Attempts to Define Corporate Social Responsibility
Corporate Social Responsibility (CSR) has been a hot debate since the beginning of the twentieth century, as people attempt to reach an agreement over its definition. The concept has become vital in business reporting, as most companies have developed a policy concerning CSR, which offers an annual report on its activities. However, coming up with the appropriate definition of CSR has been hampered by different cultural approaches to business, divergence in motivation for CSR, and disparities in disciplinary backgrounds in the engagement with CSR. CSR will hardly offer solutions to the global problems, as it only works with companies that push for innovation, cost cutting, and brand differentiation. Without a uniform definition of what constitutes responsible business behavior, company are likely to violate the concepts of CSR.
Theoretical Perspectives of CSR
Many attempts have been made to offer an appropriate definition of CSR, but the broadest definition should incorporate the association between corporations, national governments, and individual citizens. Despite lack of a global definition of CSR, the conception of CSR has been leaning within a more expansive perspective by recognizing corporate management as a long-term business approach, which creates a balance between corporate rights and the obligations directed to stakeholders. This approach has been supported by numerous scholars due to its capacity to add value to society (Rahim, M. 2013, 119). CSR is concerned with ensuring that all the stakeholders are treated in a socially responsible way. CSR also offers a platform where corporations can indulge in economic development by improving the well-being of underprivileged people within the community.
The phrase “Corporate Social Responsibility” contains two meanings. One, it is a theory that focuses on the corporations’ responsibility to generate money, as well as being responsible for interacting morally with the surrounding community. Two, CSR carries a specific notion of being responsible for making profit while satisfying the role of enhancing community welfare. The two meanings tend to be similar, but are slightly different. The first meaning offers the responsibility of a corporation to make money and connect with the society while the second meaning implies that not only does a corporation makes money and connect with the society, but also makes profits and transform the lives of people who surround it. A socially responsible corporation should be running profitably while considering both positive and negative social, economic, and environmental impacts on society (Rahim, M. 2013, 119). Corporations can only serve the society effectively if they are earning profits, as loss-making companies can hardly afford to generate funds to support the society.
The local definition of CSR focuses on the relationship that exist between corporations and the local community that resides around the corporations’ area of operation. In its attempt to create connection with the surrounding community, CSR satisfies four obligations:
- The economic responsibility: The main aim of starting a business is not only to make money, but to make profits. Companies such as Google have managed to contribute towards poverty alleviation and mitigation of climate change because they have extra income that can be channeled towards the social activities. Even the nonprofit making organizations do make money, but they invest it back to their operations. They benefit from grants and donations, which enhance their survival. Without profits, no business nor business ethics would exist, as profits enable companies to maintain their operations.
- The legal responsibility: Corporations must adhere to the rules and regulations that guide their operations. Responsible organizations accept the rules as essential directives and not as limitations or boundaries. Large companies, such as Coca Cola and General Motors, which operate globally, have to abide to the regulations provided by different nations in order to serve their customers effectively. Legal responsibility enables corporations to consider ethics, which ensure that employees are treated well in their working places.
- The Ethical Responsibility: Corporations should aspire to do what is right not because they are necessitated by the law to do, but as an obligation to the society. Most companies tend to release pollutants to the environment during the manufacturing process, but ethical corporations ensure that the pollutants do not create adverse effects to the environment. Responsible companies have to consider the effect of the pollutants to the surrounding communities; thus, they should ensure that the waste produced is disposed appropriately to avoid harmful effects on human beings.
- The Philanthropic Responsibility: Corporations should strive to contribute towards projects initiated by societies, regardless of whether the projects are related to the corporations’ production line or not. Being philanthropic implies that companies can be socially responsible for any project, as long as it benefits the society. For instance, Google has contributed in addressing social issues, such as education, health care, poverty eradication, and community development in various communities, despite the company’s line of services. The company does not expect any returns from such investments, as its aim is to make sure that people’s lives have been transformed through its operations. However, indulging in philanthropic activities offers numerous benefits to companies, including enhanced brand reputations, strengthened trust with major stakeholders, and increased earnings.
CSR has changed over time from earning profits legally by companies to matching profitability with ethical business practices. Meeting the expectations of customers, employees, communities, and investors, is paramount to CSR, as failure to attain such expectation may interfere with the companies’ competitive advantages. According to the United Nations Industrial Development Organization (UNIDO), the rising concerns on ethical business practices in relation to CSR has made companies to consider CSR as a commitment to commercial operations (Rahim, M. 2013, 119). Although CSR is largely linked to big companies owing to their concern in protecting their reputations, small companies should also embrace CSR strategies, since attention to CSR is for long-term economic interests.
