reduce carbon-dioxide emissions, water use and waste.
Deliver leadership and management programmes to inspire its employees to be the best they can be.
Continue to embed CR programme in all its businesses around the world.
Build more innovative ways of involving employees and customers involved in the community activities.
Report against progress and build its programme of engagement with stakeholders on key issues.
The application of theory to practice.
The attention given to corporate responsibility comes from a coincidence of several factors. The most important is the increased awareness of the need to wed increased freedom to carry out economic functions of a company with a demand for this freedom to be used quite responsibly. In a lot of cases, this is linked to a demand for greater participation by business in tackling the economic and social problems associated with economic development.
According to Cuilla J.B. (1991) "More and more, business leaders find themselves facing problems that require them to choose between actions that are based on existing norms and those that are based on some higher ethical standard. The latter course of action requires bold leadership and moral courage."
The coincidence of these pressures affects the internal workings of the firm. Managers find themselves at the centre of a web of conflicting pressures. The values and behaviour of a manager are shaped by a lifetime of experiences. These views will continually be influenced by pressures from within the organisation. The company culture is a major factor. The values of a company shape the expectations of managers and their views about right or wrong behaviour in the context of corporate responsibility. External pressures on the company also influence its character and the way its management thinks and acts. A company might also think that if they give to charity or the society, its customers might think its profits are too high.
In a lot of industries and corporations, Corporate Social Responsibility is being recognised as a tool which can bring companies more positively into public consciousness. While some organisations have genuinely embraced this phenomenon, some others still pay lip service to it. Although the companies reviewed earlier have incorporated corporate social responsibility and its reporting into its operations and have done pretty well in that regard, it must be stated that some companies have found themselves culpable in issues of corporate social responsibility. For example, Shell Corporation (a multinational oil firm) was indicted in Nigeria several years back for supporting the repressive government at that time in the elimination of several human rights activists in ogoniland who protested against the continued degradation of its environment by its exploration activities. Shell acted as if it was not its responsibility to care for its host communities so far it was paying its tax and royalties to the government.
Also several other companies have been found guilty of employing child labour in economically disadvantaged countries to carry out their activities. This has effectively put question marks on the social responsibility of such companies. An organisation should be totally socially responsible and not in bits or done out of a compulsive need. It should come naturally not because a company wants to be in good light by its clients but because it is a responsibility it owes to environment both where it operates and globally.
According to Milton Friedman (1962) "Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible." while Dave Packard, co-founder of Hewlett Packard Company 1939 said "I think many people assume, wrongly, that a company exists simply to make money. While this is an important result of a company's existence, we have to go deeper and find the real reasons for our being. As we investigate this, we inevitably come to the conclusion that a group of people get together and exist as an institution that we call a company so that they are able to accomplish something collectively that they could not accomplish separately - they make a contribution to society, a phrase which sounds trite but is fundamental."
While recognising that profit is necessary for any company to remain in business, they must also strive to add value to the society they operate. This is because businesses rely on the society within which they operate to survive and they cannot exist in isolation. They need the infrastructure that the society provides, its provision of employees and of course its consumer base.CSR is the recognition of that inter-independence and a means on delivering on that obligation. Corporate Social Responsibility only strengthens the relationship between a company and the larger community where it operates.
It is recommended that government should promote legislation that makes it compulsory for companies to give back part of their profit to communities where they operate.