Corporate Social Responsibility (CSR)

Chapter 1 Introduction

Corporate Social Responsibility is a rapidly developing, key business issue. It is a concept that has attracted worldwide attention. Due to the demands for enhanced transparency and corporate citizenship, CSR started to embrace social, ethical as well as environmental challenges. Today, companies are aware of the social and environmental impacts of international production. It is accepted that Companies should not be only profitable, but also good corporate citizens.

Through globalization of the economy, multinational companies are increasingly involved with suppliers and customers worldwide, especially if they operate in developing countries. The CSR agenda has a close relationship with international development. CSR within multinational companies is seen as a vehicle through which larger, well known corporations can contribute to the well being of developing countries by operating responsibly in terms of social and environmental issues. However, the promoted “CSR” in the developing world by multinationals is “not real CSR”, despite significant contribution to development in some cases. Very little is known about the companies’ CSR policies and practices in an international context, developing countries in particular. As reality shows, most of the larger corporations abuse the CSR and behave unethically and irresponsibly towards both society and the environment. Issues such as unsafe working conditions, unfair payment, gender discrimination, sexual harassment, toxic emissions and the hazardous pollution of water and soil have all raised fair allegations by consumers, non-governmental organizations and the larger society. . Famous global brands like Nike, Coca-Cola, GAP and McDonalds are often under intense pressure from the public. Much of those pressures are due to their unethical behaviour in developing countries, where their main operations take place. Though companies operate in host countries, their reputation extends across numerous national boundaries. The actions of multinational companies in a host country can cause significant loss of reputation in the developed world, where the general public have become more sensitive to environmental issues and social impact. The public have the power to boycott the goods and products of multinational corporations in cases of unethical behaviour where organisations are thought not to fulfil their social and environmental obligations. However, international reputation side effects are not the only reason behind the potential increased level of social and environmental responsibilities faced by multinational companies; there are many drivers for the correct implementation of CSR by business entities. However, for many companies, corporate reputation and brand image are the fundamental components of business success.

Corporate Social Responsibility in developing countries represents the formal and informal ways in which multinational business enterprises contribute to improving the social, ethical and environmental conditions of the developing countries in which they operate. However, the rational approach to the CSR in the developing world is different from CSR in developed countries. For example, developing countries represent the ongoing growth of the economy; hence the most attractive growth markets for many foreign companies. They provide cheap labour, an absence of strong regulations and a rich availability of resources; all crucial concerns for multinational enterprises for conducting their businesses in developing world. It has been found that the public and the government are not as critical of unethical business practices within foreign companies. In addition, developing countries are where globalization, economic growth, investments and business activities are likely to have both positive and negative social and environmental impacts. Therefore, developing countries represent a different set of CSR agenda for multinational companies to those operating in the developed world.

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In this research paper the CSR practices of multinational corporations will be examined. Their CSR commitment as well as irresponsible practices will be highlighted. In the first chapter, there will be overview on the previous works in this field. As CSR is a new concept, especially in developing countries, the short history of the development of CSR and main contributions will be presented. Literature review will give us the background knowledge about CSR. In chapter two, research methodology and relating this to the subject matter will be discussed. As research will be based on case study, there will be some examples of multinational corporations’ experience in developing countries. The examples of their commitments towards environmental and social sustainability as well as negative impacts caused by their unethical operations will be provided. The opinions and critics of analysts and experts will provide a clear understanding of companies’ CSR practices in the developing world. The well known multinational companies like Nestle, Nike, KFC, Apple iPod and many others will be examined for their irresponsible and unethical behaviour in developing countries such as China, Indonesia, India, Southeast Asia and Africa. For the main research point the Coca-Cola crisis in India has been chosen, as Coca-cola, despite its CSR commitment towards society and environment, has caused damages to both the community and environment where it operates. From the case study, we are able to make some conclusions regarding CSR practices and make suggestions and recommendations for future of Corporate Social Responsibility, as it will undoubtedly increasingly become a major issue and integral part of business practise.

