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Critically discuss Corporate Social Responsibility (CSR). What are the implications for a firm that does not conduct CSR?
Date authored: 30 th August, 2014.
Management is defined as working with and through other people to deliver services or products desired by certain segments of the society (Schnietz& Epstein, 2004). Organisations are adopting corporate social responsibility (CSR) due to the surrounding society. A business unit that engages in CSR goes beyond being compliant with the law, international norms and ethical standards set by the industry. An organisation that practises CSR has self-regulating mechanisms in which the firm implements some actions of social goodwill that goes beyond its profitability and what is inscribed in the law (Schnietz & Epstein, 2004). Managers across the world have recognised the benefits of CSR as a factor that enables organisational sustainability and business success. In most cases, companies usually leave a trail of a negative impact on the community in which they exist. CSR is, therefore, an initiative in which such organisations embrace responsibilities for their actions and inspire positive effects through activities on consumers, environment, employees, stakeholders, community and the entire public domain. Stakeholder theory best explains how morals and values are addressed in organisational management. These morals define both the internal and external stakeholders of an organisation that are defined in CSR.
The diagram below gives examples of both internal and external stakeholders
The government of Canada discerns the value of CSR as a factor that contributes to broad-based economic benefits for Canada as a country and other nations that Canadian companies operate in internationally (Government of Canada 2013). Organisations that have CSR principles in their core values operate responsibly by promoting socially worthy business practises that are desired by their client segment in addition to the communities in which they have established their investment. Every organisation has its understanding of CSR as there has been no specific definition and policies that govern the subject. The importance of CSR is thereby discussed below:
Importance of Corporate Social Responsibility in Business
Most of the multinational corporations work under CSR policies to pride themselves in a triple bottom line of people, planet and profits. The triple-bottom line gives most organisations a narrow field of view and focus in which they operate in, in order to be sustainable. When multinational corporations operate in a socially, economically and environmentally conscious manner, they consider doing so in a transparent manner. CSR assists them to succeed in a competitive environment particularly through encouraging social license and shared values. Considerably, managing and mitigating of social and environmental risk factors are gradually becoming of the essence for the success of businesses abroad (Thorpe 2013). This is so as it can be costly for companies to lose social license in terms of the triple bottom line and share price.
As multinational companies take advantage of business opportunities abroad, there is a significant understanding that incorporating responsible business practises into operations and investments in foreign countries not only benefit the local communities and economies, but enhances good business sense. Good CSR policy is a major driver of daily operations and guides the future progress of many multinational corporations. Corporations benefit through CSR when their clients work with them because they are focused on a healthier and better productive initiatives. The direct benefit of CSR is efficient and effective operations; however, the true value of CSR is that of social good-will (Whitman 2013). Companies that operate under the directive of CSR set good example hence; they work to inspire other organisations and individuals to ‘improve on their game' as far as social and environmental responsibility is concerned (Whitman 2013 p.41). It is through such initiatives that the community gets inspired resulting to a more rational perspective on how to run small and medium enterprises as well as how to lead one's life.
Researcher Devin Thorpe (2013, p. 56) found out that 51 out of 59 organisations that he interviewed on the benefits of CSR believed that they had happier employees. Under the same research, Thorpe (2013, p. 57) also realised that 45 out of 59 companies that he interviewed believed that as a result of CSR, they have better employees; this comes as a result of either being capable of attracting better talent or as a result of CSR programs being able to develop better employees (Thorpe 2013). Managers believe that organisations are only good when they have high performing employees who are focused on achieving the missions and visions of their respective organisations. Because of shared values, CSR policies assist planners to forge standard operating procedures that reflect the integrity and better performance (Simply CSR 2008).
It is no doubt that organisations that practice CSR have a better reputation around the globe and are profitable. RBC Wealth Management, a US company that has realised $227 billion in management assets (Hopkins 2012), has a philanthropic initiative dubbed from the RBC Blue-water project, in which the company offers $50 million in the non-profit initiative (Hopkins 2012). For the sixth year in a row, clients and employees of RBC participates in Blue-water day to protect the fresh watersheds and encourage access to clean drinking water (Hopkins 2012). When the top management and employees intermingle with members of the community to assist in non-profit initiatives, the product of such investment is better-organisational acceptance by the surrounding community (Karnani 2010). The involvement of top management in such hands-on initiative is also a motivating factor to the line employees since they have time to interact without any issues concerning portfolios. With such CSR initiatives that involve communal good will, employees feel proud and are better committed to work.
One of the key aspects why organisations get involved in CSR is promotion of diversity. In this aspect, organisations earn respect. The case of DLA Piper Pro Bono, an Australian law firm, is a prototype of an organisation that has earned the respect tremendously by initiating projects that tend to reduce disparities between the poor and the fortunate (Mulleratt 2011). DLA Piper has structured pro bono programs named “Signature Projects” in which the company commits resources to assist the less privileged to access justice, tackling social issues, hunger relief programs, serving veterans and providing legal assistance to post-conflict and developing regions (Mulleratt 2011). The case of DLA Piper Pro Bono also helps one understand that CSR enhances conflict resolution between companies that are not in compliance with the ethical standards and the communities involved.
