CSR Can Sometimes Be Good For the Companies Profit Margins But Sometimes Not - Essay Example

?CSR Can Sometimes Be Good For the Companies’ Profit Margins But Sometimes Not It is a reality hidden from none that an articulate and wisely engineered Corporate Social Responsibility (CSR) strategy not only aims at invigorating economic development but also pays a great deal of attention to upgrading the state of the workforce and community at large. CSR basically refers to the ability of business leaders to efficiently run organization while also taking socio-environmental issues and economic development of society into account (Gossling 2011: 1). General consensus is that the ideology of CSR stems from ethical values, economic progress, and social balance. Studies on corporate performance of different companies show “a positive correlation between a company’s financial performance and how it practices CSR” (Horrigan 2010: 273). According to a Harvard University study, companies which had a sense of CSR showed four times the growth rate compared to companies focusing primarily on profit maximization (Fernando 2009: 11). Often when employers are unable to achieve a raise in profit margins, they blame it on CSR rather than on incorrect implementation. Also, CSR may not prove to be advantageous for a company when certain obstacles like “lack of awareness and conviction among managers” (Fernando 2009: 11) are not removed which can quite effectively drag a business down, so timely identification of any obstacles is highly important for reaching desired targets. It is argued that when integrated into business model, sometimes CSR leads to better financial performance and overall reputation while at other times it simply may not. This essay basically aims at contemplating the extent to which CSR can prove to be effective for a company’s profit margins and what relevant literature has to say on the subject when CSR does not help in improving the financial position of a company. CSR is a broad ideology and covers all responsibilities and obligations that companies or organizations owe to the society in which they operate at any point in time (Crane 2008: 201-202). It helps to ensure that business is being operated in a manner which complies with both local ethical standards and international norms. CSR basically operates out of this philosophical idea that companies can and should operate ethically (Miller & Jentz 2007: 68). It works by inculcating this sense in the employers’ or managers’ minds that all kinds of business activities should inflict a positive influence on the employees, consumers, stakeholders, communities, and environment. When the idea of social responsibility in relation to business activities first made appearance in the business world in the late 1960s, it was considered controversial by many (Karake-Shalhoub 1999: xi). It is believed that despite a growing body of research identifying association of CSR with enhanced financial performance and organizational reputation, this business model still remains a controversial subject and continues to attract a large collection of opponents who argue that the whole concept of CSR is virtually irrelevant to business success (Freeman & Liedtka cited in Asongu 2007: 27). It is this conflict regarding the efficacy of CSR which will be discussed and scrutinized in the essay to determine the extent to which it could be related to business growth and sustained development and the extent to which those who argue against its credibility could be taken seriously. There is also a large percentage of people who despite knowing that CSR is not irrelevant to business still think that this is a bad idea to be incorporated into the organizational framework (Banhegyi 2007: 325). However, it is increasingly believed that CSR encourages a business organization to identify all members of the society who may be considered as stakeholders and then incorporate their needs into the strategic decision-making process (University of Miami cited in Asongu 2007: 28) so as to strengthen the relationship between business and the community in which it is based. Though the concept of CSR approach has been around for as long as business itself, but it is only recently that it began to be formally implemented over the world and is still evolving. The definition of CSR also kept evolving over the passing years restricting itself to concerns like the effects produced by company actions on others, the duty of managers to promote social welfare, and fulfilling economic and legal obligations (Visser et al. 2010: 106-107). Throughout the history business has always remained associated with major social and environmental concerns, which shows that it cannot remain detached from either society or environment. It is claimed that social dimensions of corporate activity first began to be explored in the UK and Australia and gained momentum in the 1980s (Blowfield & Murray 2011:193). CSR is the name of a policy which helps organizations recognize the interrelationships between business and society and “take into account the social consequences of their business action” (Michael 2010: 39). Businesses since the times of antiquity have been encouraged or even forced to be socially responsible. They are bound to fulfill their legal obligations as defined by the state and “stay within the letter of the law