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Critically discuss Corporate Social Responsibility (CSR). What are the implications for a firm that does not conduct CSR?
Date authored: 02 nd September, 2014.
Corporate responsibility has of late been given prominence in both business and policy world. Organizations have used it as a competitive advantage as one of the PESTLE factors, the social factor to sprout its corporate image while benefiting economically. Before critically discussing the CSR, it is important to draw up the current literal definitions for CSR. There is critical debate on the acceptable definition and concepts of CSR, Marcel, M. (2003), argued and supported by Amponsah-Tawiah& Dartey-Baah(2012), this is because as Gobbels (2002), Votaw and Sethi (1973) cited in Marrewijk (2003:95), “it [CSR] means something but not always the same thing to everybody”. NGOs and local government might see it from a point of addressing social inequalities while the corporate organization in light of ethical profits. However as Marcel, M.(2003:95) rightly argued, it has become to be accepted to mean, “a more humane, more ethical and more transparent way of doing business” which is also supported by Carroll (1983) cited in Amponsah-Tawiah & Dartey-Baah (2012) defined CSR in four dimensions, profit, legal, ethical and social responsibility. In a way CSR by a firm goes beyond the legal acceptable norm of making profit, but a sustainable stakeholder relationship within the local area in which the firm operates from.
CSR has become so much a global issue to such an extent that the EU has recently set up a 3 year CSR strategy from 2011 to 2014, The European Commission (2011), defined CSR as, “the responsibility of enterprises for their impacts on society”. The Commission further advocated for enterprises to integrate in their operations social responsibility measures that captures, social, environmental, ethical, human rights and consumer concerns and expectations. The EU is leading the world in maintaining high level policy framework on CSR within EU member states, such that it now have an EU Commission CSR dedicated award website which follows under the Commission for Enterprise and Industry, it's importance to EU business organizations is further reaffirmed by the Vice President of European Commission, Tajani, A.(2013), when presenting the CSR awards to the best enterprises within EU which have complied with EU CSR strategies,
It shows that a strategic approach to CSR is increasingly important to the competitiveness of SMEs and large companies. It also encourages more social and environmental responsibility from the corporate sector at a time when the crisis has damaged consumer confidence and the levels of trust in business.
The voices of the NGOS and ethical pressure groups have added a strong voice to the need for organizations to adhere to CSR with regard to environment, the society and fair trade, Doh, J.P. and Guay, T.R. (2006). The Ukraine Chernobyl nuclear disaster in 1986 and the India Bhopal gas disaster in 1984 were one of the awakening landmark tragic events that are more widely used as the basis of argument for organizations to take responsibility of their actions through CSR.
In determining the implications of a firm that does not implement CSR, in this paper, I will critically analyse 2 crucial sectors, the food retail chains in UK and the oil and gas industry globally. The outcome of the research will show whether the findings are plausible enough to conclude whether firms that implement CSR have competitive advantage compared to those that does not. The reason for choosing these 2 sectors is that, both are in competitive markets and secondly that they have the potential of doing great harm to the environment and public in their ruthless pursuit of profiteering.
The oil and gas industry is one of the culprits in both polluting and potential harm to the communities they operate from. The BP spill in 2010 in the Gulf of Mexico, USA, and the damage to the environment it caused is one recent disaster in the oil and gas industry. BP (2010) was forced to issue a 50 page strategic review of its sustainable operations. It highlighted its safety record, environmental management and corporate social responsibility to both its staff and the communities it operates from. BP admitted that 11 people were killed in the Gulf of Mexico accident. This was the biggest BP disaster in the recent history, which saw the company setting aside $20 billion “Deepwater Horizon Oil spill Trust” to meet anticipated compensation claims. This did not include the cost of 48,000 people, 6,500 vessels and 125 aircraft involved in the cleanup operation. In the strategic review BP (2010:21), reaffirmed the importance of CSR in its operations, “We recognize that our operations can impact people and communities in ways that relate to human rights. BP categorizes the issues into three broad headings: employees, communities and security” Yet the voluntary nature of CSR reporting has been criticised by many researchers as Mobus, J.L.(2012) argued that, in the case of BP it had allowed the organization to report selectively on CSR paying more attention to areas of great economic impact while withholding any activities that may harm the company's reputation.
Never the less the sustainability review statement by the company and its CSR assurance, had a profound impact in weathering the storm in its share price, as indicated by its share price positive movement from 296p in 2010 in the post spill to 460p in 2013, according to the Independent (2013). This was still far less than the pre-spill share value of 658p but however a considerable investor confidence ensured. The current BP value shares as at 27 August 2014, is 485p, London stock exchange (2014). In the case of BP the implication of not implementing and reporting a CSR review would have been a monumental economic disaster.
