Corporate Social Responsibility Profile of Two Corporations - Essay Example

Corporate Social Responsibility Profile of Two Corporations Outline Introduction A. Definition of CSR B. “Three concentric circles” approach to CSR C. CSR pyramid D. CSR of United Utilities company E. Is Philip Morris a Socially Responsible Cpmpany? Conclusions Description In this paper we will investigate the issue of Corporate social responsibility, its importance and development through recent time. We will overview CSR policies in two quite different countries – United Utilities and Philip Morris and see how public image of the company influences the choice of social responsibility strategies. In this paper we will compare the corporate social responsibility policies of two companies. In order to intensify the difference of these policies we have chosen companies from quite different business spheres and arising quite different attitudes towards their products in the public mind. But before the description of CSR policies of these companies we have to clear out the main notions used in our paper. Nowadays, there are quite many definitions of CSR. We will mention those, which are most popular. Keith Davis definition related corporate social responsibility to company’s “decisions and actions taken for reasons at least partially beyond the firm’s direct economic or technical interest” / Davis, 1960/. Eells and Walton claim that the issue of social responsibility is connected with the “problems that arise when corporate enterprise casts its shadow on the social scene, and the ethical principles that ought to govern the relationship between the corporation and society” / Eells & Walton, 1961/. CSR is also defined as a level of responsibility, which is displayed in strategies and actions of the company, which have is direct or indirect impact on stakeholders and environment. According to Waddock, Corporate management can not avoid corporate social responsibility, as it is the basis for the formation of Corporate Citizenship / Waddock, 2005/ The Committee for Economic Development suggested one more definition pf CSR, which is based on “three concentric circles” approach. In this approach the inner circle is composed of primary economic functions like economic development, company production and jobs offered. The next, intermediate, circle states the necessity for awareness of modification of social values in the process of goods production. Finally the third, outer, circle includes new and therefore still vague responsibilities, which are important for the company seeking to improve social environment / Committee of Economic Development, 1971/. Different scholars apply different meanings to CSR and give different influence to it. Thus, according to Cowe and Porritt, corporate social responsibility is quite limited and is restricted to responsibility, which the company bears for its influence on society. “ But precisely because of this micro focus, and because of its voluntary nature, it only occasionally connects with the overarching objective of sustainable development.” /Cowe and Porritt, 2002/. CSR is also defined as a level of responsibility, which is displayed in strategies and actions of the company, which have s direct or indirect impact on stakeholders and environment. According to Waddock, Corporate management can not avoid corporate social responsibility, as it is the basis for the formation of Corporate Citizenship/ Waddock, 2005/. The term corporate citizenship appeared as an alternative to the term corporate social responsibility. However, corporate social responsibility and corporate citizenship are not one and the same. The latter has a broader meaning, the additional senses of which were added in due to the process of globalisation. Corporation is viewed as an ordinary citizen together with other companies and individuals, with whom it forms community. This definition implies that corporate citizenship is applied on all the members of community, which all have mutual obligations and common rights /Waddell, 2000/. There exist several views on corporate citizenship – limited one relates this notion with corporate philanthropy, equivalent CC is in fact equivalent to CSR, extended view on corporate citizenship considers corporation even in regard to its political meaning within society. Taking into consideration the Marshall’s theory there are three aspects of corporate citizenship: social rights, which imply rights to participate in all spheres of society as education, healthcare, etc., civil rights, which protect individual rights from introduction of government and authorities, and political rights, which imply that a person can participate in the formation of the public will on the legislative level11 Corporate citizenship is defined as the corporate function in the process of administration of the individual citizen right. Numerous corporations have focused on corporate citizenship to achieve additional goals in the market and to have a more positive image with its customers. With the increase of interest to corporate social responsibility there appeared numerous approaches and models of this phenomenon. S. Prakash Sethi developed three management approaches used by the company to fulfill social obligations. They are the social obligation approach, the social responsibility approach, and the social responsiveness approach. Every approach proposed by Sethi describes different attitudes of the company to performance of responsibilities