in each jurisdiction in which they operate” (Wit & Meyer 2010: 265-266). So in addition to being legally bound by state authorities to operate in a socially approved manner, some businesses over time also began to consider the requirement of being good corporate citizens not only because of the legal liabilities but also to address their moral beliefs (Asongu 2007: 29). This is established that CSR acts as a scintillating guide for business leaders advising them on how to live up to their responsibilities as mature citizens and operate in a socially approved style. Employers who make efforts to implement CSR as one of the mainstream strategies are aware of the fact that acting in accordance with social values is not merely an ethical duty but something which helps an organization reap huge benefits by altering attitudes of employees (Keinert 2008: 96) and gaining a competitive edge over others. Research also cites that the benefits of this program to an organization are huge ranging from improved corporate reputation and better relations with the community to increased consumer trust and social welfare (Banerjee 2007: 58). World Business Council for Sustainable Development (WBCSD) is one notable example of an organization made up of world’s leading corporations which is dedicated towards establishing a “sustainable future for business, society, and the environment” (WBCSD 2008) and that is just the spirit of CSR. So as to promote an atmosphere of business leadership fixated on organizational and societal development, this organization has kept its membership open to all such companies which show an interest in effective implementation of CSR approach. WBCSD is reputable for maintaining “an influential voice for business and boasts a membership comprising major corporations worldwide” (Blowfield & Murray 2011: 192). WBCSD began operating in 1995 founded by Swiss entrepreneur Stephan Schmidheiny who transformed his glorious vision of business playing an indispensable role in sustained development into reality by encouraging the global business community to take a shared action and plan innovative solutions (Blowfield & Murray 2011: 191-192). It is definitely the result of Mr. Schmidheiny’s relentless efforts that today “WBCSD has some 200 members drawn from more than 35 countries and 20 major industrial sectors, involving some 1,000 business leaders globally” (WBCSD 2008). Due to heavily focusing on CSR as one of the foremost building blocks of the organization, the management at WBCSD does not only work on financial progress, enhanced reputation, and increased sales but also continually stresses on global development by working on daunting objectives like reversing the spread of AIDS, improving underprivileged public’s access to safe drinking water, and ensuring every child is educated at least till primary level. The main objective of WBCSD is to encourage sharing of knowledge, wisdom, and experience, “to advocate business positions on sustainable development and to establish partnerships with governmental and non-governmental organizations” (Santos 2012: 323). Among other main development objectives and as a way of making the world a better place to live, the WBCSD also aimed at taking shared action with its members to reduce “overall greenhouse gas emissions by at least 5% below 1990 levels by 2012” (WBCSD 2008) and made significant success in this context under the presidency of Peter Bakker. There are 120 international member companies of WBCSD and all of them are committed towards seeking solutions to global environmental issues (Sparkes 2003: 287) and working beyond corporate philanthropy to look for and generate smart business models that can turn out to be beneficial for both business progress and community development. In accordance with the message advanced by CSR approach, the management at this organization bases all its operations on three fundamental areas namely “Energy & Climate, Development, and the Business Role” (WBCSD 2008). It is clear by now that the vision of CSR as defined by WBCSD is based on displaying ceaseless commitment towards economic development while also working on improving the condition of the workforce and investing in the quality of life enjoyed in a society. This organization began operating by setting up “alliance between different organizations in the interest of protecting the environment and promoting sustainable development” (Lazarus 2002: 67). This is a very profitable development due to which WBCSD soon gained momentum, earned a name for itself, and stands distinguished because since the start it insisted on basing all business work on a coherent and enlightening CSR strategy of the kind which would help all member companies to fulfill their social responsibilities in a highly dynamic modern world. The fundamental message promoted by WBCSD across the globe is that “business is not divorced from the rest of society” (WBCSD 2008). CSR approach also propels the idea that both business and society are interdependent and that business leaders should reach different organizational objectives and construct a better future in a way that is both accepted and encouraged by society. This is because regulation of business by law alone is just hopeless. Socially responsible business behavior requires not only obeying of legal requirements but also that corporations and the