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It is common
knowledge that some companies are more attentive to social responsibility than
others, but does that give them any advantage over their rivals? In order to
answer that question we need to have a look at the importance that corporate social
responsibility plays today in modern business.

The first thing
to understand is what Corporate Social Responsibility (CSR) is. According to
Cambridge online dictionary CSR is ‘the idea that a company should be
interested in and willing to help society and the environment as well as be
concerned about the products and profits it makes’. In other words CSR is the
responsibility of an organization for the impacts of its decisions and
activities on society, the environment, the planet, as well as its own
prosperity and profit.

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The idea of CSR
was introduced  as early as 1942 by Peter
Drucker, who believed that companies should pay attention to social aspects
apart from financial ones. During the late 1960’s and 1970’s, CSR came forth as
a top management concern in both the United States and in Europe, during the
1980’s CSR gradually  weakened its
importance only to top the agenda again in the late 1990’s. In 1998 western
advises emphasized that “because of the forces at work, building deeper and
more strategic relationships with customers, suppliers, employees, communities
and other stakeholders (the corporate eco-system) can become central to competitiveness
and even survival…this brings us to the increased importance of CSR” (Palazzi
and Starcher, 1998).

Research reports
that not only altruism motivates corporations to pay attention to social
responsibility, but also financial reasons. There is evidence to indicate that strong
commitment to ethical values is dictated to companies by current trends in
business. For example making ethical choices may result in better reputation
for a company than unethical ones. It is only natural that well-being of
company’s staff means lower stress for the management and other employees.
There is even a viewpoint that ethical behaviour enhances leadership.
Furthermore, when it comes to social responsibility, businesses should take
into account not only the needs of their stockholders, but also the needs of society
as a whole because consequences of ignoring rules and regulations, or causing
damage to the environment, may prove to be more damaging than following them in
the first place. But does all this prove that ethical companies have been shown
to be more profitable?  

Various surveys
found that social responsibility gathers ‘greater legitimacy for the
organisation and enhanced ethical congruence with stakeholder expectations’
(Wood, 1991; Zenisek, 1979). If CSR activities are developed and implemented
strategically, they can improve business and community conditions (i.e.,
enhanced corporate reputation, reduced risk, better stakeholder relations) by
‘…focusing on the achievement of both corporate and social goals and
recognising the broad groups to which business has an obligation’ (McAlister et
al., 2005: 4).

There is
increasing evidence that provision of more socially oriented job and better
life quality both have a direct influence on financial results as this means
that the staff gives the company more productivity, innovation, quality and
reliability, as well as more competence and commitment at all levels. “The 2011
Deloitte Volunteer IMPACT Survey showed a direct correlation between volunteer
efforts and employee satisfaction” (Lowery, 2012).

By way of example
it is a good idea to have a look at Google.Lately, Google has topped the Global
CSR reputation rankings due to their commitment to the greater good and
positive view on ethical and moral values and, most importantly,  environmental responsibility. “Google’s
reputation as one of the top 100 places to work is bolstered by their
reputation as one of the premier socially conscious organizations; it’s no
wonder 20 percent of millennials say they want to work at Google” (Moldavskiy,
2016).  It is also needless to say that
Google is one of the most successful modern organisations which only proves the
correlation between their SCR policy and their success.

There is also
growing evidence that companies which pay greater attention to environment also
are able to show better financial results to their shareholders.  For
example, general Motors must satisfy communities’ interests in the
sustainability and minimization of the environmental impact of the business.
Satisfying such interests contributes to General Motors’ fulfilment of its
corporate responsibilities, leading to the achievement of corporate
citizenship. “General Motors is a major firm in the global market whose approach
involves sustainability programs that address relevant concerns regarding the
environmental impact of their operations. The resulting unified corporate
social responsibility strategy facilitates GM’s corporate citizenship through
suitable programs that benefit stakeholders and the business alike” (Meyer,
2017).

