Responsibility Towards the Society and the Environment - Essay Example

? Corporate social responsibility: altruism or necessity? Essay April 4, 2790 words inserts his/her s By virtue of free trade and open economies, economic progress has been seen as a tool of poverty elimination and ensuring security for generations to come. However, there remains the challenge of ensuring that this progress remains equal across all sectors and nations and that the well-being of the environment is not being harmed. Most companies have, therefore, made it a practice to incorporate responsibility towards the society and the environment as part of their routine business. This notion of corporate social responsibility has been heavily debated on in recent years so much so that researchers have called into question the existence of the “social” aspect in “corporate social responsibility”. The very mention of CSR calls into question the reason for business’ existence. Whether or not businesses should be responsible for the society and environment remains questionable since the primary purpose of a business is to satisfy its shareholders and generate profits. The conflicting economic and social aims often lead businesses into complex situations which require choosing between the two. The recent changes in regulatory environment, accounting procedures that are legally enforced, and pressure from stakeholder groups has given birth to greater disclosure of CSR data which means that companies are now including greater CSR related data into their reports. Especially after various ethical disasters (that called into question the environmental impact of firms’ activities) various companies have made it a practice to report on the ethical, social and environmental aspects of their operations. In other words, majority of the companies are now accountable to the society and the environment (whether morally or legally). Such disclosure enables companies to positively impact the perceptions of external stakeholders towards them. Majority of the companies listed on the Global Fortune 500 have made it a practice to voluntarily disclose the impact of their economic activities on the society and the environment1. This can be traced back to the 1990s owing to the emphasis laid down by authors such as John Elkington2 Typically, such disclosure involves providing information pertaining to products, services, HR and environmental aspects. All social and environmental effects of the company’s economic operations are disclosed (also referred to as non-financial reporting) in order to obtain stakeholder’s trust and confidence in the company. CSR disclosure, therefore, entails reporting of CSR activities, assessing the effectiveness of these activities and assessing whether the current resources being used are sustainable. Research shows that companies engage in such disclosure for two main reasons: achieving a competitive edge by enhancing employee morale and goodwill and pressure by external stakeholders such as governments, environmental agencies etc. Not adhering to the latter’s demands would mean a loss in company’s goodwill and, hence, profits. In a study of 190 organizations in the oil and gas sector, it was discovered that greater transparency of CSR data correlates with enhanced CSR reputations of the companies3. Furthermore, mature and financially stable companies took the lead in terms of CSR reputation compared to the newly established startups4. Hence, it is prudent to assume that companies that engage in CSR disclosure are, in effect, financially strong as well. The research confirmed that CSR reporting was merely a means of publicity and that any publicity ultimately benefits companies in the end5. Research also confirms that the company’s social performance and return on equity are positively related6. Furthermore, research suggests that the motivation behind CSR reporting is mainly legal. In most countries, it is a necessary requirement to report CSR activities along with financial reports. In a study of Libyan companies ( in manufacturing, services, banks and mining sector), most of the employees claimed that the reason for CSR reporting was to enhance the company’s image by making stakeholders aware of the company’s contribution to the community and ensuring transparency which would promote integrity in the business 7. Thus, the emerging trend of CSR reporting has motivated top management to disclose such information which enhances the management’s credibility. Such reporting gives companies access to consumer and investor confidence. Research suggests a positive correlation between the reported data on CSR activities by companies and their financial value. For instance, Rossi discovered that are listed on the Bovespa Sustainability Index (BSI) have a premium value of their shares8. Moreover, the analysts’ ratings of corporations’ CSR disclosure positively relates with the forecast accuracy of these analysts which means that greater non-financial transparency is necessary to encapsulate investor confidence and raise stock value. Furthermore, by not reporting CSR activities, such companies risk their survival due to non-compliance with legal standards. Companies that report CSR activities, therefore, enhance their organizational performance by doing so compared to those that do not. From this viewpoint, it can be stated that the major reason for CSR reporting is corporate benefit rather than altruistic. Various system-oriented theories shed light on the above mentioned reasons for such CSR publicity. Firstly, the theory of political economy dictates that firms seek legitimization through CSR reporting9. By becoming socially responsible due to influence by its reference groups, organizations then discharge this obligation by CSR disclosure. The stronger the influence of reference groups, the greater the organization’s willingness to legitimize its activities. Although the political economy theory dictates the overpowering influence of the government, the legitimacy and stakeholder theories state that suppliers and customers dictate the CSR reporting of firms10. The other view holds that CSR reporting by firms is merely an expression of a dialogue