The food retail in UK is one of the fasted and most profitable business, Mintel (2004) cited in Jones et al (2005), estimated the consumer spending in the sector to have reached £90.4 billion by 2003. 10 years later, the IGD (2014) stated that the UK grocery market share by April 2014, was worth £174.5 billion and this trend is expected to continue with a projected share of £230 billion by 2019. The retail market in UK is dominated by the big four, Tesco, Sainsbury, ASDA and Morrison, Jones et al (2005). The sixth after Co-op retail which seems to dominate the premium market, with an aggressive CSR strategy is Waitrose. Such a competitive market makes the study of whether CSR implementation has a competitive advantage in the retail market and whether those retail companies maintaining the market niche could be contributed to CSR, justifiable. Critically, it is important to analyse the trend in retail growth and how the four players have managed to maintain competition in the face of a new paradigm shift in consumerism. The impact of Fair Trade and the demand for ethically produced products, according to Jones et al (2005), the competition has forced the retail business to communicate their CSR positioning to their shareholders, stakeholders and the powerful conscious consumers.
The “Horse meat” scandal that rocked the British food chain in February 2013, put to test the CSR strategies by retails to their consumers and their shareholders. Chesters (2013), in a market share report of the horse meat impact to shares, revealed that Sainsbury's shares rose by 2.7p after being given a bill of all clear of horse meat in its products while Tesco's shares were hit hard after its products tested positive to horse meat. The horse meat products were also found in food products in Iceland, Aldi and Lidl. Tesco has to go on the offensive to reassure the consumers that it was revisiting its CSR strategy over food sourcing to ensure that water tight system was in place in its food chain. Tesco thus was a victim of a perceived corporate negligence, in failing to adhere to the principles of CSR in the supply chain. The result was mistrust by consumers to the meat products as BBC (2013) confirmed that more than half of the UK consumers no longer had trust in processed meats, resulting in a slump in sales.
A review of the big four's website has revealed that all of them have a page dedicated to CSR commitments through reports, mission statements and case studies where they are improving the environment in which they operate. Tesco (2014), has the Tesco and society page, with resource links capturing CSR reports and Key performance Indicators (KPI). Morrisons seems to have one of the most colourful corporate responsibility page, with a targeted mission statement signed and endorsed by the Chief Executive, Dalton Philips,
We have committed, over the next three years, to drive efficiency and invest in our customer proposition. We stand for ‘value without compromise', which means that we will continue to be a value led grocer, British born and bred. We will not compromise on the quality of our food, or the customer service levels in our stores. Our corporate responsibility agenda plays a key role in this, Morrisons (2014)
Apart from the highlighted statement of intent, there are CSR reports that the public can access. Sainsbury, has a tab simply called “Responsibility” with further pages, “Best for food and health; Sourcing with integrity; Respect for our environment, Making a positive difference to our community; and a great place to work”, Sainsbury' (2014). ASDA pride itself as a champion of green revolution, with a website dedicated for CSR in advancing a green conscious consumer,
We'd like to think our record speaks for itself. Since 2005 we've reduced energy use in our existing stores by 33% and in new stores by 45%. We're basically saving the equivalent to the energy used in 60,000 homes every year. We travel less too. Today our goods travel 18 million fewer road miles than they did in 2005, which also cuts carbon, and helps our bottom line. Asda hates waste, of any kind, and we're proud to say we've diverted 96.5% of our waste away from landfill, ASDA (2014)
Waitrose leads as a leader in corporate social responsibility (CSR) in food retail business in UK and also pride itself in being a leader in organic foods and sustainable goods supply chain. These factors make entry into Waitrose market niche difficulty for rival and new entrants, Porters' Five forces. It has maximized opportunities and reduced threats in its market segment. Therefore Waitrose monopolizes the Lifestyles of health and sustainability (LOHAS) consumers, which are conscious of products that are environmentally friendly, Kotler ,P. and Keller, K. L. (2009). While other players are fast imitating Waitrose in defining CSR ethos they claim to have, Waitrose is ahead of its time. It is heavily involved in Fair Trade initiative globally. Waitrose's position in the industry has been primarily been driven by its aggressive approach to CSR.
Whether the voluntary nature of CSR reporting is working is debatable, what is not in question is that more and more business are rising to the challenge in reporting their CSR agenda to the stakeholders as supported by Eweje, G. (2007) in his research on Shell activities in the Ogoni region of Niger Delta , Nigeria. It is fascinating to analyse how price wars in the food retail sector has extended to the CSR agenda. The fact that the retail sector in UK is one of the fastest growing and yet one of the most advanced in implementing CSR measures is not by coincidence. In fact Mobus, J.L. (2012) confirmed that numerous researches have shown a link between market share and investment in CSR by organizations. The losses of BP during the Gulf of Mexico spill, the more advanced CSR reporting which had benefited both the consumer and food retail food sector in UK are indications of the consequence of implementing or lack of implementing CSR strategy. The losses in share by Tesco after discovering the horse meat traces in its food chain and the subsequent share rises by Sainsbury after tests indicated its products were not affected, is clear indication that the implication of not implementing CSR can affect negatively on profits and competitiveness.
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