Strategies for Responsible Business - Essay Example

Importance of Corporate Social Responsibility in Profit Making Executive Summary Corporate social responsibility and sustainable development are someof the hotly debated topics in the corporate world at present. Organizations in the past were keen in giving 100% focus only to the profit making motives. However, it is impossible for modern organizations to concentrate fully on profit making, and still able to develop properly. Modern customers are well aware of the importance of corporate social responsibility and they are dealing only with the organizations which have good reputation in terms of corporate social responsibility. Under such circumstances, it is vital for modern organizations to capture the customer confidence through CSR. A number of strategic management theorists argue that, for an organization to be continuously successful the most important requirement for it is to develop an understanding of the strategic implications of CSR. This report analyses this claim with the help of the principles of corporate social responsibility and strategic management. Table of Contents Executive Summary 2 Introduction 4 Definition of CSR 4 Aim, objectives and methodology 6 The reasons why organizations engage in CSR 7 How do organizations engage in the implementation of CSR 11 CSR and its relationships to the generic strategies 13 CSR and associated frameworks 14 UNGC 14 Global reporting initiative 15 Conclusions 17 References 18 Introduction The phrase Corporate Social Responsibility or CSR was first used in the 1953 publication of Bowens Social Responsibility of Businessmen. In the 60’s and 70s, many scholars tried to provide a comprehensive definition of CSR. However, the term CSR has attained more popularity and acceptance in the corporate world only in 1984, when management consultant Peter Drucker stressed the importance of connecting social problems with economic opportunities. Since then, companies have started to accept CSR as a liability rather than a principle. The first company that actually publishes a social report was Ben and Jerrys in 1989, and the first major company was Shell in 1998 (Corporate watch, n. d.). Definition of CSR Even though corporate social responsibility or CSR is accepted as one of the major topics in the corporate world, everywhere in the world, a standard definition or universal definition for this topic is still unavailable. In other words, CSR has been defined differently by different scholars and perceived differently in different countries or regions. According to Nexen (2009) Corporate Social Responsibility is “a commitment to behave ethically and contribute to economic development while improving the quality of life of our workforce and their families as well as the local community at large”. Ethics and morality are rapidly disappearing subjects from the corporate world at present. Even though organizations speak volumes about ethics and morality, they do less to adhere to the principles of ethics and morality. CSR reminds organizations about the importance of keeping ethics and morality in business. On the other hand, Kotler and Lee (2004, p. 3) perceived CSR as the “commitment to improve community well-being through discretionary business practices and contributions of the corporate resources”. Organizations are exploiting a lot of community resources for profit making. It should be noted that the ownership or claims of these community resources is equal for all the individuals. It is illogical and unethical to allow some entities (Organizations) to exploit these community resources fully, without giving anything to the ordinary people. In other words, organizations should give something back to the communities in which they operate as part of their commitment towards corporate social responsibility. CSR is visualized differently in different continents. For example, the American model of CSR is entirely different from that of the European model. In the United States, CSR has been defined in terms of a philanthropic model in which the companies make profits, unhindered whereas in the European model, CSR focused on operating the core business in a socially responsible way (Baker, n. d). In other words, in the American model, CSR means paying taxes regularly and donating some money to the charity purposes. On the other hand, in European model, all the business strategies which go against the interests of the community are against the norms of CSR. For example, unsustainable business activities may cause huge damage to the environment and subsequently the community or the society may face plenty of challenges. Therefore, protection of the environment is accepted as one element in the CSR of the European model. The American model of CSR deals with only some specific topics such as paying taxes and donating something to the charities. In short, the topic of CSR is extremely broad in Europe compared to that in America. Hawkins (2006, p.2) pointed out that it is “the society which provides both customers and resources to fulfil the business objectives of the corporate companies”. Therefore, it is the duty of the companies to work in accordance with the interests of the community and the environment. Corporate social responsibility represents the commitments of an organization towards the community or the environment in which it operates. All organizations are exploiting the community resources in one way or