Corporation Social Responsibility - Assignment Example

Corporate Social Responsibility 1. Introduction One of the key elements of business activities worldwide is their relationship with the social and economic environment. Because of the interaction between business and the society a series of initiatives have been developed aiming to ensure the protection of the interests of the public but also of the society as a framework of cultures and ethics. The Corporate Social Responsibility (CSR) framework is a scheme, which serves the above need. Despite its importance, CSR has not been adequately supported by the state. Because of the lack of sufficient legislative support, CSR has been developed aiming to meet the needs of individuals and societies with different characteristics. The above scheme was also expanded in order to become more efficient – for instance the CSR schemes focusing on the environment. Initially, CSR was related to the responsibility of the corporate leader in regard to his power in managing various business activities; however, through the decades the actual framework of CSR was identified: CSR should not be a set of rules used for the establishment of the responsibility of corporate leaders (Frederick, 2006, p.36). Instead, they should highlight the need for careful development of business activities because of their effects on the society and the environment. It is at this point that CSR became a critical tool for balancing interests between the enterprise and the public/ state. Current paper focuses on the examination of the various aspects of CSR as a social phenomenon; reference is made to the history of this scheme but also to the challenges related to its application. It is concluded that CSR has not managed to fully meet the targets set by its initiators. The reasons for this failure are many – as described throughout the paper. The lack of effective communication between businesses and the government has been proved to be highly responsible for the decreased effectiveness of CSR in certain business sectors. Moreover, the responses of the participants – especially the employees – to the development of these schemes has not been found to be significant – at least not at the level expected. It is suggested that alternative forms of CSR are developed – being aligned with current business and social conditions in the international market. The fact that markets worldwide face severe turbulences because of the recession needs to be taken into consideration – so that the suggested CSR schemes to be feasible. The practices used by the governments worldwide in regard to the promotion of CSR should be also criticized; in many cases, the failure of CSR schemes has been found to result because of the lack of rules that enforce the relevant practices. 2. Corporate Social Responsibility – historical development The first appearance of corporate social responsibility can be identified in 1920s. During that period, it was made clear that the decisions of corporate directors could affect not just the business as a legal entity or its shareholders but also the society; the understanding of the interaction between the business and its social environment led to the development of the idea of corporate social responsibility. The term was used then in order to show that corporate leaders hold the responsibility for the impact of corporate activities on the society. A series of initiatives were developed then in order to show the relationship between the corporate activity and the environment; business philanthropy – a scheme appeared in certain cases during the 19th century - has been one of these schemes (Frederick, 2006, p.36). In accordance with the above, CSR was primarily regarded as a framework promoting the responsibility of corporate leaders for the decisions they take in regard to various activities of their organization. However, through the years, the above element of CSR became weaker. Emphasis was paid on the social effects of corporate activities; CSR had to be transformed in order to meet the above trends. The relevant efforts were initiated after 1930s and, even higher, after the World War II (Frederick, 2006, p.37). Then, the relationship between the CSR and the society was expressed using the concept of ‘social betterment’. The above concept reflected the idea that the primary aim of corporations should be the support and the promotion of social good and social interests – as these terms are included in the term ‘social betterment’ (Frederick, 2006, p.37). The differentiation of the role of CSR under the pressures of the society is also reflected in the study of Idowu et al. (2009); in the above study it is noted that the reasons that CSR have been expanded in order to meet the social needs can be identified not just in the willingness of corporate leaders for supporting the society but also in the effects that modified CSR schemes can have on the interests of the shareholders. For this reason, it is explained that the incorporation of CSR in business strategies has resulted because of the relevant pressures of investors who saw their investment to be increased when made on firms, which have clear CSR schemes (Idowu et al., 2009, p.210). It was in this context that social betterment have been established and developed as a framework including rules and priorities for CSR developed worldwide. In accordance with the above view, the historical development of CSR has been related to a series of contradicted interests – not just the interests of the public but also the interests of the investors. From another point of view, Andriof et al. (2001) note that the first appearance of CSR can be identified in 1950s and – mostly – the 1960s. It is explained that during the above period the introduction of CSR was based on different criteria than those used today for the development of this scheme worldwide. At that period, CSR was considered as an important ‘business self-regulation tool’ (Andriof et al., 2001, p.84). In other words, the development of CSR was initiated because of the need for setting limits