people working for them “also hold high moral standards” (Shaw 2010: 191). It is stressed by WBCSD that it is not possible to sustain success in the highly competitive business world if the leaders do not pay sufficient attention to what society demands and expects. It is imperative to behave as responsible global citizens in accordance with the expectations and core values of a community especially if a company is doing business in more than one country (Lawrence & Weber 2010: 68). It is believed by the management at WBCSD that acting in a manner that is encouraged by society not only helps in fulfilling an important ethical duty but is also one of the choicest moves to gain a remarkable increase in profit margins. This organization has become “the pre-eminent business voice on sustainable development issues” (United Nations Office in Geneva 2004: 415). So, it is not only tried by all member companies to advance global development through socially approved avenues but also continuing sustainability in the market is one the main agendas. The President Mr. Bakker basically aims at making the organization to work as a channel through which business and government organizations could be encouraged to take a shared action towards business and community development (Watts, Holme & Tinto 1999: 1). The message promoted by Mr. Bakker is that the main agenda of any business should be to balance its obligations towards the business itself and the society which is why WBCSD defines its priority issues to be based on areas of human rights, workforce rights, environmental progress, supplier relationships, and community development. Though there are no concrete indicators of measurement to evaluate CSR policies, but consistency in monitoring of CSR performance by building an integrated model is vital to remain ahead of others in the business world (Fernando 2010: 23). Research cites that WBCSD as one of the leading business organizations has to date displayed many commendable and effective global practices of CSR. Frequent reference to CSR approach as a way of reaching different noble objectives of global development forms the central theme of this organization at all levels (WBCSD cited in Idowu & Filho 2009: 63). Organizations like WBCSD which believe the concept of CSR to be increasingly relevant to business take up the challenge of both social and environmental issues and improve relations with different key groups like “investors, regulatory agencies, the financial community, local communities, and the general public” (Baxi & Prasad 2005: 54) to reach desired targets. Some of the important business, social, and environmental objectives designed by WBCSD have been already mentioned like doing profitable business with the world, allowing more people an access to safe drinking water, promoting energy-efficient company culture, identifying critical industrial issues, and introducing innovative greenhouse gas standards. Corporations dedicated to CSR not only invest in profit maximization but also accept myriad daunting environmental and global challenges to make this world a better place to live because they believe business to be “a multi-dimensional entity serving greater social interests” (Zu 2009: 21). However, this integration of social and environmental concerns in the business operations by WBCSD and all such companies and the engagement with society in which the business is based is entirely of voluntary character which explains why such practices vary from organization to organization because there is no formalized legal code of conduct (Idowu & Filho 2009: 63). Interpretation of CSR also varies across the world because the business sector, market position, and needs of the stakeholders are different in different parts of the world (Idowu & Filho 2009: 64). Though businesses are obligated to be socially responsible, incorporation of social and environmental concerns in daily business activities is voluntary to satisfy moral convictions. WBCSD continues to grow and gain respect worldwide because though there are no standard guidelines to implement tools for corporate sustainability, it still strives to put CSR into effect by transparent and ethical behavior that complies with international norms of behavior and not only considers the welfare of society its personal main agenda but also takes into account the expectations of stakeholders and their families. Such a smart strategy adds a new dimension to the framework of CSR which is acknowledging the international norms of behavior (Hager cited in Idowu & Filho 2009: 63). Apple Inc. is another well-reputed and widely popular example of CSR done right because this large business organization has also made significant contributions to social welfare in clever and compelling ways. Founded in 1976 by Steve Jobs and Steve Wozniak, this company originally only specialized in personal computers (Harrigan 2003: 258) but due to constant hard work and never undermining its social and global responsibilities, it soon became a symbol of sophistication and one of the most influential names on the face of Earth. In the past when CSR was not so prevalent, many manufacturers used to externalize production costs to the society by polluting the environment (Werther & Chandler 2010: 94) which is a violation of social responsibility and code of ethics. However, high-profile firms