another for making profits. It is the duty of these organizations to give something in return to the communities in which they operate. Since community resources are limited, it is impossible for an organization to sustain its business for a longer period without community or environmental protection activities. It is the duty of the current generation to protect the environment as much as possible to help the future generation in living comfortably in this world. In short, CSR is not a principle, but a necessity in the modern world. Modern customers are well aware of the importance of sustainable development and they deal only with companies which have good reputation in terms of CSR and sustainable development. Therefore, it is the duty of the companies to work in accordance with the interests of the community and the environment to improve their reputation and competitive power in the market. Aims, objectives and methodology “Even though, companies publish huge volumes of literatures with respect to their works for the wellbeing of the society, in practice many companies define their obligations in a much more limited” (Geoffrey, 2008, p.2). It would be impossible for modern companies to exploit the community resources injudiciously even though their predecessors did so in the past. This is because of the fact that modern consumers are well aware of the importance of protecting the community resources. The majority of the resources available in this world is nonrenewable in nature. At the same time, population growth is taking place rapidly. As a result of these facts, the available resources per individual are getting reduced as time goes on. Moreover, uncontrolled exploitation of natural resources is causing huge environmental problems which may cause immense harm to the interests of the coming generation. All these factors forced the people to think deeply about the importance of protecting natural resources as much as possible. As a result of that, modern consumers started to deal with only those companies which have a good track record in terms of CSR and sustainable development. In fact, corporate image in terms of CSR and sustainable development is playing a vital role in deciding the competitive power of an organization. In short, the profitability of a modern company is highly dependent on the reputation of the company in terms of CSR. “When business is booming and the bottom line comfortable, corporate responsibility seems an achievable goal.  But in difficult times, “responsibility” and “accountability” are – surprise, surprise – much trickier terms to define and employ” (Connor, 2009). The major aim of this report is to analyze how far CSR can help companies to improve their profit margins. The objectives of this paper are given below’ To analyze the reasons why organizations engage in CSR To know the ways through which organizations demonstrate CSR To empower the public and the organizations about the advantages and disadvantages of CSR To establish the relationship between profitability and CSR Only secondary research is conducted for the collection of data for this report. A lot of printed sources such as books, journals, and newspapers and electronic sources such as websites were used for the collection of the secondary data. The reasons why organizations engage in CSR CSR helps companies to build trust in the communities in which they operate. One of the major beliefs among the public about the functioning of organizations is that organizations are working only for profit making. The majority of the people believe that organizations are exploiting the community resources injudiciously and causing immense threats to their existence. It is necessary for the companies to prove that this concept is wrong. For that purpose, companies should demonstrate their social responsibility whenever they get an opportunity. For example, Acer, Citibank, PepsiCo and Chiquita are some of the companies which have good records of showing social responsibility. British Petroleum or BP has stiff challenges recently because of the Gulf of Mexico oil spill. More than 4.9 million barrels ^ of crude oil spilled over the water as a result of Mexico oil spill. It caused huge damages to the marine and wildlife near the Gulf of Mexico. Instead of citing silly reasons for the accident and staying away from the responsibility of this accident, BP agreed to pay $20 billion to compensate the victims of the Gulf of Mexico oil spill (Blum & Snyder, 2010). Even though BP has faced bankruptcy, as a result of this, they never bothered much about it. The rest is history. BP is currently coming back strongly from this disaster. According to Christopher Helman (2012), two years after the spill, BP is all set to recapture its market share. It is evident that the commitment to social responsibility helped BP a lot in regaining the lost grounds. In India and Russia like emerging markets, BP is currently showing its strong presence and competitive power. At the same time, Shell, the competitor of BP is currently struggling in the global market because of its poor track records with respect to CSR. Shell tried to cheat the public and the shareholders with the help or fabricated or exaggerated financial data to increase its share value. “Royal Dutch/Shell said that it would pay around $120m to the US Securities and Exchange Commission (SEC) for breaches of SEC rules, and 17m UK pounds to the Financial Services Authority to settle