to the corporate activities. It was at a next level that the effects of business operations on the society and the environment. Then, the transformation of existing CSR schemes was decided in order to ensure the ‘social betterment’ (Andriof et al., 2001, p.84). The application of CSR in businesses worldwide revealed the weaknesses of the specific scheme; soon, it was proved that the actual context of the CSR had to be changed in order to respond to the continuously changing market. This change would be followed by the change in the name of the specific scheme. The term Corporate Social Responsiveness was thought as more appropriate for expressing the reform in the CSR framework (Hopkins, 2007, p.22). The content of Social Responsiveness as part of the suggested CSR framework had to be clearly defined: in accordance with Frederick (1978) ‘social responsiveness is the capacity of the corporation to respond to social issues’ (Frederick, 1978, in Hopkins, 2007, p.22). Despite the changes in the traditional CSR framework, still its performance was limited. In certain countries worldwide, like Britain where the framework of CSR is highly expanded, initiatives were developed for resolving the specific problem. The period to which these efforts refer begins in 2006 onwards. One of the major concerns of theorists in Britain has been the fact that the existing Corporate Social Responsibility framework – which had become Corporate Social Responsiveness – did not include rules or criteria on how the specific framework could be developed. On the other hand, the update of existing CSR framework was considered as necessary mostly because of the radical changes in the market structure and the legal rules that regulate business activities worldwide. It was made clear that the new CSR framework should be flexible enough so that to be open to transformations whenever the market or the business stakeholders set such claim (Ward et al., 2006, p.5). The theoretical basis on which the update of CSR framework was based was the following one: CSR can be promoted not by specific legal or corporate rules but mainly by using the personal beliefs and values of those involving in the development of key organizational decisions (Ward et al., 2006, p.5); it was in this context that human consciousness become the key element of the updated CSR scheme. In the long term, the effectiveness of existing CSR schemes cannot be guaranteed. Alternative schemes – compared to the traditional CSR ones – would be developed. Different criteria and rules would be set when choosing the potential successor of CSR; the concept of business citizenship would be a potential alternative to the existing CSR framework (Andriof et al., 2001, p.86). 3. Interpretation and theoretical development of Corporate Social Responsibility In order to understand the role of CSR in modern businesses it would be necessary to refer to the elements of the specific framework – as these elements have been differentiated through the decades in order to respond to different business and social needs. The theoretical development of CSR – as presented in the previous section – will be further explained aiming to show the reasons for which CSR was emerged and expanded as an integrated business concept. As explained above, the initial role of CSR involved in the self-control of businesses; in other words, CSR schemes had to be aligned with the structure and the rules of each organization. The practical value of CSR as a mechanism for limiting the expansion of business activities was quite low – especially if taking into consideration the fact that there were no rules setting the criteria on which the responsibility of corporate leaders would be based. The transformation of Corporate Social Responsibility to Corporate Social Responsiveness – as explained above – was decided on the basis that the specific scheme would be of no use if it was not related to the society – which is highly affected from the business activities. The further development of CSR – using the human consciousness concept resolved another problem: CSR did not include rules on which the potential update of this scheme could be based. Moreover, it cannot be expected that CSR could perform successfully in all market conditions; in the long term, the effectiveness of this scheme would be related to its flexibility. Indeed, through the concept of human consciousness traditional CSR framework was expanded addressing more needs, such as the need for the protection of the environment. In accordance with Crane (2008) the elements of CSR – as it is currently formulated – are quite expanded addressing community, sustainability and ethical issues (Crane, 2008, p.216). The role of the CSR in the development of business activities has been increased within the modern market; the main reason is the fact that business initiatives have become more complex while the decisions of corporate leaders are more difficult to be fully controlled – as of their alignment with the business ethics (Mullerat et al., 2005, p.37). In this context, CSR schemes have been considered as an effective solution in order to check the level at which the decisions of corporate leaders worldwide are ethical. From this point of view, CSR set limits in the corporate governance, a fact which could be justified using the following argument: the freedom of corporate leaders to develop business decisions should be controlled; the non-existence of limits in the decisions of corporate leaders could lead to severe business failures – if the relevant risk is not identified on time (Mullerat et al., 2005, p.37). Furthermore, the above problem could cause severe market turbulences in case that the firm involved has a key position in its industry – for example, the cases of Enron and Lehman Brothers. The development of CSR has been strongly supported by two theoretical frameworks of major importance: the stakeholder theory and the ethics theory. The stakeholder theory is used in modern firms as the basis in order to justify the development of strategies that support the interests of the