Chapter 2 Literature review

The 21st Century has seen much advancement in the issue of corporate social responsibility (CSR), and there has been particular interest in the impact CSR could have globally. This literature review will begin by defining what is meant by corporate social responsibility. There are a lot of debates about the origins of CSR; however it is clear that CSR is a modern term, a consequence arising from the history of business responsibility. The modern term is considered to have western origin; however it has developed from different countries’ ideas and theories. This has created a number of definitions of CSR. This can lead to confusion making CSR less effective. It is interesting to observe that none of the definitions actually defines the social responsibility of businesses, as so famously discussed by Milton Friedman (1970), but rather describe it as a phenomenon. The Government sees CSR as a business contribution to sustainable development. However, the modern concept of CSR has been influenced by Globalization and so CSR has developed and is taken in different context worldwide. (Crane, Matten, Spence, 2008). In addition, organizations such as the European Union (EU) see CSR as a concept integrating social and environmental concerns in business operations and in their interactions with their stakeholders on a voluntary basis. However, others like Ethics in Action Awards (2003), describe CSR as a company’s obligation to be accountable to all of its stakeholders in all operations and activities (Dahlsrud, 2006). There are a number of debates raised in academic literature over the issue of to whom the business must have responsibility. Various authors have referred to the common approaches: shareholder, stakeholder and societal approaches. According to shareholder approach, the classical view on CSR maximizing the profits of shareholders (Friedman, 1962). This approach can also be interpreted as being that the company should make contributions to the extent, to which it can be connected with the creation of long-term value for the shareholders (Foley, 2000). From the stakeholder theory, it is obvious that organisations should be accountable towards other groups of stakeholders, who can affect or be affected by a company’s objectives (Freeman, 1984).

The last approach, which is regarded to give the broader view on CSR, argues that the organisations should be responsible to societies as a whole, of which they are an integral part.

The aim of the following literature review is to identify the most valuable academic studies and important practical investigations.

The field of Corporate Social Responsibility can be divided into several parts; definitions of CSR, analysis of CSR approaches, CSR in supply chain, CSR in developed countries as well as in developing ones, the link between CSR and globalization and last, but not least the global understanding of CSR.

The history of CSR

The development concept of Corporate Social Responsibility (CSR) has been carried out mainly in western countries; particularly in United States. Literature picks up the issue from the 1950s when attention was devoted to the responsibility of businessmen ( Bowen, 1953) to the 1980s when the argument with stakeholder theory took place

(Freeman, 1984) and of course, to the 1990s when most studies were devoted to the analysis of the relationship between CSR and corporate financial performance (Roman et al, 1999). In the beginning of the 1950s, Howard Bowen tried to give rational and systematic arguments in favour of CSR and its connection with big corporations and their influence on social consequences and undoubtedly, their primary societal responsibilities. The one of the earliest books on CSR, “The Social Responsibilities of the Businessman”, was written by Bowen in 1953. Bowen’s book was specifically concerned with the doctrine of social responsibility. Bowen argued that social responsibility is not panacea for all business social problems, but that it contains an important truth that must guide business in the future (Asongu, 2007). Because of Bowen’s early and very valuable work, Carroll has argued that Howard Bowen should be called the “Father of Corporate Social Responsibility” (Carroll, 2000). The decade of the 1960s is characterized as seeing a growing interest in the formalizing or more precisely, defining the meaning of CSR. One of the prominent writers in this period was Keith Davis, who later extensively wrote about the topic in his business and society textbooks, later revisions and articles. He argued that social responsibility is a nebulous idea, but should be seen in a managerial context (Mahon, 1991). Another influential contributor to the early research into CSR was Friedman. The argument made by Friedman (1962) that the main corporation’s responsibility is toward shareholders has created much debate among academics. It was not until 1970, that Wallich and McGowan first made attempts to demonstrate the link between corporations’ social responsibility and shareholder’s interests. They argued that the aim of corporation’s long-term interest should be linked to the environment to which a corporation belongs. If society and environment became worse, a business would lose their “critical support structure” and customer base (Keim, 1978). In the 1970s there are a wide range of references, increasingly being made to corporate social responsiveness, corporate social performance as well as corporate social responsibility. In the 90s, literature tried to find out answers to questions such as why some companies are doing well and if CSR could be identified as a competitive advantage. Most academics and scholars started to apply the stakeholder theory to CSR, because stakeholders, other than shareholders have interest in the well-being of a company in relation to employees, customers, governments and others. This model renewed the interest in CSR and more research was devoted to this subject. Also, there is great interest in the linkage between CSR and corporate competitiveness; but bbbthere is a shortcoming of quantitative translation of socially responsible practices into specific results affecting the income and loss of particular organization (Murillo and Lozano, 2006). Many scholars connect CSR with the competitive advantage that a company can gain. The most well-known work in this field is Professor Michel Porter’s “The competitive advantage of corporate philanthropy” in which he describes how a company is able to improve its long-term potential by linking financial and societal goals (Porter, 2003). Further development in this area was made by Kramer (2003).

