The Impact of Corporate Social Responsibility on Organisations - Research Paper Example

 Introduction Corporate social responsibility (CSR) is the realization by organisations of their responsibilities beyond investors and financial concerns; focusing on how the operations of an organisation impact society. This has significant implications for the reputation of the organisation. Thus, CSR can be defined as “the management of actions designed to affect an organisation’s impacts on society” (Coombs, 2007: 37). Other definitions of corporate social responsibility are that, it is the concept that businesses are more than just profit-seeking entities and therefore also have an obligation to benefit society (Werther & Chandler, 2006: 6-7); CSR is an obligation to respond to the externalities created by market action (Salazar & Husted, 2008: 140); it is discretionary spending towards a clear and measurable social objective consistent with relevant social norms and laws (Dunfee, 2008: 349); and the significance of CSR lies in the additional political responsibility to contribute to the development and proper working of global governance (Scherer & Palazzo, 2008: 414). The practise of CSR by organisations lead to both positive and negative consequences for firms. The purpose of this paper is to discuss corporate social responsibility and to identify its positive and negative consequences on organisations. . Discussion Corporate social responsibility is considered to be a unique concept in the management literature. It is relatively a new area of academic research, with scholarly literature on the topic dating back to the 1950s, though the concept was known before that time (Crane, 2008: 4). It has been recognized that the activities of an organization influence the external environment, hence it is important that the organization should be accountable to not only its stakeholders, but also to a wider community. This concept initially took root in the 1970s, and grew as a concern for the company as a member of society, with a wider view of company performance including its social performance (Crowther & Rayman-Bacchus, 2004: 3). The Positive Consequences of Corporate Social Responsibility on the Organisation By integrating corporate social responsibility in business operations and strategy, companies experience benefits to the bottom-line including: increased sales and market share, strengthened brand positioning, enhanced corporate image and clout, increased ability to attract, motivate and retain employees, decreased operating costs, and increased appeal to investors and financial analysts. Companies who incorporate CSR initiatives are able to increase stock value, and reduce exposure to risk in the event of corporate of management crises (Kotler & Lee, 2005: 10-11, 17). Research conducted by Pivato et al (2007: 3), revealed that the effect of corporate social performance (CSP) on the bottom line is significant. The first result of CSR activities is considered to be the creation of trust among the stakeholders. The survey showed that CSP influences consumer trust which in turn influences consumers’ subsequent actions. Further results were that the intermediate variables between CSP and Corporate Financial Performance (CFP) may best support a business case for CSR. Similarly, research undertaken by Burke & Logsdon (1996: 495) on how corporate social responsibility pays off reveals that proponents of CSR are convinced that it pays off for the organisation as well as for the firm’s stakeholders and for society. Social responsibility programmes which create strategic benefits for the firm, are identified, they are: centrality, specificity, proactivity, voluntarism and visibility. These mutually beneficial programmes are encouraged through guidelines for managers to incorporate these dimensions into their CSR activities. In carrying out CSR-related activities, organizations need to understand and apply the statutory frameworks/ standards and Codes of Practice. These frameworks and regulations will differ from organization to organization. What the regulations mean for the organization needs to be proactively defined, applied and the effectiveness of their implementation should be assessed, along with all other activities of the organization. The framework helps to achieve a balance between profitability and accountability (Kotler & Lee, 2005: 17). As a key element of business strategy, CSR provides the business with a source of sustainable competitive advantage. Further, it embraces the range of economic, legal, ethical and discretionary actions that affect the economic performance of the firm. Hence, complying with legal or regulatory requirements faced in day-to-day operations, as well as ethical and discretionary concerns which are less clearly defined, form a significant part of a firm’s CSR. These social responsibility initiatives addressing stakeholder concerns promote greater financial returns and strategic benefits (Werther & Chandler, 2006: 10). Increasing Public’s Awareness of Ethical Consumerism Affects Product Purchasing The public’s purchasing is determined by brand loyalty and preference for companies that implement corporate social responsibility. It is observed that the U.K. public overwhelmingly supports the concept of ethical purchasing and socially responsible corporate actions. The number of people who considered it “very important” that the company shows a high degree of social responsibility increased from 28 % in 1998 to 44 % in 2002. Further, 53 % of United Kingdom consumers have considered changing their brands due to issues of corporate social responsibility. 