like Apple have exhibited an enhanced understanding of social issues like pollution by lowering the level of externalities. Starting from personal computers, the journey of Apple Inc. has definitely come a long way with record high sales of ingenious technologies like iPod, iPhone, and air light laptops. Presently, Apple Inc. leads the technology market and is famous for using social media like Facebook and Twitter to incorporate CSR into their business activities. It is claimed that “Apple Inc. has taken radical measures to assure consumers and other stakeholders of the success of its Green Strategy” (Respicio et al. 2010: 53). There is a wide variety of CSR approaches adopted by this organization which range from long-term to short-term. Short-term CSR strategies used by Apple Inc. include CSR position statement, online performance reports, employee communication, advertisement and other promotion policies, and awareness campaign while, long-term approaches to CSR include stakeholder involvement, evaluation of social performance, and communication guidelines (Mitchell 2006). This suggests that Apple Inc. leaders have quite a strategic, thoughtful, and practical vision of CSR which can be witnessed in their business activities and decision-making processes like the decision to plummet down the amount of materials used in factories during the manufacturing process and raising awareness about recycling programs. Apple is the name of the company which in response to growing environmental awareness has made consumers “more likely to choose eco-electronics over traditional ones” (Mulvaney 2011: 145). Apple Inc. is the organization which has amassed global trust by engineering products using such standards in their factories that consumers would not feel the need to dispose of the product for a long time. By making huge investments in such business activities and incorporating social and environmental concerns in its agendas, Apple Inc. proves itself to be socially responsible and operating in compliance with the international code of conduct. Apple Inc. leaders believe in achieving sustained development by striving to maintain reputation of being one of the most celebrated and eco-friendly technology companies of all times (Mitchell 2006). Some people claim that CSR is a luxury affordable only in developed country where people have jobs and make reasonable amounts of money so it will be found prevalent wherever there is affluence (Werther & Chandler 2010: 94-95). But saying so is empty mockery because many multinational companies like Apple have maintained high standards of performance for their overseas business activities in developing countries also requiring their subcontractors to provide working conditions to the local public above the local average, thus incorporating social and workforce concerns in the main business agenda which is the message of CSR. According to one former Apple employee when he worked for the company in the late 1980s till early 1990s, “people were given amazing opportunities to stretch themselves and grow and do amazing things” (cited in Heskett 2012: 192). Such a social welfare attitude has remarkably helped Apple in reaching the heights of success. Companies claiming CSR to be irrelevant to business performance do not believe that business and society cannot be divorced from each other. Such leaders also do not think of their employees’ and other stakeholders’ concerns as their basic priority and do not invest wisely to improve their living conditions as opposed to the ideology of CSR. However, research proves that CSR strategic policies hold the potential to avoid serious quality, safety, stakeholder and public relations issues (Elsdon 2013: 31). There is always criticism surrounding the overseas business policies of many notable multinational companies like Apple that the subcontractors pay the overseas population in developing countries below average and significantly less than local workers. Apple is a corporation based in US and has been often targeted by similar criticism. However, research proves the state of affairs to be otherwise and shows Apple to not only act socially responsibly but also operating as a corporation which attaches prodigious amount of importance to its employees’ needs and thinking of new innovative measures to modify the social environment in which the overseas employees work for the better. It is claimed that in early 2010, Apple Inc. witnessed a troublesome issue emerging outside its US headquarters and attracted quite a lot of criticism but it managed to deal with the crisis quite effectively (Elsdon 2013: 31). The crisis began with reports issued indicating a worrisome rate of suicide among Apple employees in some Asian factories “where the company had outsourced manufacturing” (Elsdon 2013: 31). Investigatory measures taken by Apple management helped in exposing alarming rate of abuse toward the Asian workforce in the factories, hiring of under-age workers, dangerous practices, and transportation and housing fees charged to employees who were located distantly. The Asian subcontractors to which business activities were outsourced forced the children to work long hours in substandard conditions at meager pays. Were it right to consider business as isolated and divorced from society, no measures would have been taken by Apple to rectify the