The Importance of Corporate Social Responsibility - Essay Example

?CORPORATE SOCIAL RESPONSIBILITY (lecturer) How can we evaluate whether a company is behaving in a socially responsible manner or not? Introduction Corporate social responsibility has always been one of the most demanding responsibilities which companies face. Reports of corporations not acting responsibly have been manifest in our daily news for so many years. Who could forget the Exxon Valdez oil spill? Or the more recent Gulf Coast BP oil spill? Discussions on corporate social responsibility cannot also fail to mention the Toyota Prius mishaps which devastated many families and the company itself for the past two years. These incidents are all manifestations of the failure of companies to act in a socially responsible manner. Always, at the other end of the supply chain – the consumers – bear the brunt of the failure of companies to act responsibly. For which reason, this research paper is now being carried out in order to establish ways with which the general public and concerned authorities can evaluate if a company is behaving in a socially responsible manner. This paper shall consider the growing role of ethical considerations in business, as well as the different moral philosophies and ethical standpoints related to CSR. It shall also consider ethics and corruption in its discussion. Practical examples shall be used in order to answer the details needed in this paper. This paper is being conducted in order to establish a comprehensive evaluation of corporate social responsibility and how the general public can be guided in their patronage and purchase of the various products and services in the market. Discussion Corporate social responsibility defined Before any discussion or evaluation of this subject matter can be carried out, it is important to first understand and lay out a standard definition and conceptualization of corporate social responsibility, otherwise known as CSR. To this day, there have been various definitions of CSR, and each definition has focused on different aspects of social responsibility. One of the definitions of CSR explains that CSR refers to the balance between economic and social aspects of corporate management (Kanji, 2009, p. 102). This definition however, does not totally capture the essence of CSR. It is defined more in detail by Carroll (as cited by Kanji, 2009, p. 102) as a pyramid with four distinct elements. The first is economic responsibility; the second is, legal responsibility; the third is ethical responsibility; and the fourth is discretionary responsibility which is otherwise equivalent to philanthropy. This definition however is still considered incomplete because it does not take into consideration the dynamic relationship between corporations and society. The above definitions can be conceptualized on a more comprehensive plain when the elements of social fairness, ethics, environmental rights, human rights are all considered in the management of corporations (Kanji, 2009, p. 102). These elements all have standards of compliance and all help build knowledge and a strong basis for the evaluation of CSR among corporations. Approaches to evaluating CSR There are different ways of evaluating whether or not a company is acting in a socially responsible way. Schermerhorn, Jr. (2010, p. 70) suggests that a company’s CSR performance can be measured based on the following criteria: economic responsibility, legal responsibility, ethical responsibility, and discretionary responsibility. In essence, evaluating a corporation is taking note of the following: 1. Economic responsibility: Is the organization profitable? 2. Legal responsibility: Is the company obeying the law? 3. Ethical responsibility: Is the company doing what is “right?” 4. Discretionary responsibility: Is the organization contributing to the broader community? (Schermerhorn, Jr., 2010, p. 70). In the current age of the globalized market, mass consumerism has now become the running trend. For corporations wanting to fulfil their CSR, their ability to market their products while respecting the diversity of cultures is an important consideration (Guillen, 2001, p. 237). A company’s ability to embrace diversity and globalization is one which makes the effort to be more inclusive and to be more accepting of the multiculture nature of the world. Some corporations also use various models in their ethical decision-making process. It is however important to note that for corporations focusing on their moral development, they often help contribute significantly to social development (Amine, 1996, p. 89). In assessing individual motivation interacting with peer pressure, experts were able to reveal that “esteem motivated individuals do not submit to group pressure but display a consistent moral posture across situations” (Amine, 1996, p. 89). On the other hand, safety-oriented individuals usually submit to group pressure and display more inconsistent moral actions (Amine, 1996, p. 89). In assessing corporations, the choices they make in their ethical dilemmas can help determine their compliance with their corporate social responsibilities. Economic responsibility Economic responsibility is the starting point in evaluating corporations and their performance in CSR because their ability to profit and to serve the economic interests of the company is an initial point wherein all other goals of the corporation can be carried out. In order to assess a corporation’s economic responsibility, it must be able to produce goods and services which are desired by customers because only by doing so would a corporation earn profits for itself and for its investors (Schermerhorn, Jr., 2010, p. 70). If it