Implication for a firm that does not conduct CSR
There are many negative implications that come as a result of not implementing CSR. Some of the notable multinational organisations such as Nike and McDonald's have been victims of poor CSR implementation. The global custodians of CSR are:
a) World Trade Organisation (WTO),
b) United Nations Global Impact,
c) United Nations Guiding Principles on Business and Human Rights,
d) ISO 26000 Guidance Standards on Social Responsibility,
e) International Labour Organisation Tripartite Declaration of Principles Concerning Multinational Enterprises on Social Policy, and
f) Governments of the respective nations.
There are clear guidelines laid by the above movements that define the types of CSR to be implemented:
- Community-based CSR: - businesses work as partners to foster well-being of local communities as well as strategising on how to improve on people's quality of life.
- Environmental based CSR: - focus is built on Eco-concerns such as climate change and the environmental impact the organisation has on the surrounding environment (Handy 2002).
- Human Resource-based CSR: - recognising HR issues and implementing projects that focus on well-being of the staff.
- Philanthropy: - businesses donate part of their profits for good cause, most often through a charity partner.
In the contemporary business world, any organisation, be it small or multinational, lack of a CSR program can lead to disastrous results in terms of relations with the local community and international regulatory bodies. Losing the trust of people who are important to the business such as clients, stakeholders, suppliers and the work team will automatically lead to poor business reputation and eventually closure (Godelnik 2012).
Increased cost of doing businesses in both foreign and local countries
Implementing a CSR program does not cost money as long as the policies are known. On the contrary, it can be much costly for a company that does not have CSR program running. The increased costs can be due to:
- Inefficiency in staff hire and retention
- Zero implementation of energy saving programs
- Poor management of potential risks and liabilities
- More investment in traditional marketing (Schwartz 2008).
Usually, employees have the tendency of feeling proud of the company they are working for. Employees who are proud of their workplace in most cases have a positive attitude towards work and are less likely to search for work elsewhere. CSR promotes initiatives such as environmental awareness and philanthropy, which makes it easier for employees to mingle with the community that they are part of. They thus become proud of their organisation's achievement in the locale. On the other hand, a dissatisfied employee will seek better job opportunities, and employee turnover may be high (Simply CSR 2008). A case of McDonald's that was profit oriented and did less for the working environment as well as social initiatives had its employees migrating to other competitors (Simply CSR, 2008). An organisation with good CSR program has a better reputation and will receive more job applicants. More choice results to a better workforce. High positive effects of CSR on employee motivation, diversity and well-being result to a better-performing organisation.
Organisations that have weak or no CSR record have poor customer relations (Confino 2013). Customers have a bad attitude towards products and services offered by such companies and will be willing to swap to other brands. Service rendering or products manufacturing companies who have better CSR programs, on the other hand, have healthier customer relations. Insufficient implementation of CSR programs by organisations lead to customers not having trust on the goods or services produced by such companies and without trust, customers are willing to switch to other brands of the same calibre.
Reeves (2010) in their research that focused on customer satisfaction due to CSR program implementation indicated that more than 88% of consumers thought that companies should try and achieve their business objectives while improving the environment and the society. An interpretation of this result reveals that 88% of clients will have doubt on the intentions of organisations that do not have CSR programs (Reeves 2010).
Less or no Business opportunities
An organisation that does not implement CSR programs blocks its communication links with clienteles, suppliers, employees and other parties that influence the organisation both from within or out. The absence of constant interaction diminishes manager's liaison roles thereby translating to ill-informed managers on business opportunities as well as threats. Additionally, organisations that implement CSR programs casually have less or no opportunities to share their positive stories through mass media, thereby, increasing advertisement costs since they do not breed free publicity. Such organisations hardly benefit from the value of mouth marketing.
Criticism of CSR
It is difficult for the contemporary organisation to survive without corporate social responsibility. Though CSR has become part of everyday business practice, many managers still do not believe in sharing of ideas. Every organisation, therefore, has its CSR practises that increase confusion especially during employee transfers, board meetings and mutual relationship between companies. Secondly, the link between CSR and financial performance is highly mixed. While some scholars agree that investing in CSR improves financial benefits of a firm, others tend to disagree. The conflicting results have not been enough to convince sceptical executives and investors that by doing good, a firm's well-being is also improved. CSR is a confusing tactic from businesses' economic roles (Godelnik 2012). Godelnik (2012) argues that a proper research and development model is the basic element of financial outcome; therefore, CSR plays a neutral role in determining financial performance.
Summary and Conclusion
Apart from the non-profit organisations, profitability is the end goal for any operational business. However, conducting business responsibly has enabled organisations to attract more investors, has reduced the social and environmental risks, increased profitability and growth and has assisted organisations to address stakeholder concerns transparently. Moreover, organisations' top management have better understanding of the work environment and are not susceptible to make errors in their judgements. The simple mantra of “doing well is good business” summarises the roles and functions of CSR in the corporate arena.
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