between the organization and the society. Even if the firm is fulfilling its financial potential, its legitimacy can be called into question if it does not make these disclosures to fulfill the society’s expectations. This dialogue is, in essence, a part of the larger social contract which firms are tied in. CSR disclosure signals the society that the company is fulfilling the society’s expectations as part of this social contract11. Nevertheless, it is difficult to determine what terms this social contract entails. Varying perceptions about these terms exist amongst management which is reflected in varying dimensions of CSR reporting. While legal considerations provide the “bare minimum” level of CSR information to be disclosed, the society’s expectations constitute the implicit terms of this contact. The reason why CSR disclosures vary across sectors and nations is because of the varying mix of social and political elements involved in its determination. This draws the line between mandatory and voluntary reporting. In a research of CSR activities of “top six” public limited advertising companies, it was discovered that there was marked difference regarding the level of CSR related information disclosed amongst companies12. Two of the companies did not disclose at all whereas the other two that did had varying levels of information pertaining to CSR13. Companies based in Europe had greater in-depth analysis of their CSR activities than did those in Japan14. MNCs, in particular have varying levels of such reporting depending on the social and political requirements of their respective markets. It is also interesting how this research points out that the content pertaining to CSR also varied which was reflected in different vision statements. Three of the companies saw CSR as an integral part of the corporate strategy which was reflected in the appointment of a CSR committee to manage CSR activities of the corporations15. Most of these companies have also made it a practice to dedicate a specific portion of their websites to CSR. In these sections, the corporation’s association with various environmental groups, conferences and activities is highlighted. In particular, organizations that voluntarily provide such information typically focus on four main areas: the impact of work on the society, incorporation of cultural diversity and staff training, affiliation with charitable entities and the conservation of resources16. Differences, however, exist as to the relative mix of these factors considered important by companies. Some of these differences (as mentioned before) are based on countries, which is because some countries are more shareholder-centric whereas others are more stakeholder-centric. In the former culture, the legitimacy of all stakeholders is taken into account (including environmental and government agencies) which results in greater motivation to publicize CSR activities compared to the latter17. Considering the growing significance of CSR reporting, it would seem highly plausible to develop a CSR index which would rank companies based on certain criterion. Companies’ CSR initiatives maybe called into question. For instance, the recharge shafts used in Coca Cola’s rainwater harvesting program in India were found in decaying conditions upon inspection. Although the company has received huge fanfare for publicizing this initiative on paper, the reality is surprising. It was discovered that the company did this to mask its water mismanagement that had been heavily criticized. Another case is that of Pfizer. The company was renowned for its philanthropic practices in Africa where it donated a medicine to curb blindness. On the contrary, the company was charged with conducting medicinal trials on children that were unethical. Taking advantage of an epidemic in Nigeria, the company treated the infected children with a new and dangerous antibiotic18. This calls into question the intentions behind CSR. Ethics and CSR do not necessarily reconcile. Companies that boast of conserving energy or engaging in fair trade are often found trapped in lawsuits pertaining to inhuman labor conditions and inadequate disclosure. CSR reporting is largely aimed at increasing the company’s visibility amidst cut-throat competition. It can be seen as merely a means for achieving competitive advantage. The fact that many companies voluntarily choose to disclose CSR information indicates the vested interests of stakeholders which these companies seek to satisfy. By doing so, these companies are able to reap financial benefits and intangible benefits such as goodwill which helps increase the business value. Throughout the effort to promote CSR and publicize it, the active role of the CEO cannot be denied. Top management support is quintessential to the development of CSR initiatives within the company. The development of an internal culture that favors CSR is one of the biggest challenges to corporate leadership. As indicated above, the notion of CSR is moving from purely philanthropic dimensions to strategic ones which encompass the involvement of CEOs and the board of directors in most companies. The CEO acts as the role model in terms of corporate values and as a consensus builder. CSR requires leadership that is distributed across all levels of the organization. Therefore, if the CEO hoards power, all such efforts are futile. At the same time however, the CEO’s personal leadership cannot solely cater to CSR. Hence, CSR requires a collaborative effort whereby each individual in the organization is focused at handling social responsibility. Aspiration for CSR comes from leadership that is based on these values. Hence, the internal communication pertaining to CSR values and policies by the CEO is one of the primary elements of successful CSR implementation. Although the CEOs may delegate CSR related tasks to those down the hierarchy, ultimately the responsibility of catering to social concerns rests with them. Perhaps the most important step towards this is defining what CSR means for the company and then putting the policies in place so that the objectives can be delivered. For successful implementation, the shareholders must be