firm’s key stakeholders (Werther et al., 2010, p.113). The stakeholder theory – as a theory supporting CSR – emphasizes on the emergent need for increase of the shareholder value: through this increase, the trust of stakeholders to the organization is increased; in this way, the various organizational plans are most likely to be supported by the firm’s stakeholders. In the above context, the stakeholder theory uses the exchange of interests as the basis for the success of CSR projects. Another explanation of the stakeholder theory is given by Mallin (2009); in accordance with the above researcher, in modern market where competition is extremely strong and the transfer of information is extremely rapid each firm has to decide which will be the role of its stakeholders. In case, that stakeholders need to extensively support business activities, then they have to be given powers but also obligations. In the above context, Mitchell et al. (1997) note that ‘business parties can gain a company’s attention based on three criteria: power, legitimacy and urgency’ (Mitchell et al., 1997, in Mallin, 2009, p.68). Under these terms, the stakeholder theory is used in order to clarify at what level each firm will impose responsibilities to its stakeholders (Mallin et al., 2009, p.68). In accordance with the above, the stakeholder theory interacts with the CSR in the following ways: managers use the CSR framework in order to assign responsibilities to the firm’s stakeholders; moreover, stakeholders can support the success of CSR by developing all the activities they have been assigned and by controlling – as possible – the alignment of business plans with the CSR rules and the market ethics. The use of the stakeholder theory for developing CSR has been criticized as emphasizing on the protection of the interests of stakeholders – a terms used in this case in order to describe the firm’s shareholders. However, the actual role of CSR is to promote fairness and ethical behaviour across organizations. For this reason, alternative theoretical schemes have appeared – aiming to set limits to the expansion of stakeholder theory. An indicative example is the ‘team production corporate theory’ (Horrigan, 2009, p.101). The above theory notes that the increase of shareholder value should not be the priority when designing and developing corporate plans; rather the increase ‘of the wealth of the whole corporate team’ (Horrigan, 2009, p.101) should be rather supported – the term ‘whole corporate team’ refers not just to employees but also to customers and the community (Horrigan, 2009, p.101). Another theory widely used in evaluating CSR schemes is the ethics theory – known also as ‘business ethics’. In fact, business ethics can be considered as the initial form of CSR. In the context of business ethics, organizations are asked to align their strategies with a series of rules set through the local business law framework. Ethics in the above sense refer not only to oral but also to written standards and principles. Market and moral ethics need also to be taken into consideration by managers when developing the CSR plan of their organization. The use of business ethics as the basis for the promotion of CSR has been tested in the case of Spain (Perrini et al., 2006, p.48); the efforts of the above country to establish an integrate CSR for the business activities across its territory focused initially on the promotion of business ethics – as explained below in section 7. The use of business ethics when developing a firm’s CSR framework can have different forms: ethics can involve in the quality of the product (ISO standards), in the responsibilities of the business towards the society (Social Responsibility framework), the application of labour law by the employer and s on (Idowu et al., 2009, p.377). The use of international rules is possible when ethical principles are violated; an indicative example is the case of the ethical framework developed by the International Labour Organization (Idowu et al., 2009, p.377). 4. CSR – Models formulation The development of CSR plans has been decided in order for various organizational and social needs to be supported. An indicative model of this type is the Responsible Investment Model (RI) which was emerged because of the following reason: investments worldwide understood that CSR could help towards the increase of the performance of the firms on which they invested; in other words, CSR has been proved to promote not just the social but also the investment interests. The Responsible Investment model refers to a series of policies, which ‘aim to bring together the three dimensions of CSR, the social, environmental and economic responsibilities’ (Idowu et al., 2009, p.212). In the above context, the Responsible Investment Model ensures the protection of the interests of investors and the promotion of the social interests, or else the social betterment. In practice, the development of CSR models is based on a series of criteria: a) the environment in which the specific models are going to be used, b) the resources available for their development, c) the mechanisms in place for their enforcement, d) the needs that have to be addressed and e) the expected responses of the participants; the lack of willingness of leaders or employees to promote a specific CSR scheme could result to the failure of this scheme – either in the short or the long term. An indicative example of CSR model is presented in Graph 1 – Appendix. In the specific Graph the four major elements on which this model has been based are clear: community, marketplace, workplace and environment. The unique characteristics of the CSR schemes can be understood by reviewing the CSR schemes developed by organizations worldwide – such schemes are presented in section 8 below. At this point, it would be necessary to note that CSR models can be developed not only by organizations but also by institutes which are not involved in business activities; even governments can develop such schemes aiming to identify the issues which should be addressed when reforming the country’s existing legal rules – referring especially to those rules that refer to various aspects of business activities (see Graph 2, Appendix). 