Problems with CSR research

We know very little about CSR initiatives and undoubtedly, there are some questions about both the efficiency of CSR approaches and the tangible benefits for stakeholder groups. Also, we know very little about the social and environmental impacts of CSR initiatives. For example, many business schools analyzed and devoted their works to studying the content of codes of conduct. They looked at specific issues such as child labour, but they failed to study the wider societal impacts of CSR. The most notable study about societal impacts came from development study scholars, not from business schools. The study by Barrientos and Smiths (2007) reviled that there are, in particular in those countries where empirical investigation took place such as South Africa, India, Vietnam and Costa Rica, some benefits from codes of conduct and initiatives implementing CSR by multinational companies. However there are failures in the areas of noncompliance and ensuring the improvement of working conditions. In addition to this, Barrientos and Smiths questioned the methods used by the business communities in investigating the societal impacts of CSR, doubting the efficiency of the tools used to monitor CSR performance. Due to the lack of empirical study and evidence regarding CSR impacts, there are still analytical limitations in the current CSR field. For example, some academics (Lantos, 2001) wrote about conceptualization of CSR, however, current field of CSR and business scholars fail to answer vital questions. For example, how can CSR tackle a development challenge like poverty, without an understanding of the negative influence caused by multinational companies operating in host communities? Even if there is agreement about societal benefits of CSR initiatives, there is still uncertainty about the way in which CSR should be studied and analyzed. Lockett, Moon and Wisser (2006) argued that CSR knowledge should be best described as a continuing state of emergence. Indeed, many scholars study CSR initiatives without any reference to theoretical perspectives. Milton Friedman and other authors highlighted the “agency problem” of CSR for a long time. For example, Friedman argued that the pursuit of societal and environmental objectives will undoubtedly hurt shareholders by lowering profits. However, other scholars like Margolis and Walsh (2003) oppose the arguments of Friedman. They found that, between 1972 and 2002, at least 172 empirical studies investigated the positive relationship between social responsible behaviour of an organization and its financial performance.

Levels of CSR

Another main contribution to the development of CSR made by Carroll (1991), considered the economic, legal, ethical and philanthropic levels of CSR. These levels represent what is required, expected and desired for CSR strategies (Crane, Matten, Spence, 2008). According to Crane, Matten and Spence, Carroll’s pyramid of CSR is the most widely accepted definition of CSR. Until the 1980s, environmental corporate responsibility was the part of “social responsibility”, which was used as a frame term that covered a wide field of ideas. However, corporations became to understand the importance of environmental responsibility. For this reason, the concept of “corporate environmental responsibility” has started to be used by researchers such as Rondinelli and Berry (2000) in parallel with the development of “corporate social responsibility” by Carroll (1998), Maignan and Ferrel (2000) and Zarkada-Fraser (2004).