taken into confidence by the CEO and the CSR issue must be put on top of the board’s agenda. External CSR can only flourish if companies treat their internal stakeholders (such as employees) well. This is one of the reasons why a decentralized culture by the CEO is necessary for employee motivation to flourish and for true empowerment to take place. Furthermore, by setting the vision for the company the CEO may either promote or negate the significance of CSR. One such example is that of Apple that strongly rests on the pillars on its founder’s vision. Considering cut-throat competition by giants such as Samsung, Apple is now considering the incorporation of CSR which would involve the setting of a new vision ever since the demise of its founding father – Steve Jobs. Steve was never inclined towards acts of social welfare which was depicted in his vision19. His belief rested with the provision of cutting edge technology to the people which held greater worth than investing the same money in charity. Under the new leadership, however, the company is set to introduce a model of internal CSR including a “dollar for dollar match” of charitable donations made by the company’s workers20. Media research indicates that this strategy has been set in response to pressure by external groups21. This clearly indicates that different CEOs respond to environmental pressures differently. This has given birth to criticism with the media calling this strategy as a misfit in Apple’s previous culture. Therefore, changes in CSR strategy may follow leadership changes especially because each leader has a different vision and paradigm. It also shows how internal CSR is strongly linked to the internal corporate culture and that when one changes the other is inadvertently affected. The new CEO has effectively used this CSR strategy to shun previous practices such as constant hiring and firing of employees that created uncertainty in the organization. Strategies of this sort, therefore, create a greater sense of security, commitment and openness amongst employees. Motivated and satisfied employees, in turn, have greater incentive for external CSR for the same reason. Strategies such as these also help companies escape the negative publicity that surrounds corporate lawsuits. Apple, for instance, is in the middle of various patent lawsuits that could lower its image significantly if it loses. Legal victory is also not the answer for most multinationals since they often end up losing reputation than gaining it by doing so. Using child labor and the associated exploitative labor conditions also puts a question mark on the ethical side of these MNCs. In such situations, promoting CSR internally seems a viable option that enables the company stay intact and prevent labor turnover. Keeping in view the above discussion, CSR according to me is just another management fad that is deployed to boost profitability and reputation of the company. However, that does not mean that companies do not invest in CSR. I would encourage CSR in my company keeping in line with current market prices. However, CSR must not act as a mask for my company to veil hazardous activities such as child labor, oil spills, pollution etc. CSR must be an integral part of the firm’s value chain and should not just be limited to charities and donations. Practicing CSR involves not just doing good for the society but also preventing harm. True CSR is, therefore, not realized unless such a culture is cultivated in the corporation by top leadership. Each individual within the organization must be taken into confidence to undertake CSR activities, not just internally but also externally. This would involve using ‘green’ supply chain partners and investing in human resource development and empowerment. As far as CSR reporting is concerned, I personally prefer that it is necessary to devote a significant section of the company’s annual reports and web content to CSR. Bibliography 1 Christopher J. and S. Adam, op. cit., pp.24-34 2 D.S. Waller and R. Lanis, ‘Corporate Social Responsibility (CSR) Disclosure of Advertising Agencies’ . Journal of Advertising, vol. 38, 2009, pp.109-21 3 H, Christopher J. and S. Adam J., ‘MORE DISCLOSURE = BETTER CSR REPUTATION? AN EXAMINATION OF CSR REPUTATION LEADERS AND LAGGARDS IN THE GLOBAL OIL & GAS INDUSTRY’. Journal Of The Academy Of Business & Economics, vol. 12, 2012, pp. 24-34 4 Ibid., pp.109-21 5 Ibid., pp.109-21 6 Ibid., pp.109-21 7 Ibid., pp.109-21 8 Ibid., pp.109-21 9 Ibid., pp.24-34 10 Ibid., pp.24-34 11 Ibid., pp.24-34 12 Ibid., pp.24-34 13 M. Bradley, C.A. Schipani, A.K. Sundaram and J.P. Walsh, ‘The purposes and accountability of the corporation in contemporary society: Corporate governance at a crossroads’ . Law and Contemporary Problems, vol. 62 , 1999, pp.9-86 14 N. Bayoud and M. Kavanagh, ‘THE IMPORTANCE AND BENEFITS OF CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE IN THE LIBYAN CONTEXT: EVIDENCE FROM MANAGERS’. Global Conference On Business & Finance Proceedings 7, vol. 1, 2012, pp.84-95 15 R. Chun, ‘CORPORATE SOCIAL RESPONSIBILITY AT APPLE: CEO Tim Cook's greatest opportunity’, in IMD. October 2011, viewed on 29 March 2013, < http://www.imd.org/research/challenges/corporate-social-responsability-apple-opportunity-rosa-chun.cfm>. 16 R. Chun, ‘CORPORATE SOCIAL RESPONSIBILITY AT APPLE: CEO Tim Cook's greatest opportunity’, in IMD. October 2011, viewed on 29 March 2013, < http://www.imd.org/research/challenges/corporate-social-responsability-apple-opportunity-rosa-chun.cfm>. 17 R. Chun, ‘CORPORATE SOCIAL RESPONSIBILITY AT APPLE: CEO Tim Cook's greatest opportunity’, in IMD. October 2011, viewed on 29 March 2013, < http://www.imd.org/research/challenges/corporate-social-responsability-apple-opportunity-rosa-chun.cfm>. 18 S.C Chima, ‘Global medicine: Regulation of biomedical research in Africa’. British Medical Journal, vol. 332, 2006, p.848 19 Waller and Lanis, op. cit., pp.109-21 20 Williams and Mitchell, ‘Voluntary Environmental and Social Accounting Disclosure Practices in the Asia-Pacific Region: An International Empirical Test of Political Economy Theory’. The International Journal of Accounting, vol. 34, 1999, pp.209-38 Read More