5. Challenges and issues in social and environmental accountability and reporting When using within the business environment, the term accountability refers to ‘the extent to which a firm attends to the needs and demands of its primary stakeholders’ (Werther et al., 2010, p.6). On the other hand, reporting means the development of documents including a series of crucial business information – such as the firm’s financial results – the most recent available – the corporate goals and missions, the key strategic decisions, the firm’s corporate social responsibility principles and strategies and so on. The firms’ obligations towards the society and towards the environment are likely to be included in the CSR strategy of the particular firm – as this strategy is analysed in the firm’s annual report. One of the key issues in regard to the promotion of CSR in firms worldwide is the differentiation in the rules related to the social and environmental accountability and reporting. The specific problem is highlighted in the study of Crowther et al. (2004, p.158). In the above study, it is made clear that the control of the state on the standards of social and environmental accountability and reporting is limited. Moreover, it is noted that all firms are likely to highlight the importance of social and environmental responsibilities; however, it comes to practice, most firms avoid taking the measures required in order to respond to their obligations towards the society and the environment (Crowther et al., 2004, p.158). At the next level, the following problem should be highlighted: despite the fact that many firms fail to meet their social and environmental obligations, their failure is not revealed to the public. This is achieved through the following policy: all firms include their social and environmental policies in their annual reports – using impressive images and graphs (Crowther et al., 2004, p.158). However, the publication of these plans does not mean that these plans are going to be developed. The majority of people cannot check the realization of these plans. On the contrary, they are likely to believe that these plans have been realized; giving false impression may not be important in everyday life but when it comes to business activities it can lead to development of investment decisions that may result to severe financial losses. Corporate Social Responsibility schemes would help to avoid the above threat – or at least to minimize it. 6. Disclosure in the context of CSR The elements of CSR – as described above – can be differentiated in accordance with the social and political conditions of each particular market – at the level that political decisions can influence the legislation introduced in this market in regard to CSR. The role of disclosure as an element of CSR is highlighted in a report of the Global Reporting Initiative (UN, 1997); in the above report it is noted that ‘disclosure on economic, environmental and social performance is as commonplace and comparable as financial reporting, and important to organizational success’ (Werther et al., 2010, p.305). In the context of the European market, disclosure is set as a key requirement when developing business reports – in accordance with the relevant recommendations of the European Commission, disclosure should be applied in regard to the presentation and analysis of environmental strategies and practices when these strategies and practices are included in the annual report of a particular organization (Recommendation of European Commission, 2001, in Boeger, 2008, p.209). 7. CSR in practice – case studies The application of CSR in practice reveals the weaknesses of the particular framework but also its importance for the support of various business activities – only under the terms that it is carefully planned and monitored. The strengths and the weaknesses of CSR can be identified by referring to the use of this framework by firms operating in different industrial sectors. Body Shop has been ‘the first firm that published a sustainability report’ (Mallin, 2009, p.72) – the firm’s relevant initiative took place in 1995. The methods used by the firm in regard to the promotion of CSR have been really significant – before publishing the firm’s first (and the market’s first) sustainability report, thousands of the firm’s stakeholders were asked to state their view on the firm’s sustainability practices (Mallin, 2009, p.72). The emphasis paid by the firm on the CSR – as expressed through the avoidance of testing on animals, the use of products that have been checked as of their content and the respect of the legislation and ethics regarding the product differentiation – has led the firm to achieve a significant growth; however, the benefits of the emphasis of the firm on sustainability did not last for long. Since 1976 up to 1990 the firm achieved a significant growth mostly because of its CSR practices; the imitation of these practices by the firm’s rivals led to the decrease of the distance between the firm and the other competitors (Mallin, 2009, p.72). The case of Body Shop proves that CSR can help businesses in order to increase their performance; however, CSR should be the only tool used by managers for the stabilization or the growth of the business. Additional plans should be developed ensuring that they are aligned with the firm’s statements on CSR and ethics. One of the most common applications of CSR schemes is for promoting the rules related to human rights. Mullerat et al. (2005) mention the case of Johannesburg Plan as an indicative example of such type. The above Plan sets the criteria necessary for the development of CSR principles in the mining industry. Particular emphasis is given on the participation of all stakeholders – meaning the local communities – in the development of relevant business activities; the importance of use of renewable energy is also highlighted (Mullerat et al., 2005, p.328). The