action over its misreporting of proven oil reserves” (Baker, 2004). However, it would be difficult for Shell to regain its lost image in near future. Acer is another socially committed organization which has engaged in a conscious effort to make environment friendly products. “Acer focuses on developing an effective corporate governance mechanism of CSR and sustainability issues, improving efficiency among working groups, initiating stakeholder engagement, and building for better internal and external communications”(CSR within Acer, n. d). Acer has strong waste management and recycling mechanisms which help them to collect the e-waste generated by them and recycle it properly. Moreover, CFC cleaners have been completely eliminated from the Acer circuit board production. These strategies are helping Acer to become one of the top computer manufacturers in the world at present. At the same time, there are plenty of other companies which have shown little belief or trust in CSR. For example, Coca Cola, Union Carbide, and Apple Inc. are some of the companies which have poor track records in terms of CSR. These companies are currently facing many problems in different markets because of their lack of commitments towards CSR. For example, Coca Cola is one company which is facing severe problems in India because of its failure in operating in accordance with the needs of the Indian people. In fact, this company forced to stop its operations in Kerala, the southernmost state of India. They tried to exploit the underwater resources of Kerala and caused drinking water shortage near its plant located at Plachimada (EMJ, 2010). “Coke started to extract millions of clean water and consequently the water levels began to drop from 150 to 500 feet” (Coca Cola, 2007). Because of drinking water shortage, public agitation started against them in Kerala and they forced to close down their plant at Plachimada. It should be noted that India is one of the rapidly emerging economies in the world at present. Moreover, India is one among the two of the most heavily populated countries in the world. Therefore, it would be suicidal for companies like Coca Cola to avoid the opportunities in Indian market, especially in this heavily globalized business world. Coca Cola has suffered a lot in terms of corporate image in India. At the same time, PepsiCo has engaged in some community servicing measures and thereby improved their corporate image in India. Pepsi is currently helping Indian farmers in boosting their agricultural yields by providing tips and helps with respect to scientific agricultural methods. At present, PepsiCo has larger market share than Coca Cola in Indian market. Strong commitments to CSR helped PepsiCo to capture the Indian market. Union Carbide is another company which has shown lack of belief in CSR. The company was responsible for the 1984 Bhopal gas tragedy in which thousands of people lost their lives and many others suffered serious injuries and diseases. Instead of taking the responsibility of this disaster, Union Carbide and its CEO Warren Anderson argued that Indian courts cannot prosecute them since they are Americans. The company failed to provide enough compensation to the victims. In short, Union Carbide has shown little respect towards its social responsibility (Bhopal gas tragedy: Accused awarded only 2 years in jail, get bail, 2010). The reputation of Union Carbide has been come down drastically because of this incident. Apple Inc. is another company which is facing business problems because of their lack of commitments towards CSR. “Its edgy and sleek; its got buzz all the time; its expensive; it defines modern design; it has cool advertising. And yet, Apple is rotten when it comes to sustainability reporting” (Why is Apple Dodging CSR Reporting?, 2010).Being the second largest company in the world, in terms of market capitalization and the most important technology company in the world, Apple Inc. has thought that they could rule the market because of their strong presence and reputation in the consumer electronics industry. Even though they are currently using many of the components made by Samsung, Apple Inc. had no hesitation in filing a law suit against Samsung on patent violation. Apple Inc. still enjoys superiority in the American market; however, the same thing cannot be said about them in other global markets. Samsung is currently outclassing Apple Inc. in other global markets. It should be noted that Samsung has good reputation in terms of sustainability reporting compared to Apple Inc. and this reputation is helping Samsung to make inroads into the markets of Apple Inc. Tobacco companies like BAT often try to put dust in the eyes of ordinary people with respect to social responsibility. They often display a statutory warning like; “smoking is injurious to health”, in all their advertisements. However, they display this warning as small as possible so that readers may not be able to recognize or read it. BAT often says many things and delivers less. For example, they talk too much about the necessities of giving training and protective clothing to local tobacco farmers. But, farmers in Kenya and Brazil are suffering from chronic ill-health related to tobacco cultivation and the company is silent on this issue (Behind the mask: The real face of CSR, N.d. p.2). How do organizations engage in the implementation of CSR? Corporate social responsibility can be demonstrated in different