to society /Sethi, 1975/. For example, companies preferring only social obligation approach think that business pursues only economic goals and therefore their CSR is restricted to observation of the existing laws. The socially responsible approach is a bit wider and incorporates not only economic but also societal purposes. Finally, company with the social responsiveness approach develops its business practice in accordance with societal, economic goals and also commits to overview and prevent future social problems / Sethi, 1975/. Nowadays, one of the most popular interpretation of CSR, is exemplifies with the help of the pyramid of CSR, proposed by Carroll. This is a four-item conceptualization of social responsibility, which assumes the idea that company bears not only economic and legal obligations, but also ethical and discretionary (philanthropic) ones /Carroll, 1971/. These four types of social responsibilities, which are included to CSR, are economic, legal, ethical and philanthropic and can be represented as a pyramid. Economic responsibilities are basic ones, which can be explained by the fact that the main aim of any entrepreneurship is economic benefit. Any company is organized to produce goods and services, which are necessary for the consumers. This is the basic level of the pyramid of CSR as without this basic responsibility all the rest ones are highly disputable if at all possible /Carroll, 1971/. The next level of the CSR pyramid is represented by legal responsibilities. In fact in modern companies these responsibilities coexist and depiction of them as the next level reflects only the process of historical development. Legal responsibilities imply that except gaining economical benefit, companies should also be legally responsible, which means that they must act in accordance with the state and local laws, which in their turn regulate fair operations of companies /Carroll, 1971/. In fact economic and legal responsibilities include in same way ethical issues as well, particularly the issues of justice and fairness. However, the next level of CSR pyramid, ethical responsibilities, also regards activities, which are perceived as positive or negative by societal members and these practices should not necessarily be supervised by law. On the one hand, establishment of ethic norms can further be followed by corresponding law issues. On the other hand, ethical responsibilities include wider range of values, which are viewed as necessary by society and are expected to be covered by business, even if they are not yet regulated by law /Carroll, 1971/. One more characteristic feature of ethical responsibilities is their highly-disputable nature and vague definition until embodied in law. This component of CSR became particularly important over the last decade and now represents the third level of CSR pyramid. However, it should be kept in mind that ethic responsibility level constantly overlaps and interplays with legal responsibility level / Carroll, 1971/. The highest level of corporate social responsibility pyramid is represented by philanthropic responsibilities, which are based on the citizens’ expectation from companies to behave positively towards the needs of society, like needs in arts, education, or community. Difference between ethical responsibilities and philanthropy is that philanthropic activities are not demanded in an ethical or moral aspect. People want companies to put up money to different society programs, however, not condemn them for the refusal to do this. So, philanthropic responsibilities are not compulsory and depend on the companies’ desire to present themselves as good citizens of society. This level of CSR pyramid is less important than other three but also very desired and prized by society, therefore, it represents the upper level of the pyramid /Carroll, 1971/. One more aspect, which undergoes the issue of CSR is stakeholder responsibility. Freeman suggests that “a stakeholder in an organisation is … any group or individual, who can affect or is affected by, the achievement of organisation’s objectives”/ Freeman, 2006/. It is clear that quantity and quality of stakeholder groups differ within different companies and different situations. Under the notion of stakeholder we generally assume several groups, including the company itself, its employees, customers, suppliers, and sometimes, partners, competitors, government, civil society and many others. Let’s investigate this field of study on the example of United Utilities, one of the largest and well-known community organisations. United Utilities differentiates among several groups of stakeholders, each of which is given its particular level of importance and is treated with due regard and attention. United Utilities due to its speciality is a primarily customer- oriented company. This group includes all contemporary and potential customers, both in- and outside the country and the clients of our contract services. Among the main ones are respect for all employees, primary attention to the needs of the customers, consideration of contribution and rights of the company’s investors, willingness to maintain constructive business relationships and desire to show integrity and straightforwardness / Business Principles, 2006/. United Utilities employs over 17,000 people and is one of the main infrastructure and business process management companies. United Utilities foresees its future needs, identifies the skills and knowledge