It goes without
saying that a company’s welfare is closely connected with the wellbeing of the
surrounding society. Community-oriented organisations cannot meet their financial
goals in locations where the society has a low quality of life. This means that
such problems as drug abuse, poverty, crime, low-standard education and unemployment
can have a huge and dramatic effect on business. Traditionally these problems
were considered to be solely the responsibility of the government. Modern business
environment has changed that and today CEOs of large organisations are faced
with the necessity to address these problems in order to improve their business.
 

There is
increasing evidence that SCR has a positive impact on financial results. By way
of example we could name the prices of the shares of companies with high level
of social responsibility. “The “Domini 400 Social Index” is an index
of the share prices of 400 common stocks of American companies which were
chosen based on their performance on environmental and social performance
screens” (Palazzi and Starcher, 1998).

The Havas Media
Lab conducted a study to identify the companies with
the most meaningful CSR. Havas Media then used the results of that study to create The Meaningful Brand
Index (MBi). ‘The study found a direct correlation between brands’ MBi scores,
and how attached consumers are to those brands’ (Meyer, 2017). Therefore it is
clear that organisations which focus on identifying the needs of their customers
are much more profitable.

According to Armand Feigenbaum, the developer of “Total Quality
Control” concept, “companies which have successful quality programmes have
a 10% cost advantage over competitors: fewer defects mean less rework and
wasted management time, lower costs, and higher customer retention” (Feigenbaum,
2009).  It looks like market leaders in
quality customer management are growing with a faster pace than companies that don’t
take this aspect of business into account which definitely proves that quality relationships
with customers directly influence the return on investment and the company’s market
share.

Another popular
opinion is that Corporate Social Responsibility is a waste of time and effort
for modern business. In order to understand what that belief is based on we
need to try to find out any negative impacts of CSR on organisations, as well
as any cases of low level of CSR within large businesses.  

According to The
Harris Poll 2017 Reputation Quotient, top 10 socially responsible companies
are: Wegmans, Publix Super Markets, Amazon.com, Tesla Motors, USAA, Lowe’s, UPS,
L.L. Bean, Walt Disney Company, Whole Foods Market. The bottom 10 socially
responsible companies are: AIG, Bank of America, Volkswagen Group, ExxonMobil,
BP, Takata, Halliburton, Goldman Sachs, Wells Fargo & Company, Monsanto. As
can be seen from the rankings, the world’s market leaders can be found both at
the top and at the bottom. Does that mean that CSR really doesn’t play any role
in modern business after all?

Of course, one
of the issues connected with social responsibility is whether CSR has a negative
impact on a company’s economic performance. Although previous research
demonstrates at least a modest correlation between CSR and firm profitability (Orlitzky, Schmidt, and Rynes
2003), marketing research in the CSR field reveals that the influence of
CSR activities on consumer behavior is complex. For example, mediators such as
consumer trust (e.g., Castaldo
et al. 2009; Pivato, Misani, and Tencati 2008) and attributions (e.g.,
Ellen, Webb, and Mohr 2006) are important elements behind consumer support for
firms that engage in CSR activities. (Peloza and Shang (2011) propose that stakeholders’
reactions to CSR activities vary because different activities provide different
sources of value for stakeholders. For example, a CSR activity can create
other-oriented and/or self-oriented value depending on whether the value is
related to some relevant other or whether value directly benefits the self. A
company’s charitable donation can enhance other-oriented value while a hybrid
vehicle can enhance both other and self-oriented value.

Surprising as it
may seem, although consumers claim that they are willing to pay premium price
for fair-trade coffee (De
Pelsmacker, Driesen, and Rayp 2005) – seemingly because they identify
with fair trade organizations and what they stand for – sales of fair trade
coffee suggest that many of these same consumers do not choose fair trade when
purchasing. Obermiller’s finding of expected inferior taste of fair trade
coffee suggests that consumers view other-oriented value (i.e., subsistence
pricing paid to farmers) as created at the expense of self-oriented value
(i.e., taste). Previous findings that CSR attributes can lead to consumer
aversion are extended here and are labeled as the backfire effect of CSR
activities. The backfire effect occurs when consumers support a CSR activity
and identify with the firm behind the activity, but avoid the firm’s products
because of that CSR activity (Obermiller, Burke, Talbott and Green, 2009).