ways. Some companies demonstrate it with the help of community servicing or charitable activities, whereas others demonstrate it through the activities suitable for sustainable development. As mentioned earlier, American organizations, mostly demonstrate CSR through charity works and regular tax paying. For example, Bill Gates and Warren Buffet have started a campaign recently to help the poor communities. Warren Buffet agreed to contribute around 90% of his assets to the Bill & Melinda Gates Foundation (B&MGF or the Gates Foundation), for charity works across the world. The major aim of this foundation is to enhance global healthcare and reduce extreme poverty in the world. Plenty of multi-billionaires have already contributed heavily to the Bill & Melinda Gates Foundation. In short, American companies are showing CSR mainly through charity works. On the other hand, European companies are giving ample importance to sustainable development as part of their corporate social responsibility. Instead of giving more importance to charitable works, European companies are keen on reducing waste accumulation and improving operational efficiencies. These companies are of the view that waste accumulation and uncontrolled exploitation of natural resources would cause immense harm not only to the current generation, but also to the upcoming generation. In their opinion, global warming and climate change problems may cause immense threats to the living things. Therefore, protection of the environment should be given more importance than helping the poor or under-privileged. European model of CSR seems to be more acceptable than the American model. It is illogical and impractical to ask the companies to pay something in return to the communities, after allowing them to make as much profits with the help of uncontrolled exploitation of community resources. The charity works undertaken by American companies are believed to be a strategy to put dust in the eyes of ordinary people. In other words, critics argue that Bill Gates and company are exploiting the community resources injudiciously and they are taking a license for such activities with the help of charity works. Many people believe that Bill Gates’ charity works are intended to improve the reputation of Microsoft and thereby improve the competitive power of the company. In America, genetically modified crops (GM crops) are suggested by many people as an answer to poverty. The American model of CSR encourages the cultivation of GM crops. At the same time, Europeans have plenty of concerns about the feasibility of GM crops. Behrooz (2012, 1199) pointed out that “Technical fixes, such as GM crops, do not adequately address the complex challenges of social relations in agriculture that often exacerbate social and environmental harm”. Because of these concerns, European countries have not given permission to American companies such as Monsanto, Bayer and other GM companies, to introduce GM crops in Europe. In short, European model of CSR is more environmental friendly than that of America. CSR and its relationship to the generic strategies Human right violation and information censoring are taking place in countries such as Burma and China. “PepsiCo, along with more than a dozen oil companies and consumer goods manufacturers has withdrawn its investments from Burma because of human right concerns” (Vogel, 2006, p.2). The right to know is a natural right for human. Moreover, the right to live fearless is another basic right for human. In some countries such as China and Burma, people forced to live with a lot of concerns and fears. Some international companies demonstrate their CSR with the help of the support extended to the human right movements in these countries. For example, Google has recently withdrawn from China and supported the human rights movements in China. It should be noted that China is the most heavily populated and rapidly emerging country in the world at present. Yet, Google has decided to stop its operations in China because of the Chinese authority’s interference in the activities of Google. Google’s decision has gained plenty of support from humanists all over the world and its corporate image has grown considerably since its withdrawal from China. Google knows very well that they can compensate for the loss suffered in China with the help of the gains in other countries. In other words, Google’s market share has been increased heavily in the global market, except in China, after its decision to withdraw from China. Some companies have the habit of publishing exaggerated or fabricated financial results, as a measure or strategy to increase the share value. This habit is definitely a violation of social responsibility. It should be noted that more people will come forward to buy the shares of better performing companies. The CEO of Satyam Computers was recently arrested by police on charges of cheating the shareholders. “The scandal broke when Satyams founder and former chairman, B. Ramalinga Raju, confessed to filling the companys balance sheets with "fictitious" assets and "nonexistent" cash in an extraordinary letter to the companys board (Dolnik, 2009). CSR and associated frameworks UNGC “The United Nations Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption” (What is the Global Compact?, n. d.). The formation of The United Nations Global Compact (UNGC) was announced in 1999 by former UN secretary general Kofi Anan and it was officially