19 % have actually purchased on the basis of a company’s ethical reputation. According to the 2005 Ethical Consumerism Report 58 % of U.K. consumers have avoided purchasing a product because of the company’s reputation. Additionally, 70 % of survey respondents were found to consider ethical issues in deciding where to shop. This increasingly forces companies to formulate policies and adopt appropriate strategies towards socially responsible green marketing (NEF, 2007: 10). With greater consumer awareness for ethical purchasing, CSR becomes vital for a company to survive and thrive. Ethical purchasing also helps consumers to assert their opinions politically. It is similar to casting votes for a particular government or politicians whose approach towards safeguarding the best interests of the community and the environment is in line with consumers’ social concerns. The development of fair trade, awareness of sweat shops and environmental concerns has led to a growth of ethical brands such as sweatshop-free clothing brands. Many companies have ethical alternatives, such as fair trade coffee, or environment friendly hybrid car such as the Prius sold by Toyota company, which runs on electricity and petrol. Charitable work and donations are becoming part of company policy in many organizations. Moreover, an increasing number of companies are including corporate social responsibility programmes, and signing agreements such as the Ethical Trading Initiative (ETI) such as Levi’s. Nike has revealed a list of its factories worldwide, to underscore the transparency of its operations, free from any form of exploitation of poor or illiterate people (Doonar, 2005: 24). Companies becoming more ethical helps them to increase their profits and also have a sense of righteousness in their position and the part they play in business. Putting people first, with concern for ecological and environmental factors as well as sustainability for future generations helps businesses to develop due to consumers’ support. The preference for ecofriendly and socially responsible consumerism is increasing; the United Kingdom, fair trade coffee now forms 15 % to 20 % of the roast coffee market (Doonar, 2005: 27). Research conducted by Mohr et al (2001: 45) indicates that there appears to be a group of consumers for whom corporate social responsibility matters, and this group may be growing. Hence policies need to be formulated for optimising legal CSR marketing communications. The Negative Consequences of Corporate Social Responsibility on the Organisation For any competitive advantage to be sustainable, the corporate social responsibility strategy must be acceptable to the wider environment in which the organization competes. If CSR is carried out incorrectly, or even worse if it is ignored, it may threaten whatever comparative advantage the firm holds within its industry. Today Greenpeace and other activists highlight corporate actions that they consider to be totally irresponsible, leading to voluntary corrective actions by the company, or to legislative changes (Werther & Chandler, 2006: 10). The Importance of Communication with Different Stakeholder Groups in CSR The essential role of accountability and communication of information to different stakeholders for successful results of CSR is underlined. Companies recognize that corporate responsibility brings reputational risks and opportunities, hence align corporate behaviour with stakeholder expectations on priority. In the practice of corporate responsibility, however, communication is an important factor that remains a missing link. Though many companies are practising responsible corporate behaviour, they are not getting full credit for their efforts, because of lack of communication of information to a range of opinion leaders and mass stakeholder audiences. Some of the significant challenges in practising corporate responsibility are “scepticism towards company messages and potentially hostile reactions from the media, campaign groups and others” (Dawkins, 2005: 108). Further, certain communication challenges are also posed by the varied information requirements of different stakeholder groups. Dawkins (2005: 108) states that a clear strategy is essential for effective communication of corporate responsibility in which both opportunities and risks to the brand are taken into account, and which tailors messages to different stakeholder groups. An approach which integrates corporate responsibility messages into mainstream communications, is found to be effective. Further, research evidence suggests that the company’s reputation for responsibility among its key stakeholders can be enhanced by improved internal communication. Inadequate Promotion of Ethical Measures Taken by the Company “While ethical companies and options exist in all industries now, there is no uniformity in promotion” (Doonar, 2005: 25). Various companies adopt different strategies, such as apparel businesses which advertise themselves as “sweatshop-free”, and the Cooperative Bank which informs customers about its easy service rather than its ethical investments of money. It is also observed that traditional companies sometimes do not advertise their ethical initiatives, such as Unilever does not publicise its sustainable fishing methods used. This detracts from the benefits that these organizations could potentially reap from their ethical behaviour. Further, those companies that announce their commitment to social concerns but do not take any action towards introducing social responsibility, find that this backfires on them since consumers today are increasingly aware of company policies and their implementation, through the media. For instance, French retailer Carrefour has been at the receiving end of consumer mistrust because of its unsubstantiated claims of social responsibility. Similarly the construction of a Hilton hotel in the Amazon which announced giving 2 % of its profit to an Amazon fund and generating employment by hiring only local guides, was under scrutiny. The size of the hotel and facilities available are believed to be inconsistent with its claims of developing an ecolodge. Developing consumer trust is vital for the prosperity of any