requirements to each employee and then match need with opportunity. In order to work out the necessary skills in employees the company provides corresponding resources and enables its employees to take a “time out’ to learn everything needed/ United Utilities, 2006/. United Utilities views the work as a proper occasion to train its employees. In order to provide decent training and enable the employees to learn the company researches and develops new techniques (for example, information technology) and seeks to obtain external accreditation for training (this is done in order to guarantee that the training provided is of the highest quality and may be recognized by other employers)3. One more aspect that stimulates the work of the employees is rewards. The company constantly improves its recognition schemes. Those who won in the individual schemes are enabled to enter the company-wide scheme, the result of which is the announcement of the best employee of the month and the best team of the quarter/ Employee Development and Culture, 2006/. Another stakeholder group includes investors, who are common and ethical investors, as well as all the shareholders and lenders. United Utilities constantly communicates with its investors and explores every avenue for their greater satisfaction and attraction of new ones. Government is also regarded by United Utilities as possible or real stakeholder in all its diversity: from central government (DEFRA, DTI), through local government, to separate politicians and regional bodies, which include Government Office and regional health authorities/United Utilities, 2006/. Among the other stakeholders of United Utilities we can differentiate suppliers, partners and contractors. These groups are also very important for the development and promotion of the company on the national and international levels. One more group of stakeholders are NGOs (non-governmental organisations), which includes all community and environmental partners, as well as other companies having interest in the activities of United Utilities. So, let’s investigate how United Utilities regards its stakeholders. The first place is occupied by the group of customers, who, according to Savage’s Stakeholder approach, are treated on the basis of defend approach (high threat, low collaborative). Customer group is also highly praised and are treated on the basis of involve approach (low threat, high collaborative). Investors and partners are treated on the basis of collaborate approach (high threat, high collaborative). Our investigation showed that not all groups of stakeholders are treated with the same attention and consideration. Nevertheless, we consider that this company values all its stakeholders very high and is one of the best examples of the stakeholder-approach companies. One issue, in which it is possible to improve the corporate social responsibility of the United Utilities is the issue of corporate culture, which is defined by many authors as a crucial factor for the company success. One of the famous management researches Fons Trompenaars /Sanchez, 2004/ distinguishes culture as “the way in which a group of people solves problems and resolves dilemmas”. Another writer has a more philosophical view on the corporate culture “culture is a deeply rooted value or shared norm, moral or aesthetic principles that guide action and serve as standards to evaluate one’s own and others’ behaviors”. Regardless of the size of the company, its ownership, any organization possesses only four basic elements, which constitute or reinforce its culture. These elements must be integrated at all levels and formed and formulated by employees, managers and leaders. The first of these elements is strategy, which specifies the ways in which the organization will concentrate and use resources in order to fulfill its mission. The second element is the structure, which focuses on the ways of the organization of the company for the sake of conducting its strategy. The third element is represented by all people deployed within the structure of the company in order to fulfill the required work. And the final element is the process, which specifies how the organization works and how it is actually functions /Sanchez, 2004/. In order to create a powerful company, all these elements must be harmoniously combined. One more point necessary for normal functioning of the company is climate, which contrary to culture is a short term element and depends on the external environment. In order to create and develop culture, United Utilities should count for many processes. Among them are reward system, training and development as well as selection and implementation of values. One of the most essential elements of the company’s culture is communication, which is in fact one of the most vivid and clear representations of culture /Sanchez, 2004/. This research can also be of some value to United Utilities management. In general, looking at the United Utilities structure, motivation basis, corporate culture and considerable flexibility we can draw a conclusion that this is a modern, active and perspective company, which is in keeps up to date and is in the stream with the modern management and corporate culture theories, though for further success the company is to be more flexible and to show organization agility. Let’s clear out the notion of CRS on the example of Philip Morris. For the company like this it is important that the management view “corporate social