launched on July 26, 2000. The primary objective behind the formation of this organization is to educate organizations about the necessities of corporate social responsibility and sustainable business practices. Businesses or industries are causing immense damages to the environment and it is impossible for the world to allow industries to continue their environmental unfriendly activities for a longer period. For example, industrial emission and carbon emission from vehicles are causing atmospheric temperature rise or global warming. It is necessary to control such activities for the sustainment of human life on earth. The above awareness forced UN to think seriously about the formation of an agency to remind the corporate about their social responsibility. The ten corporate social responsibility (CSR) principles given by UNGC to businesses are with respect to; human right protection, avoiding human right abusing, freedom of association and collective bargaining, elimination of all kinds of forced labor, abolition of child labor, elimination of discrimination at workplace, approaches to protect the environment, promotion of environmental protection activities, development of environment friendly technologies and abolition of corruption and bribery (What is the Global Compact?, n. d.). Human right violations are going on in many of the organizations. Organizations are exploiting employees in one way or another without providing enough returns to their hard work. Child labor and forced labor are some of the human right violation activities taking place in many of the organizations. In a heavily globalized world, the majority of the organizations may have a diverse workforce. Many of the organizations have a habit of employment discrimination. In other words organizations may treat the local employees in one way and the immigrant employees in another way. Such business practices are unacceptable to UNGC. UNGC urges companies to reduce the emission level as much as possible. It encourages companies to develop more environmental friendly technologies so that the life of on earth could be prolonged as much as possible. Bribery and corruption are unethical business practices as per the norms of the UNGC. UNGC asks organizations to conduct business in an ethical manner in order to provide justice for all. Global Reporting Initiative “The Global Reporting Initiative (GRI) is a non-profit organization that works towards a sustainable global economy by providing sustainability reporting guidance”(What is GRI, n.d). GRI was formed in 1997 under the guidance of the United Nations Environment Program (UNEP). The major functions of GRI are to develop sustainability standards and reports about the sustainable business practices implemented by organizations. GRI encourages organizations to follow sustainable business practices and thereby exhibit their social responsibility. “The goal of the GRI’s Sustainable Development Strategy is to contribute to poverty alleviation and sustainable economic development from an economic, social, and environmental point of view” (Sustainable Development, n. d). One of the surprising facts about food production and supply in this world is that a substantial portion of the food produced is getting wasted. Billions of tons of food items are dumped in the sea every year by developed countries, while billions of people all over the world are struggling to find enough food at least once in a day. It is the duty of the big companies to void the wastage of food items as much as possible and help the poor in finding food. Only a few percentages of people (Corporate world) control more than 90% of global wealth. “MNC’s could radically improve the lives of millions of people and help bring into being a more stable and less dangerous world” (Prahlad & Porter, 2003, p.3). “CSR cannot serve as a tool for development, because it is a micro solution to a macro problem” (Amparo & Carmen, 2011, p.164). It is illogical to think that CSR would solve all the problems in this world. However, it is possible for the corporate to solve at least some problems of this world since they are controlling the majority of the global wealth. “The society has already accepted the tension between corporate rationality and social responsibility as an inescapable condition of living prosperously” (Steven et al, 2007, p.17). Therefore, it is impossible for modern companies to survive in the market with the help of profit making motives alone in future. Conclusions Corporate social responsibility is extremely important in deciding the profitability of modern companies. The period of uncontrolled and unjudicial exploitation of natural resources has already been over. Modern organizations were forced to protect the environment as much as possible while exploiting the natural resources. In other words, it is the duty of the modern organizations to exploit the natural resources in such a way that the exploitation process may not cause much harm to the nature and its living things. Unsustainable business practices are unwelcomed in the current world. Modern consumers are interested in dealing with companies which have good reputation in terms of CSR. They dislike companies which have poor images in terms of CSR, whatever the reputation these companies have in other areas. Some companies engage in charity works while others engage in sustainable development as part of CSR. 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