CSR and Corporate Social Reporting

The great number of scholars, who have since the 1970s (Fenn, Ackerman,), analyzed the complex issue of Corporate Social Responsibility and the advantage of reporting on a wider scale, have given the possibility to evaluate social performance (Levis, 2006). The theme of social reporting has been developed along with the CSR. The approach for researching reporting is different in comparison with past decades due to the growing number of organizations that have published a social report. (Belal, 2002; Bitcha, 2003; Weaver et al, 1999). The reason for the growing interest in this field is linked to progress in business ethics (Donaldson, 1999) and the significant importance of the stakeholder approach, which has led to an increase of interest in studying the causes and real meaning of the phenomenon. The present approach to social reporting activities can be divided into two parts: fists, those who still think that it is a responsiveness approach and others, who argue that it is much more than communication; it is a tool of strategic management.

Research in CSR worldwide

Cultural differences affect CSR dynamics as well as companies practising responsible behaviour. For instance, research by Juholin (2004) reviled that long-term profitability is the prominent driving force behind CSR in Finland. Research by Fulop et al. (2000) discovered differences in CSR orientations between large and small firms. A similar study by Uhlaner et al. (2004) suggests a mixture of CSR perspectives (economic benefits, legal, ethical and philanthropic considerations) as useful in explaining variations in CSR orientations amongst Dutch firms. Despite cross-cultural and national differences, there are differences in the variety of methodologies adopted in examining and analyzing CSR. Some studies considered CSR as a philanthropic and ethical responsibility; however other studies have made a distinction between CSR as simple legal compliance vs. CSR as conducting business with high regard for morality.

As noted previously, the debate about CSR has existed since the 1950s. In the first academic papers, a narrow concept of corporate social responsibility was used. Most of the authors like Bragdon and Marlin (1972) and Spicer (1975), tried to approach CSR through the main social and environmental problems such as pollution and contributions to the local community. The data used for their analysis was based on information issued by the Council on Economic Priorities. However they were not able to cover the whole aspects of CSR and their works were not valid for every industry (Dooley, 2004). Later, a broader valuation and examination was provided by Moskowitz (1972, 1975). In his work he tried to cover almost every aspect of corporate social responsibility such as equal employment opportunities, charitable contributions, fair dealing with customers, product quality and more.

CSR in developing world

Despite the great interest in ethical and responsible behaviour in business, very little is known of the practise of CSR in developing countries. For example, Belal (2001) notes that there are a wide range of academic publications, describing CSR in the context of developed countries such as Western Europe, the USA and Australia. Also that we still know too little about practices of corporate responsibility in ex-colonial, smaller and developing countries. He suggests doing more research into developing countries as it will give a valuable insight to the western meaning of CSR in context (Jamali, 2007).

There are no large scale developmental studies of CSR in developing countries as there are in western countries. However, the CSR discussion traditionally revolved around the multinational companies operating in developing countries. The multinational companies’ response to CSR has great impact on the future global CSR agenda.

The first notions of corporate social responsibility in developing countries emerged in the 1960s amongst American companies operating in developing countries, particularly in Asia and Africa. Perhaps a simple definition, truly reflecting the responsible behaviour of current multinational companies operating in developing countries is presented by Davies, who suggested CSR as a framework for the role of business in society. The implication of this definition is that it includes any society in which the company operates, including the “global society” (Engle, 2006).

Within the Asian context, most academics paid attention to describing the governance aspects of environmental responsibility (Hong Kong: Hills and Welford; China: Bi; The Philippines: Forsyth). In contrast, in India, Mohan has focused on social responsibilities and corporate citizenships. Also, there is some research into the normative aspects of CSR such as the evolution of business ethics in Taiwanese companies (Wu). In the study of CSR in Malaysia, Teoh and Thong found that the most foreign multinational companies seemed more inclined to accept their responsibilities towards environment and society (Chapple, 2005).