On the negative
side of CSR its impact on Shareholder Interests can be named. Corporate social
responsibility usually means changes to a number of processes in company’s
operations. For instance, businesses may need to hire additional staff to be in
charge of CSR activities. This requires extra cost, and here it is important to
understand that those extra costs are
paid with the money coming from the shareholders.

Another drawback
of CSR is that sometimes it can have a negative influence on corporate
reputation. While many organisations follow CSR practices in order to improve
their public image and their goodwill, these practices may sometimes require publishing
of information which may lead to an effect of an opposite nature. For instance,
in 2003, as part of its CSR policy, Coca-Cola decided to publish a report about
chemicals found in its products. ‘This report had an immediate short-term
negative effects on the company’s revenue, according to a peer-reviewed article
published in the Utrecht Law Review, with sales
dropping by 40 percent in the two-week period following the report’ (Evans,
2017.)

Customer
Cynicism

One more
possible negative side of the CSR is customer reaction. Some businesses
recognize that socially responsible behavior has a positive effect on their
customers’ opinions of the organization. After years of hearing how their
favorite businesses care about society and the environment, but seeing little
obvious involvement from these organizations, many customers have grown cynical
of CSR reports. According to business watchdog agency CorporateWatch.org,
consumers often see CSR announcements as little more than PR initiatives. For this
reason, businesses often face a considerable obstacle convincing their
customers that their actions match their stated intentions.

Competitive
Disadvantages

Corporate social
responsibility projects and initiatives require a shift in thinking for many
businesses, and some CSR processes can make the business more cumbersome to operate. Wal-Mart
subjects its suppliers to strict regulations on product quality and employee
working conditions, for example, which add production time and increase
overhead for the suppliers. Their competitors, meanwhile, can operate at lower
costs and turn out products more quickly.

The basic reason
why a business is formulated is to make a profit. Corporate social
responsibility insists on a corporation to make an effort to look out for
stakeholders who are not shareholders only, but who have an interest on what an
organization does and the outcomes of what it does. Despite of that, its not
totally the duty of the corporation to look out for the many people who hold an
interst in the companys activities. If the operations of the free market don’t
solve the social problem, it is the duty of the government and not the
businesses, to address the many issues faced by the society.

Some businesses
are just not prepared to deal with social issues. The lack of preparations of a
particular business to deal with societal issues needs the managers to be
trained and well versed in dealing with the complex issues that many societies
face, as this will give them the skills and the knowledge to be prepared to do
so.

It is a cost to
the business to handle social issues in the society. In order to bear with the
cost of handling the business, the business will lose its competitive position
that it holds in the market as it will have to absorb the added cost. It is
important in a global competitive market because if corporations in a
particular country use their assets and resources to address social issues in a
particular country alone, then the businesses that do not do so, gain a slight
competitive advantage over their international rivals in other countries.

The general view
of this argument suggests that corporations are not meant to take care of the
problems that are being faced by the society. It suggests that it isn’t their
duty and its also because most organizations around the world are ill equipped
to deal with such situations. It suggests that businesses should stick to their
core duty of making goods and providing services that are of the good quality
and that are affordable to the people who consume them.

The positive
aspects of corporate social responsibility

It makes the
corporations involve other stakeholders in the decision making process of the
organization. The development of corporate social responsibility has motivated
the corporations to involve and encourage other stakeholders to assist the
corporation in making decisions, especially those that affect the social well
being of the society at large. The corporations are making an effort to make
the stakeholders aware of their decisions and how they might affect the society
as well as the environment.

There are
several advantages that businesses have experienced by choosing the CSR
approach. Some of these are:

Reduction of
costs-

Corporate social
responsibility is known to reduce the gap between the corporations and its
stakeholders. This is because a form of trust is created between the
organization and all those that are affected by it. This happens because
communication is improved and it improves the flow of information leading to
greater efficiency at the work place, leading to reduction in costly conflicts
and improved decision making. Because CSR policies involve other stakeholders
in the decision making and not the shareholders alone, it can thus help avoid
costly delays that affect the company by reducing the decision making time.