The aspect of companies benefiting from CSR seems to take the center-stage in the contemporary business world, as companies are seeking for long-term sustainability through sharing their values with the society. CSR presents policies, practices, as well as initiatives to commit to with an aim of enhancing transparency and creating a positive impact on both social and environmental wellbeing. Tom’s Shoes Company has made CSR a core of its operations by donating a pair of shoes to the needy children for every pair of shoes a customer purchased (Caramela, S. 2016. n.p). Companies are willing to apply business ethics in their operations to enhance the quality of life among their employees, as well as uplifting the standards of the entire society at large.
The concept of CSR is built on the three words that are contained in its title phrase. Thus, in short, CSR explains the responsibilities that corporations hold on the society under which they operate. While a corporation is a group of persons that gather together as a legal entity to carry out a business, social responsibilities involve the obligation made by businesspersons to embrace policies that are enviable in terms of objectives, as well as the values of society (Omran, M. 2015, 40). Corporations provide funds that assist in creating awareness for social cause, and the funds are usually based on the product sales. Stakeholder theory supports the notion that companies should contribute towards making society better, since this is part of the stakeholders’ interest in investing in certain companies.
From the neoliberal scholars, CSR involves the implementation of charitable policies and guidelines initiated by the corporations. The neoliberal scholars support Milton Friedman that companies adopt social responsibility in their businesses to enhance their profitability, as long as they remain within the rules set for free competition (Broomhill, R. 2007, 6). However, the neoliberal supporters believe that CSR restricts businesses to attain their elementary purposes, but assert that engaging in CSR discourse can lead to profitability in the long-run. CSR programs are perceived as informal mandate, pushed by the public, to consider social and environmental impacts while dealing with their stakeholders. In essence, companies place priorities in enhancing their relationships with their stakeholders before concentrating on social relations.
Neo-Keynesian supporters offer a different view to what the neoliberal supporters because they bring on board the company’s stakeholders, as well as the state, in defining CSR. Neo-Keynesian supporters recognize that corporate behavior may bring negative impacts either through market failure or through a deliberate strategy (Broomhill, R. 2007, 8). They believe that companies may push on CSR strategies to escape problems that originate from unregulated corporate behaviors or to ensure social sustainability and attaining other enviable social and economic objectives. In the 1970s, Nestle, and other companies that manufactured baby formula, had to assuage the message spread by activists concerning dangers of baby formula by embracing CSR (Frank, R. 2014, n.p). Nestle began to offer travel grants, hospital equipment, and gifts to underfunded health care facilities, particularly in the developing countries in order to promote their products.
CSR is relevant in today’s business operations because it increases affluence, in addition to enhancing social expectations. CSR contributes towards globalization by facilitating a free flow of information, thus, empowering the stakeholders. While CSR is unlikely to offer solutions to the global problems, it is likely to benefit companies that focus on innovation, brand differentiation, and cost-cutting (Epstein-Reeves, J. 2012, n.p). Coke and Pepsi have adopted a similar approach to CSR, as they strive to maintain their market share. Both companies pack water in bottles that have attractive package and sustainable. Companies that concentrate on long-term goals, such as McDonald and Unilever, are likely to benefit from CSR because it guarantees sustainability.
Corporations have the capacity to influence the natural environment, in addition to people culture and expectations. They offer goods and services based on what they believe as the appropriate strategy to enhance people’s lifestyles. On the other hand, people place higher expectations among corporations, in terms of offering quality products and services that enhance safety. Businesses can hardly exist without customers, who are also members of society. CSR is vital for creating a long-term relationship with the community. In an attempt to enhance safety for its customers, General Motors recalled over 28 million cars back to its factories in 2014 after realizing a safety error in some of its cars (Frank, R. 2014, n.p). Most multinational corporations are involved in enhancing people’s cultures, in addition to creating awareness of things that might affect individuals from achieving their potential.
Several theories have supported the CSR in supporting social welfare. CSR disclosure theories purported that corporations should not only take on CSR activities, but also disclose such information to the stakeholders (Omran, M. & Ramdhony, D. 2015, 42). Most companies tend to disclose only the financial information to their stakeholders, but offering non-financial information is also essential to enhance transparency with regard to social and environmental issues.
Legitimacy theories assert that corporations usually enter into a social contract with the society under which they operate. Thus, they are compelled to legitimize their activities by reporting their CSR in order to gain approval from the society. This practice enhances a harmonious existence, in addition to increasing expectations among the society members. According to Omran and Ramdhony (2015, 43), CSR reporting practices have turned into a vital management tool in business management, in addition to enhancing employee retention rate.
Strength and Weaknesses of CSR
- Strengths
A CSR is capable of improving the company’s profitability, as well as value, by cutting operation costs and creating a positive impact on the environment. CSR enhances accountability and transparency concerning investment analysis, shareholders and the local community. According to neoliberal economic thinkers, having a strategic CSR is beneficial for both business and society, as strategic CSR acts as a ‘shock absorber’ for the firms (Broomhill, R. 2007, 12). According to Rahim (2013, 124), incorporating CSR strategies with economic rationales can assist companies in attaining competitive advantage. Thus, CSR is perceived as a long-term strategy to enhance the company’s sustainability and profits.