critical conditions in its Asian factories. However, because Apple has always shown keen interest in implementing effective CSR policies and practices, the leaders responded quickly to this issue and established 24/7 care centers at the factories with high suicide rates. Additionally, Apple company even had large nets installed on all sides of buildings to discourage impulsive suicides and terminated all business activities with three suppliers who failed to commit themselves to Apple’s CSR policies which “increased the number of both first-time audits and repeat audits” (Elsdon 2013: 33). Apple made it essential for all suppliers to conform to the international code of conduct using CSR as a threat and problem management tool. These facts prove that Apple’s approach to CSR stresses on acting in a socially responsible manner and enhancing the social and living conditions of the employees all over the world. Strict notice is taken of discriminatory and abusive practices also and in case of under-age hiring, Apple now requires all violating companies to return such workers to schools and pay for their education (Elsdon 2013: 33). Had Apple considered CSR to be an irrelevant ideology to business, none of such corrective measures would have been taken leading to aggravated issues. But, using CSR for social welfare and organizational reputation is one of the core objectives of Apple and due to timely measures implemented at the Asian factories, Apple has suffered from limited corporate fallout as a result of this tragic incident. Research claims that “the quick and proactive initial response is an example of a commitment to CSR and the resulting benefits” (Elsdon 2013: 33). Apple is also praised for its CSR efforts and eco-friendly measures due to achieving the milestone of becoming “the first major computer manufacturer to offer PVC-free PC power cords in October 2009” (Coombs & Holladay 2011: 114). After proofing all of the computer components of PVC, the power cords had remained the last part to still contain PVC which is a plastic considered toxic by Greenpeace. Research has it that plastics made from chemicals like PVC are an eco-hazard manmade material which continuously gives off carcinogenic gases. PVC is the most abundantly consumed plastic around the globe but it is claimed that this poison plastic “contaminates the human environment throughout its lifecycle during its production, use, and disposal” (Daven 2008: 101). It is this continuing and ceaseless commitment to CSR which encourages Apple to not only act in a socially approved manner by raising voice against child labor, employee abuse, and workplace harassment, but also take eco-friendly steps by manufacturing computers free of PVC which not only boosts the company’s financial performance but also advances social progress of the communities. In a praising statement issued by Greenpeace following this step taken by Apple, it was said that this challenges many other “major PC makers such as Dell, HP, Lenovo, and Acer to catch up with Apple again and we’ll be keeping up our pressure on them to match Apple’s lead” (Greenpeace cited in Coombs & Holladay 2011: 114). This statement suggests support for Apple’s CSR efforts and stimulates other corporations in the technology market to follow its footsteps by reducing PVD usage when manufacturing PCs. This step also boosted Apple PC sales because consumers concerned about PVC became acknowledged with the company’s vision and actions related to the PVC issue and felt safe to go for Apple only when purchasing computers. This proves that Apple has always been quick on finding new and ingenious ways to gain a competitive edge over others by strictly conforming to CSR and taking into account the welfare of its employees, the society at large and the human environment. Concluding, this much becomes clear from the above discussion that CSR policies and practices always prove to be beneficial for a company’s profit margins and also for the welfare of employees, society and human environment when implemented appropriately and honestly. CSR urges corporations to act in accordance with the society and market while also addressing the relevant social and community issues. CSR as crisis management tool also aids companies in controlling critical incidents before they turn into full blown pandemonium bringing an organization down. Research suggests that companies which make urgent moves to curb any inappropriate activity continued under their brand names ultimately not only earn a name for themselves but also witness a drastic rise in product sales, employee engagement, customer loyalty, and public trust. This is only made possible when business is not seen as a detached entity from society but it is believed that both are interdependent on each other. Business organizations which fail to incorporate their consumers’ concerns and stakeholder priorities into business activities fail to achieve sustained reputation. References Asongu, JJ 2007, Strategic Corporate Social Responsibility in Practice, Greenview Publishing Co., USA. Banerjee, SB 2007, Corporate Social Responsibility: The Good, the Bad and the Ugly, Edward Elgar Publishing, Great Britain. 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Zu, L 2009, Corporate social responsibility, corporate restructuring and firm's performance, Springer, Heidelberg. Read More