is not an economically responsible corporation then it would not be able to provide for the needs of its shareholders, its employees, and the customers. Moreover, it would not be able to perform its responsibilities in accordance with CSR. In assessing the economic profitability of corporations, economic reports are usually taken into consideration. For example, in the case of Kinross, which is a gold-mining company with mines and projects in Canada, the US, Brazil, Chile, and West Africa, they reported that for the year 2008 to 2009, their economic highlights include: attributable production of about 1.8 million gold ounces; and a revenue of about $1.6 billion in 2008 and $2.4 billion in 2009 (Kinross, 2009, p. 20). They were able to provide the wages and benefits for their employees amounting to $302.2 million in 2009 and $281.5 million in 2008; they paid dividends of $62.4 million to their shareholders in 2009; they have also covered the retirement plans of their employees in North America and South America; and they were able to hire local workers in the areas where their mines have been built (Kinross, 2009, p. 21). In general, the company has been able to maximize the earnings of each share and provide the greatest possible profit. Based on its profit margins, it was also able to maintain a strong competitive position in the mining industry. Its high level of operating efficiency also places it in an excellent position for economic responsibility (Carroll, 1991, p. 226). Moreover, based on its consistently increasing profit shares as expressed in their 2-year report, the corporation has proven to be economically responsible. Such standards are determinants which can also be applied to other corporations in terms of their fulfilment of their economic responsibilities. More than escalating profits and returning dividends however, a company’s CSR will be judged more for the next three aspects of CSR, which are: legal responsibility, ethical responsibility, and philanthropy. Legal Responsibility As was previously mentioned, evaluating a company’s compliance with its legal responsibilities basically provides an answer to the question: Is the company obeying the law? Most businesses are expected to comply with the laws set forth by the governments as part of the social contract which is implied between the business world and the corporate world (Carroll, 1991, p. 2). In effect, the corporate legal responsibilities are also a code of ethics which detail the basic concepts of fair operations as established by lawmakers. “They are depicted as the next layer on the pyramid to portray their historical development, but they are appropriately seen as coexisting with economic responsibilities as fundamental precepts of the free enterprise system” (Carroll, 1991, p. 2). The laws are the basic standards and rules which govern human behaviour. In the basic performance of CSR, laws help ensure that corporations are patterning their behaviour on these legal standards. It is important to note that in the past years, corporations have been held liable for their failure to comply with legal standards. For example, Microsoft Corporation has faced an anti-trust case in Europe for establishing a position of monopoly to the disadvantage of its competitors, leading to major cumbersome settlements against the company (Drake & Matten, 2007, p. 50). Other anti-competitive practices have also been seen among corporations, and these are among the different practices which negate legal corporate social responsibility. According to the standards set by the OECD, there are three legal standards which corporations have to comply with, and these are: domestic laws, international declarations and conventions, and private standards (OECD, 2002, p. 66). Corporations therefore have to comply with the laws of the country they are operating in. They also have to comply with international laws and conventions, as well as private standards, including internal management and reporting programmes (OECD, 2002, p. 66). Environmental laws are also included in this responsibility, as well as anti-bribery and corruption provisions. Exxon Mobil has pointed out in their report that part of the legal compliance process for corporations is based on their ability to comply with the local customs and laws; to comply with other applicable laws, including the FCPA and the UK Law on Bribery and Corruption; and on being open and transparent (Exxon Mobil, 2008, p. 12). Organizations which deliberately break the law are considered to be poor performers in this CSR standard. The authorities have imposed penalties for these corporations who fail to comply with these legal standards. In fact, the US Justice Department has charged about 900 individuals in about 400 fraud cases (2002-2005) (Daft & Marcic, 2002, p. 136). Illegal acts of corporations have included the sale of defective products, performance of unnecessary procedures; and billing clients for work which has not been done (Daft & Marcic, 2002, p. 136). These are just some of the acts which indicate how a corporation is NOT complying with its corporate social responsibilities. Corporate compliance with the Occupational Health and Safety Standards, as well as the protection of employees’ labour rights are just some of the legal standards by which corporations are evaluated for CSR. Failing such legal standards, corporations and individuals can be held legally responsible. Ethical responsibility “Ethical responsibility includes behaviours that are not necessarily codified into law and may not serve the corporation’s direct economic interests” (Daft & Marcic, 2002, p. 136). In this regard, corporations must therefore act with fairness, equity, impartiality, and