Johannesburg Plan has been quite important in the development of CSR at national level; the above plan has proved that CSR can be involved not only in business activities but also in projects of various types where crucial social interests need to be promoted. Moreover, in activities, which are related to the environment, CSR can be used in order to ensure the minimization of the negative effects of business activities on the environment. Another role of CSR is revealed through the Code of Good Governance introduced in Spain in 1997; the country’s government aimed to develop CSR in regard to business activities in all industrial sectors. The Olivencia Report, which included the Code of Good Governance for organizations in Spain, has been the basis for the development of CSR in Spain (Perrini et al., 2006, p.48). Through the above Report the following goals have been achieved: a) CSR has been set as a key framework for the business activities across the country – there was limitation of the CSR framework to a particular organization; rather it was a country – wide plan, b) the elements of CSR used in the Code suggested have been the business ethics – in fact the Olivencia Report has been among the initial initiatives for promoting business ethics across all industries of a particular country, c) through the suggested Code, CSR has become ‘a factor for the future competitiveness of the country as a whole’ (Perrini et al., 2006, p.48). In a study developed by PricewaterhouseCoopers in 2002, a series of important findings have been retrieved regarding the performance of CSR framework in practice. In accordance with the above study, the firms are likely ‘to be committed in order to become socially responsible’ (Matten et al., 2010, p.110) because of a series of reasons, including the following ones: ‘a) enhanced reputation, b) industry trends, c) CEO/ board commitment’ (Matten et al., 2010, p.110). It is not made clear though whether the above issues are likely to influence the strategies of a firm in the long term or whether their impact lasts for a short time. 8. Conclusion The issues highlighted above proved that CSR is a valuable framework for the development of business performance. Of course, there are also opposite views, which are based on the arguments that the priorities of the firm should be identified more carefully. Friedman (1970) has been one of the supporters of the specific view; the above theorist argues that CSR should not be promoted since it includes rules that are in opposition with the business scope and goals – as in their common form. More specifically, in accordance with Friedman (1970) the economic interests of the firm should be the only priority in the firm’s strategic plans; the so-called social responsibilities of the firm should not be accepted – in accordance with Friedman – as being able to influence a firm’s performance (Friedman, 1970, in Bacher, 2007, p.16). One of the key issues involved in the development of successful CSR frameworks has been the willingness of the corporate leaders to proceed to radical changes on their firms’ traditional strategies. Indeed, as explained above, CSR usually requires that a firm’s common practices are restructured in order to meet certain ethical standards and legal rules of various forms – including labour laws, human rights principles and product – design and quality standards. In practice, the radical changes on businesses’ traditional policies are avoided; this trend should be controlled in order for CSR to increase its power within firms of different industries. Another important finding of current study has been the fact that CSR can be used for establishing ethical practices not only in a business framework but also across a country – the cases of Olivencia Report (Spain) and the Johannesburg Plan (mining industry, South Africa) are indicative examples of the potentials of CSR when it is used across a country’s industries. Finally, through this study it has been proved that the actual benefits of CSR may be difficult to be estimated with accuracy. The specific problem has been revealed in the case of Body Shop. The above firm has been the first one introducing a sustainability report – as part of its efforts in the CSR field; initially, the above practice has offered to the firm a competitive advantage, as proved by the increase of the firm’s power towards its rivals. However, the duration of the benefits of CSR has been proved to be short. Soon after the introduction of similar practices by the competitors, CSR has stopped to support the development of the firm’s performance; in this case, the benefits of CSR have been proved to have a date of expire – a fact that leads to concerns in regard to the actual role of CSR in the long term growth of businesses. References Andriof, J., McIntosh, M. (2001). Perspectives on corporate citizenship. Greenleaf Publishing Asongu, J. (2007). Strategic Corporate Social Responsibility in Practice. Greenview Publishing Bacher, C. (2007). Corporate Social Responsibility. GRIN Verlag Boeger, N. (2008). Corporate social responsibility. Edward Elgar Publishing Bueble, E. (2009). Corporate Social Responsibility: CSR Communication as an Instrument to Consumer-Relationship Marketing. GRIN Verlag Crane, A. (2008). The Oxford handbook of corporate social responsibility. Oxford University Press Crowther, D., Rayman-Bacchus, L. (2004). Perspectives on corporate social responsibility. 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SAGE Appendix Graph 1 – Corporate Social Responsibility engagement areas (Source: CSR Global Report, ICCA, 2007) < http://www.csrglobe.com/pdf/Report.pdf> Graph 2- CSR in China – points on which Chinese governments emphasizes when examining CSR schemes (Source: Minnini, C., 2010) < http://open.globe-expert.info/en/Outlook/CSR/CSR_in_China.pdf> List of items included in the graph: Stakeholders Civil Society - Practices Audit Stakeholders - Stakeholders - practices training Social Responsible Investment Chinese government - China International norms - firm’s governance Environmental law Read More