CSR in the Global Context

CSR and multinational corporations.

Relatively little is known about management of corporate social responsibility by multinational companies (Gnyawali, 1996).

In general, little is known about the management of CSR in multinational companies, either practically or academically. While many areas of research have examined the nature of cultural or business preference to social equality (Adler, 1997; George and Jones, 2002; Lantos, 2002), there has previously been no research regarding the role of CSR in the expansion of organizations into new territories or cultures. The dominant theoretical approach to studying CSR practices among multinational companies, operating in developing countries, is the works of Bartlett and Ghoshal (1989) and Prahalad and Doz (1987), who tried to analyze general multinational companies’ management practices in CSR. This framework was then extended by Yip (1992) and Husted and Allen (2006) to cover CSR practices (Geppert et al., 2006). The studies of these researchers enabled interesting insights such as how CSR is being managed, the potential barriers to successful implementation of CSR practices within domestic places into operation among multinational corporations. However, mainstream research of CSR was concentrated particularly on domestic issues such as labour issues, racial discrimination, the position of women and the environment. To date there has been limited analysis in the developing countries context, in particular regarding foreign multinational companies. Further detailed analysis is needed of what instrumental, moral and relational motives exist in systems very different to the western context in which they were developed.

CSR and Globalization

With Globalization, CSR has been propelled into a global context. Ruggie (2004) identified three particular aspects of social responsibility in the context of global governance. Firstly, nowadays it is expected that multinational companies will build new capacities and take care of issues such as working conditions, healthcare and education as well as respect human rights. So that, if corporations insist on setting up in developing countries, they are forced to consider challenges, normally associated with developing countries like poverty or child labour. Nowadays, most multinational companies face a lot of new and challenging problems in this era of Globalization. According to Weber, Lawrence and Post, multinational companies are able to solve such problems. They have introduced the idea of “Three sector world”, compromising multinational companies, non governmental organizations and community. In their research, they compared both strengths and weaknesses of each sector and analyzed their contributions to solving global problems. The research method was based on comparing attempts of two multinational companies in implementing CSR in developing countries (Young, 2008). Based on their findings, it is obvious that a collaborative partnership with community and non governmental organizations can carry better results in implementing CSR. Therefore CSR in the global context involves more than business implementation, it needs business cooperation with other organizations whose focus is greater on CSR. From the vast majority of literature, it is clear that CSR has gained major significance in the era of Globalization and multinational companies should take responsibilities for their actions worldwide, especially in developing countries. Multinational corporations should behave as a moral leader in an area where there are no legal requirements (Scherer and Smid, 2000). CSR is considered a Western idea, which has now to be applied to problems in the developing world (Scherer and Smid, 2000).

The literature review is an account of what has been published on corporate social responsibility; it acknowledges the critical points highlighted by scholars and researchers. The literature review conveys what knowledge and ideas have been established on corporate social responsibility and it enables further research to compare and contrast these ideas in order to create new theories. Therefore a literature review provides the basis for the analytical framework of this research (Bryman, 2004). It has also helped with the interpretation of the results and has led to other questions being asked. The literature review also highlighted that there had been little research carried out on the societal impacts of CSR and implementation of CSR by multinational companies in developing world. This gives further importance and emphasis to the analysis of literature in giving rise to new questions and theories. The literature review has provided the framework of following deep research about corporate social responsibility of multinational companies in developing countries, in particular the problems and benefits of implementing of CSR and the role of huge corporations in this issue. The literature review has helped to identify key themes within CSR by multinationals and from this more questions have evolved.