they must respect the rights of individuals. In the European context, the Q-RES model is being popularly followed in complying with ethical standards of corporate management. This model was set forth in 1999 by the CELE or the Centre for Ethics, Law, and Economics of the LIUC University in Italy (Perrini, Pogutz, and Tencati, 2006, p. 112). This model can be used as one of the frameworks by which corporations can be assessed in terms of their compliance with ethical CSR. This model sets forth six tools in the evaluation and the conceptualization of ethical responsibility among corporations. First, compliance with ethical responsibility calls for corporations to conceptualize a corporate ethical vision (Perrini, Pogutz, and Tencati, 2006, p. 112). In this case, the corporation must lay out its clear vision for the corporation, including its criterion in balancing the stakeholders and the society’s interests. Second, the corporation must also conceptualize its code of ethics (Perrini, Pogutz, and Tencati, 2006, p. 112). This code of ethics is the standard by which the corporation performs its functions within the organization – functions which are beyond their legal responsibilities. Third, ethical training and communication is meant for the corporate employees, with the ultimate goal of ensuring that each employee can apply reasoning tools in addressing ethical issues in the corporation’s daily activities (Perrini, Pogutz, and Tencati, 2006, p. 112). The fourth aspect of the model refers to the organizational systems of implementation and internal control. This refers to the infrastructure which supports the effective implementation of CSR. In effect, the corporation needs to set forth processes within its system in order to implement CSR and control its corporate activities. Fifth, a corporation’s compliance with ethical CSR can be evaluated by the way it complies with its social and ethical accountability processes. This relates to the way the corporation broadens its communication and relations with its stakeholders and with the society in general (Perrini, Pogutz, and Tencati, 2006, p. 112). Finally, a corporation’s compliance with CSR can also be evaluated in terms of how it allows and sets up external validation and verification. Corporations must allow their activities to be assessed by a third party in order to ensure that its activities comply with the standards of CSR and ethics (Perrini, Pogutz, & Tencati, 2006, p. 112). Although it is not legally part of the standards of practice, assessing the marketing and advertising choices of corporations is also a means of evaluating the company’s compliance with its ethical responsibilities. In an analysis by Borgerson and Schroeder (2002, p. 588), they cite examples of companies advertising their products in sexist, racist, derogatory, and often demeaning ways. In other words, corporate attempts to advertise and market their products are basically unethical and consequently, corporations which allow these practices violate their ethical responsibilities. Borgerson and Schroeder (2002, p. 588) point out how shocking depictions of racism and sexism have been utilized by corporations and “sometimes these attention-grabbing images are shocking, because they draw on sexist and racist typicalities. We believe that brilliant marketing campaigns need not rely on damaging representation and we call on the industry to pay more attention to their messages’ complex and far-reaching meanings” (Borgerson & Schroeder, 2002, p. 588). By evaluating corporate actions in terms of advertising, a corporation’s compliance in its ethical responsibilities can be judged. In some ways, corporations also use advertising as a means of promoting their CSR activities. This may be regarded by some consumers to be opportunistic advertisement choices, however, corporate strategists consider it to be a smart move in marketing. For example, British Petroleum has used its initials BP to set forth its motto or company mantra to be “Beyond Petroleum.” But this label has not actually been served by the corporation considering its controversy in relation to last year’s Gulf Coast Oil spill. Corporate decisions on pursuing CSR can be evaluated in terms of management approaches in marketing decisions. If companies advertise their corporate responsibilities in place of traditional advertising, this implies that social responsibility is based on the corporation’s desire to affect consumer preferences (Coors and Wingarden, 2005, p. 11). It does not necessarily mean that the corporation’s actions have been reshaped as the company may want us to believe. In effect, the firm may still be trying to maximize its profits by adopting and advertising its CSR actions. Consequently, when preferences change, the behaviour of corporations often changes; and for corporations which do not make the necessary adjustments, they do so at their own risk (Coors and Wingarden, 2005, p. 11). As customers make adjustments in purchases based on socially responsible choices, corporations are prompted to make adjustments in their products because it is the profitable thing to do. In this case, marketing and the advertising of products is based on CSR and on the preference of the customers which ultimately dictate corporate actions (Coors and Wingarden, 2005, p. 11). Since customers base their patronage on socially responsible corporations, corporations are prompted to adjust because they want to make the profit. In this regard, it may be difficult to evaluate the true intentions of corporations in making socially responsible choices. Nevertheless, it is possible to evaluate corporate CSR based on their actual conduct of actions and acceptance of consumer