industry (Doonar, 2005: 25). Corporate social responsibility has now acquired an international dimension. Corporations such as multinational enterprises (MNEs) shoulder new social responsibilities, not just to society but also to the international community. Corporations need to function as global corporate citizens. The general reorientation of business thinking and practice that would go with the pursuit of CSR is significant (Henderson, 2001: 105-106). The Conduct and Performance of Enterprises The implementation of CSR is likely to raise the costs of doing business, or to impair enterprise performance. Through the adoption of wider goals, managing a company is made more comples and difficult, with more elaborate internal procedures and new forms of outside consultation and involvement. Stakeholder engagement and implementing the triple bottom line of social, economic and environmental benefits, could prove to be costly exercises. The institution of more restrictive rules of operation which are more exacting than those legally required, tend to raise costs and reduce revenues, and give rise to lower yielding investments. However, profitability may not suffer from these adverse influences. Even where it is true that implementing CSR could be a paying proposition, the adverse effects on performance remain a reality. They make people worse off, even if enterprise profitability is maintained or increased. Given agreement on how to determine what is best practice and the extent of best practice of the Organisation for Economic Cooperation and Development should be taken as a norm. According to local conditions the balance between costs and gains vary greatly, and the notion of what is best practice should be interpreted accordingly (Henderson, 2001: 108, 113). To avoid the pitfalls of corporate social responsibility acting as corporate social control, research conducted by Holmqvist (2008) indicated that there is a need to critically analyse the potential risks of comprehensive health promotion programmes on single individuals and societies alike. CSR activities can potentially be seen as a form of organisational control, through which several other aspects of an organization’s environment are enacted by the organisation in line with its aims and perspectives. The unanticipated consequences of health promotion help in understanding the potentials and pitfalls of modern CSR. Norms, Standards and Regulations The progress of a company in its appropriate implementation of CSR strategies is seen in terms of norms and regulations that are made increasingly tighter and more binding on all. Though regulation of economic behaviour is essential, continued economic growth and globalisation have brought with them a need for new or expanded forms of it. However, the greater stringency of norms and standards and their wider diffusion are likely to give rise to reductions in welfare that may be substantial (Henderson, 2001: 111). Eroding Economic Freedom In the area of human resources policies in general and conditions for employment, CSR has the greatest potential for doing harm. They lead to the adoption of inappropriate standards and policies. Regulations and codes whether decided by companies and groups of organisations, or imposed by public authorities, can reduce economic freedom and deprive people of opportunities Worst-off members of the labour force suffer most from this situation (Henderson, 2001: 113). Regulating the World On the international scale arise the most damaging consequences of imposed uniformity. When the situations in different countries or regions differ widely, the absence of regulation is reflected in market prices, and opportunities for mutually beneficial cross-border trade and investment flows arise. Repressing differences destroys opportunities (Henderson, 2001: 113). Conclusion This paper has highlighted the impact of corporate social responsibility on organisations, and has discussed both its negative and positive consequences. Corporate social responsibility (CSR) refers to a company including in its decision making and operations, ethical values, employee relations, compliance with legal requirements, transparency, and overall respect for the communities in which they operate. CSR is the driving force behind strategic decision making, selection of partners or collaborators, hiring practices and ultimately brand development (Werther & Chandler, 2006: 8). The positive impacts of CSR include increased profitability, increased stock value and reduced exposure to risk in the event of corporate of management crises. Addressing stakeholder concerns promotes greater financial returns and strategic benefits and sustainable competitive advantage. On the other hand, the negative impacts of CSR include the essential role of accountability and communication of information to different stakeholders, without which detrimental effects of CSR become evident. Further reasons are: the inadequate promotion of ethical measures taken by the company, the conduct and performance of enterprises, the use of norms, standards and regulations uniformly without being region-specific, eroding economic freedom and regulating the world, as discussed above. The factors that determine the costs of CSR are the number of businesses that comply, and the extent to which they use the doctrines. Since there are both favourable as well as unfavourable influences, widely different outcomes are possible. On the positive side, built-in defences and corrective mechanisms are available in a market economy, which will tend to keep the adverse effects within bounds. From experience, enterprises learn to minimise the costs of CSR induced changes, so that would be able to persuade outside stakeholders to moderate or withdraw demands that would prove manifestly costly to meet (Henderson, 2001: 127-128). References Burke, L. & Logsdon, J.M. (1996). 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