CSR has the capacity to save on costs and raise the company’s reputation. If conducted effectively, a CSR program can assist in minimizing costs by attracting more efficient staff, as well as retaining the best talents, which can enhance the company’s performance. Some of the dimensions that illustrate good reputation in companies include citizenship, governance, and workplace. Firms with established reputations, such as Google, do not incur too much cost on advertisements and the attraction of talents, as their employees are committed towards the goals set by the company. Apart from treating its employees appropriately, Google has been involved in making the surrounding communities better paces through expanding access to clean water, discouraging animal poaching, and fighting poverty (Smith, J. 2013, n.p).
Companies are capable of raising their reputations among investors who recognize their role in the community and respond through buying their stock shares. In addition, consumers prefer products of companies that are conscious about community development, at whatever price. For instance, BMW is not only reputable for its governance, but also in manufacturing cars that promote cleaner environment (Smith, J. 2013, n.p). The company is concerned that the smoke released through the exhaust pipes is harmful to the environment, hence, the need to protect people from hazardous gases.
A majority of consumers believe that companies should play a role in improving the welfare of society and that companies with good corporate citizenship tend to appeal most to them. Such consumers are prepared to pay more for products that come from companies that contribute towards social welfare. According to a study by Nielsen, 66% of the consumers who were interviewed claimed that they were willing to purchase products and services that consider positive social and environmental effects, even when such products and services are offered at a higher cost (Marketing Charts, 2015, n.p). Thus, corporations have a responsibility to ensure that they have invested their funds in programs that appeal to the society for the customers to replicate with purchasing their products.
- Weaknesses
One of the core weaknesses of CSR is it creates cost to small businesses, which do not have adequate funds to create a budget for CSR reporting. Small companies are likely to allocate an insignificant amount of money towards CSR because they concentrate more on satisfying the stakeholders’ needs rather than the society. For instance, a technology company that employs five workers is incapable of contributing adequately to social programs due to its level of capital. However, the current technology, such as social sites, can enable small businesses to communicate about CSR policies without incurring too much cost.
CSR is perceived as a strategy to avoid regulations. Some companies believe that CSR has helped in gaining competitive advantage because there are no regulations to direct ethics. Regulations guide on the structuring of corporations, as well as on the effects of their operations on the society. Allowing corporations to operate without regulations would enhance their power, leading to market disequilibrium. While some companies are enjoying operations without regulations, others are pushing for regulations For some companies, having environmental regulation would strengthen their competitive edge by compelling other companies to eternalize most of their environmental costs.
Some critics hold the notion that CSR is a futile exercise since it opposes the duty that the company’s management has for its shareholders. Managers who focus more on enhancing social benefits rather than earning profits may risk losing his/her job and another manager who makes profits a priority is hired. According to Broomhill (2007, 11), adoption of CSR may reduce competition and weaken the market economy by demonstrating corporate citizenship. For most companies, lack of solid business case and lack of strategies to tie their operations to CSR make them ignore CSR. CSR has made even the biggest companies to struggle in the quest to please their customers, despite investing millions of money towards their CSR programs (Smith, J. 2013, n.p). Such struggle has made companies to fail in achieving the ROI, thus, terming CSR as a philanthropic exercise.
Conclusion
Different organizations, in different countries, have offered different definitions on CSR, but the common notion concerning such definitions is that CSR incorporates how companies carry out the business processes to create a desirable impact on society. Undertaking CSR initiatives offer an opportunity for companies to succeed in the long-run. CSR is built on the notion that corporations can no longer operate as isolated economic entities. They need to involve society in their success story. Thus, CSR should not be a strategy for the large-scale companies only, but for all business leaders who aspire to transform the future. The demand for greater disclosure and increased customer interest have pushed corporations to consider expanding social responsibilities towards communities that reside within their areas of operations. However, some critics believe that CSR is a strategy for evading regulations or an attempt to lobby against regulations. Companies should be allowed to act strategically instead of coercing them into adopting CSR.
References
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Omran, M. A. & Ramdhony, D., 2015. Theoretical Perspectives on Corporate Social Responsibility Disclosure: A Critical Review. International Journal of Accounting and Financial Reporting, 5(2), pp.38-55.
Rahim, M. M., 2013. Legal Regulation of Corporate Social Responsibility: A Meta-Regulation Approach of Law for Raising CSR in a Weak Economy. (Legal regulation of corporate social responsibility.) Berlin, Heidelberg: Imprint: Springer.
Smith, J., 2013. The Companies With the Best CSR Reputations. Forbes. [Online] Available at: <http://www.forbes.com/sites/jacquelynsmith/2013/10/02/the-companies-with-the-best-csr-reputations-2/#3bda57c022bc> [Accessed 26 Nov. 2016].