trends. The evaluation of ethical practice in international marketing has been based on three possible levels of acting which includes actors in their performance of different objectives and motivations. These are the micro-, the meso-, and the macro- levels (Enderle and Murphy, 2008, p. 29). In the micro-level, the evaluation is based on the individual – on what he, as an employee, consumer or investor can and what he has done in order to assume his ethical responsibility. This level also includes small numbers of individuals and those groups with hard limited organizational structures (Enderle and Murphy, 2008, p. 29). At the meso-level, the evaluation is based on the decision making and the actions of economic organizations, trade-unions, and other consumer organizations. And finally, in the macro-level, the evaluation is based on the economic system and the building of the economic conditions of business including the economic, business, and social policies (Enderle and Murphy, 2008, p. 29). At the different levels, the different actors are expected to have room to make choices freely, to expect the ethical responsibilities which go with each choice, and eventually, to be restricted by conditions which they cannot actually change (Enderle, and Murphy, 2008, p. 29). Moreover, for as long as the different actors act responsibly at all levels, ethical displacements may be seen. In effect, in adopting these three levels of conception in the international marketplace, the micro-level brings attention to personal relations across national borders; the meso-level brings the focus on inner-organizational relations across national borders; and for the macro-level, it includes inner-systemic responsibilities across national borders which are incorporated in agreements and treaties (Enderle and Murphy, 2008, p. 29). Discretionary responsibility In so many ways, discretionary responsibility refers to how the corporation gives back to the community. In other words, it refers to corporate philanthropy (Schermerhorn, Jr., 2010, p. 70). In evaluating how the corporation performs in this regard, the corporation’s activities beyond its legal and even ethical standards would be evaluated. Corporate philanthropy is often considered in terms of the activities with which the corporations involve themselves to assist communities where their firms are established and the society in general. For corporations who give more attention to corporate philanthropy and their CSRs, studies reveal that they have been known to perform better in terms of profits (Mintzberg, 1983, p. 7). For those who performed well in their social responsibilities were also known to do slightly more than those who did not do anything at all for CSR. In other words, it is enough for them to do what is necessary and not to be overly eager in their CSR performance. In effect, corporations, “have no right to pursue broad social goals, to impose their own interpretation of the public good on society” (Mintzberg, 1983, p. 8). The judgment of society for these corporations is often based on their solid and consistent efforts towards philanthropy, not on the billions of dollars they may be willing to bestow upon the members of society. Social issues management The management of social issues can also be considered as a criterion in the evaluation of a company’s compliance with CSR. A corporation’s ability to assist in public issues management, strategic issues management, and social issues management is a determinant of CSR compliance. Public issues management is related to legislative matters, strategic issues management relate to the issues which call for strategic change, and social issues refer to those which affect values and attitudes (Wartick & Cochran, 1985, p. 766). By assessing the performance of corporations in addressing these issues, it is possible to judge the ability of corporations to comply with their CSR. Conclusion Corporate social responsibility is basically related to how the corporation acts and performs in terms of its societal obligations. Societal obligations may cover legal, philanthropic, ethical, and moral duties. For corporations who focus on the compliance of these responsibilities, they are often known to perform better in terms of profits. As people and consumers become witness to their socially responsible efforts, the people are also more likely to purchase and patronize their goods and services. For consumers and for the general public to evaluate their compliance with these corporate social responsibilities, there are four main points which can be considered. These four points refer to their compliance with their economic, legal, ethical, and discretionary responsibilities. Corporations complying with their economic responsibilities are assessed based on their ability to make profit for themselves and their shareholders. In relation to the legal responsibilities, corporations complying with the local, national and international laws and treaties are often deemed socially responsible. In terms of ethical responsibilities, corporations that comply with the corporate and moral practices are considered to be adequately complying with their social responsibilities. Finally, for corporations that engage actively in corporate philanthropy, they often help boost their compliance with their CSR. Taken together, these elements help government agencies and the general public in evaluating the performance of corporations in relation to their compliance with their corporate social responsibilities. Works Cited Amine, L. (1996) The need for moral champions in global marketing, European Journal of Marketing, volume 30, number 5, pp. 81-94. 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