Chapter 3 Methodology

In this research paper the case study was employed as the research strategy. Usually descriptive or exploratory research is associated with the case study, and this might be particularly useful when the phenomenon under investigation is difficult to study outside its natural setting. Using case study research methodology is also helpful when the concepts and variables need to be considered where experimental or survey methods are regarded to be inappropriate (Yin, 1994). Case study is used particularly in looking at the specific questions such as “how and why” that is set in the contemporary environment (Yin, 1989) Case study methodology has a lot of advantages over some other methodologies. First, it allows the use of multiple data collection techniques in order to build a more comprehensive picture of the case being investigated. Second, this in turn leads to the ability to capture both qualitative and quantitative data. Case studies can provide a solid understanding required for hypothesis development that then leads to improved theory development. The main advantage of case based research is that results are considered to be interesting and important and can shift the focus of investigation towards a new area of interest (Scapens, 1990). The case study is usually considered more accurate, diverse and rich, if it is based on several sources of data (Alasuutari, 2000).

Advantages of using secondary data for research purposes

As the research is concerned with multinational companies operating internationally, secondary data will probably provide the main source of necessary information. As our research strategy is case study, it is better to use compiled data that have already been sorted or summarised (Kervin, 1999). Secondary data can be obtained from different sources aimed at the same geographic area, where our case study takes place such as the Coca-Cola’s crisis in India. Area-based multiple sources of data are usually easily available in different forms, especially in published forms. Also tracking the original source of secondary data is much easier, especially when time restrictions are severe. As it will be a case study, it is even preferable to use newspapers, journals and media on a regular basis, as they may provide recent events within the business world. Research will concern the specific country i.e. India, data from government sources are also useful due to their high quality. Because of time constraints, secondary data can be obtained very quickly, in addition they have better quality standards in comparison with collecting own data (Stewart and Kamins, 1993). Using secondary data within collection also has a wide range of benefits, as they have already been collected and analyzed (Cowton, 1998). Unlike the data collected by myself, secondary data are permanently available and easily accessible, so that it can be checked relatively easily to others (Denscombe, 1998).

Problems with collecting primary data for research purposes

Access for some primary data can be problematic and difficult. Therefore it is unlikely that gaining permission for physical access will be easy and will be time consuming. As an interview is way for collecting primary data, however it is difficult to seek access to a range of participants such as employees, suppliers, customers and other stakeholder groups. The main cause might be restricted access to company’s data either directly or indirectly (Bunchanan et.al., 1998; Raimond, 1993). As a full time master student, you are not able to have prior contact with huge multinational companies and you will be required to negotiate in order to gain any access to each level of information. Also, the major obstacle in obtaining primary data is time constrains. There is not sufficient time for all methods of collecting primary data, as physical access may take weeks or even months (Bunchanan et.al., 1998). Even, if there are time allowances, nobody can guarantee that replies will be quick and contain all necessary information. In case of opportunities for conducting interviews, undertaking questionnaires or engaging in observation, unfortunately, this would take several weeks. Whichever method will be chosen, almost all methods for gathering primary data are very time consuming (Bryman, 1988).

However, due to the growing significance of the topic, many researchers have used primary data to conduct research. They collected primary data through interviews, observation and questionnaires. There are some examples of case study based research approaches.

The implementation of CSR in developing countries was examined by Christina L. Anderson and Rebecca L. Bieniaszewska in the paper “The Role of Corporate Social Responsibility in Oil Company’s Expansion into New Territories”. The aims of the study were to analyse the role of CSR in British Petroleum’s overall business strategy and to examin the benefits of employing CSR as a part of business strategy when it was operating in new territories and cultures. The case study approach was conducted through providing interviews with representatives from BP, social auditing and accounting specialists. Recent company reports and website information were also examined.

Another example came from Richard Welford and Stephen Frost’s research that provides an overview of CSR practices in Asia. The aim of the research paper is to review the benefits of the implementation of CSR in supply chains and arising obstacles. In order to collect data for research purposes, interviews were undertaken with six CSR managers working for well-known brand corporations, ten factory managers and eight CSR experts. Interviews were held confidentiality and anonymously. All participants have extensive experience of CSR issues and provide a good overview of the challenges for CSR by multinational companies in Asia. The case study based approach showed that multinational corporations such a