responsibility as an important part of corporate strategy,” according to the words of economist Geoffrey M. Heal/ Heal, 2066/. CSR actions improve Philip Morris image in the public mind thus attracting new customers and establish closer relations with company’s stakeholders, among which the most important are government, NGOs, and the public/ Philip Morris International, 2006/. Let’s investigate CSR policies of Philip Morris with the help of Carroll’s four-item conceptualisation model/ Carrol, 1991/. CSR is viewed as a pyramid, to which economic, legal, ethical and philanthropic responsibilities. Economic responsibilities are basic ones and imply that the company is economically profitable, producing goods and services necessary for the consumers5. This level of CSR is for sure completed by Philip Morris, which earns hundreds of millions of dollars per year. This type of product is still very popular and in spite of numerous efforts of the government and health organisations the majority of smokers are not likely to give up this harmful habit. The next level of the CSR pyramid is represented by legal responsibilities, which imply that except gaining economical benefit, companies should also be legally responsible, i.e. act in accordance with the state and local laws. Legal responsibilities are in this case fulfilled only partially due to sbelonging of the company to the business, which is responsible for 5 million deaths per year worldwide. Phillip Morris follows all the legal requirements in the USA and European countries but fails to do this in the number of developing Asian and East European countries, where it still sells cigarettes and promotes smoking among children /Carrol, 1991/. Ethical responsibilities include activities, which are perceived as positive or negative by societal members and these practices should not necessarily be supervised by law. Phillip Morris leads informational campaigns against youth smoking, which is represented by the following initiatives: the “We Card” campaign, the “Talk, they’ll listen” program, etc. Philip Morris granted over $125 million during the period 1999 – 2004 to reduce the quantity of young smokers. This policy is quite double-faced as on the one hand, Philip Morris reduces the number of kids-smokers in European country, but promotes this habit overseas, in the countries in the developing world /Philip Morris, 2006/. The highest level of corporate social responsibility pyramid is represented by philanthropic responsibilities, which are based on the citizens’ expectation from companies to behave positively towards the needs of society. From 1994 till 2004, Philip Morris endowed over $1.2 billion world-wide and these donations return with considerable profits of over $ 90 billion. In “The Competitive Advantage of Strategic Philanthropy” Porter and Kramer state that strategic philanthropy leads to improvement of the situation, in which company works, and even to the following benefit of the company/ Altria Group, 2006/. So, we can come to the conclusion that although Carroll’s CSR pyramid is the basis for every company, but in the real life companies it may be presented either completely or only partially. Different emphasis is given to certain levels of the pyramid depending on the nature and product of the company. So, the review of the corporate social responsibility strategies of two companies – United Utilities and Philip Morris – have shown us that the choice of these policies depend greatly upon the type of the company. First two levels of corporate social responsibility pyramid - economic and legal - appear obligatory for all socially responsible corporations. The other two – ethical and philanthropic – are quite optional, however, most companies also indulge in these practices to have a more positive image in society and thus, to raise their profits as well. We can see that United Utilities Company, which is a social company in its nature, relies more on the first three levels of Carol’s model of CSR, while for the Philip Morris Company, earning money on such antisocial product as tobacco, the last level of philanthropic needs plays a very important role for raising its image in the eyes of ordinary people. If we take the Sethi’s model, we can say that United Utilities applies all three approaches, while Philip Morris uses primarily social obligation and social responsibility approach being not too much concerned with the final third level. So, we can make a conclusion that both United Utilities and Philip Morris applied social responsibilities policies appropriate for its peculiarities and business characteristics. However, I’d like to mention that for the improvement of the corporate social responsibilities the United Utilities should dwell more on the philanthropic needs, while for Philip Morris it is better to focus on legal and ethical responsibilities of Caroll’s pyramid of CSR. This is conditioned by the specificity of product, i.e. cigarettes. Besides, it should be kept in mind that both companies unfortunately focus on two first levels of Sethi’s model. However, for the successful performance on the market it is very important for the company to observe the main principles of social responsiveness as well. Therefore, I’d suggest the companies to pay more attention to this last approach proposed by Sethi. References Altria Group, Inc.(2004) Annual Report Acker, J.(1990). Organizations, Jobs and Bodies. 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