Improvement in
the financial performance-

Though it has
never been proved if there is a correlation between the two, many corporations
as well as a number of studies over the years have reported and suggested that
they have greatly experienced a rise in financial performance by using the CSR
approach, and they believe that a link does exist.

 

Improved
credibility of the public-

The introduction
of CSR policies means that companies have increased their effort to provide
credible, verifiable and easily accessed information to the public and this
vastly improves the credibility of the company as it creates a trust between
the stakeholders and the organization. At the same time, the public reporting
of achievements as well as failures means companies gain a reputation of
honesty within the stakeholders, as they feel they have been involved. It
ensures the stakeholders that there are enough measures taken by the
corporation to ensure accountability and transparency.

Identifies
liabilities earlier-

The free flow of
information that is associated with the corporate social responsibility, helps
identify liabilities early as there is a free flow of strategic information
between the management and the stakeholders, meaning important information is
not with held, as there is a level of trust that has been built by the
management with the employees as well as other stakeholders. This ensures that
the corporation has an opportunity to resolve the problem at an earlier stage,
which would vastly help reducing public humiliation of the company. some of
these issues are like: hazards the company might be causing to the environment;
discrimination of women at work; sexual harassment; unethical recruitment
procedures, and so on. This helps companies avoid unnecessary law suits that
could be costly to the company.

An improvement
in the relationship with the stakeholders-

There is a
general sense of improved confidence and trust among stakeholders when
companies start being accountable and they public disclose their decisions,
successes as well as losses that they face. The act of including and
considering stakeholders in the decision making process generally improves the
confidence of the stakeholders on the corporations decisions. This engagement
helps companies understand how community groups and other stakeholders perceive
them, and educate them about further issues and concerns that may affect their
operations.

Increases the
attractiveness to investors-

Some investors
not only look at the profit making capability of the corporation. They look at
what the company brings to their portfolio; something which they already don’t
have. The inclusion of a socially responsible company in the portfolio of an
investor would greatly improve the public credibility of all the other
companies that are owned by the investor. This would mean that the public
credibility would improve for the investor as well as all his other
investments.

Decreased risk
of negative publicity-

Companies that
have already set themselves as responsible citizens have a lower risk to
negative publicity as they have already established themselves as organizations
that believe in accountability and transparency, and have created a name for
them as being responsible for their actions in the society. Because of the free
flow of information, decisions made will be communicated well throughout the
organization, and stakeholders will also have a hand in making some decisions
and because of this reason the corporation avoids unnecessary boycotts
organized by special stakeholder groups.

Advantages in the market-

Because corporations
are determined to be accountable, this can make entry into markets fairly easy
and corporations can easily establish themselves in the market by having direct
relationships with the key stakeholders of the company that is the consumers.
This can help companies to easily establish themselves in the market due to the
relationships established with the various stakeholders.

The stakeholder
concept

Stakeholders are
all groups of people who have an interest in the company. Some stakeholders may
have legal rights and expectations in regard to the operations. Examples of
these are employees and owners. Others have moral rights as to how the company
operates. Examples are like environmental groups who may check how the
organization uses natural resources. Their interest is if the company is
utilizing the resources well and doesn’t waste them, or how the company
disposes its waste. All these are groups who have different interests from the
company.

Corporations
have multiple stakeholders. They are classified into primary and secondary
stakeholders. Primary stakeholders are the ones that have a direct interest in
the company. These are the shareholders, employees, business partners,
customers, communities and so on.

Secondary
stakeholders are public or special interest groups that do not have a direct
interest in the organization but are still affected by the operations of the
company. These are the regulatory bodies, special interest groups, civic
institutions and groups, and the local, state and the federal governments.

The owners are
the primary stakeholders. The organization has legal and moral obligations to
the shareholders, of which is to ensure adequate return on investment among
many other things.

 

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