Corporate Social Responsibility
Winners and losers when a company embraces corporate social responsibility
TABLE OF CONTENTS
Name Executive Summary Aims & Objectives Literature Review
3.1. Introduction
3.1.1. What is Corporate Governance?
3.2. What is CSR and the origin of CSR
3.3. Principles of CSR
3.4. Importance of CSR
Analysis & Discussion
4.1. Drivers of CSR
4.2. CSR and Brands
4.3. CSR Reporting & its Standards
4.3.1. Drivers of CSR Reporting
4.3.2. Economic Dimensions of CSR reporting
4.3.3. Issues of CSR reporting
Future of CSR
Conclusions Recommendations References
1. EXECUTIVE SUMMARY
Corporate Social Responsibility has been a much debated and contested subject in business. This paper tries to address the ways in which current emphasis on corporate social responsibility has driven and still drives different organizations to adopt corporate social responsibility practices worldwide. The debate has however always been whether organizations follow CSR because they have a certain responsibility towards the environment they’re working for, or the motive behind their doing good to the society is essentially something else. For getting an in depth understanding of CSR, thorough research has been conducted through the literature till date. Thus this report explores an academic study and a robust understanding of CSR like what CSR means in different countries i.e. national and international as well as organizational contexts, what its underlying principles are, what are the drivers of CSR and how CSR is adopted in various organizations and eventually how CSR affects them. The aim of the report is to explore the different facets and perspectives of CSR rather than fathoming if CSR is right or wrong. This study would finally be able to give a clear understanding of the area and help anyone interested in CSR to make their minds as to what is good or bad about a particular approach. To achieve this, a number of organizations and their key personnel’s who have put efforts into developing and implementing CSR policies in their businesses are enlisted.
2. AIMS and OBJECTIVES
The aim of this report is to gain insight on the issue of Corporate Social Responsibility in the world of business today. The main objective of writing this report is to take the readers to a new platform where they are able to differentiate whether it is good or bad to incorporate and adopt corporate social responsibility and corporate sustainability as one of the key strategies in their business agenda. I am a qualified accountant in business and an expert in Finance and business management and have been approached to throw light on the research question posed. Corporate Social Responsibility is a subject of discussion throughout the globe as the world is run by different governments, big businesses and it is the responsibility of these entities to keep in mind the impact of their activities to their environment and the society. Many books, articles, journals have been written and conferences and debates held over the issue of corporate social responsibility.
This paper examines the benefits and disadvantages of corporate social responsibility by taking live examples from the corporate world. The other main objective of writing this paper is to make recommendations to new companies looking at adopting CSR according to their needs and requirements. The idea is to gain insight on the merits and demerits of CSR activities.
In this report we highlight:
Principles of Corporate Social Responsibility and its Reporting The development of CSR- How CSR has evolved over decades Live examples from the business world The future of CSR
The report is based on:
A detailed brief on the existing literature through books, journal articles, World Wide Web, articles, newspapers, reports and conference proceedings. We would discuss the role of government for helping improvising an environment for corporate social responsibility Internet-based research to identify concrete examples of initiatives by the government, entrepreneurs, Non-governmental organizations (NGOs), public sector officials and Institutions that set standards for corporate social responsibility and its reporting.
The kind of approach taken towards this study is qualitative and descriptive through the secondary data that has been sought and analyzed pertaining to the research question. A lot of publications had to be gone through from books to journals to newspapers to articles for the research as CSR is an enormous topic. This paper is a product and output of this research though a lot more could have been discussed and have written about but the word limit still remains deficient of the scope of the subject matter and also due to the constraint of time, I attempt to produce to you this paper in my own best possible way.
3. LITERATURE REVIEW
3.1. INTRODUCTION:
As the time is passing many companies are realizing the importance of maintaining ethical practice and following the accounting standards. In the recent past many companies have already come under the scanner and have been exposed for their unethical practices and lack of transparency in their accounting standards. One of the recent examples of a company coming under the ethical scandal is the case of Enron. According to Luo (2005), Epstein and Hanson, (2006) there have been an increased focus on the following the corporate governance practices due to these disclosures. The policy enforcing bodies have also become stricter and set more stringent rules for the policies that are being set henceforth. These standards are now enforced keeping in mind the demands for disclosure from all the stakeholders, government, shareholders, and other regulatory bodies. Efforts are being made to strengthen the corporate governance by focusing on the reporting mechanism, audits being conducted regularly and having regulatory bodies to inspect the follow-ups of company’s internal processes, work culture, managing the employees and their grievances, etc. According to the study by Carroll (1999) the term CSR is quite ‘elusive’ and in the words of Carroll “the term is a brilliant one; it means something, but not always the same thing, to everybody”
Most of the literature that has been available on corporate governance and CSR has treated both as separate topics for discussion. Both the topics are very much relevant to the multinational companies and are trying to pose challenges to the companies. Adhering to these standards is one of the most challenging experience for the multinational companies. Many studies are also done by the researchers like Rossouw, (2005); Kimber and Lipton, (2005); Wieland, (2005); Welford, (2007) who have indirectly tried to link the corporate governance and the CSR activities of the company. Some researchers like Ryan (2005) have suggested that the corporate reforms and restructuring are a part of the efforts of the companies to follow closely the business ethics and realize their social responsibilities. There have been different studies conducted by Rossouw, (2005); who suggest that the roles of socially responsible investors and shareholder activism and employee relations are all interlinked to the corporate governance and the CSR activities of the companies.
3.1.1. What is Corporate Governance?
There have been different interpretations of Corporate Governance among the companies. Over the years the meaning of the term corporate governance has widened and has covered a wider range of issues under it. According to Shleifer & Vishny (1997)
“Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. How do the suppliers of finance get managers to return some of the profits to them? How do they make sure that managers do not steal the capital they supply or invest it in bad projects? How do suppliers of finance control managers?”
A study by Luo (2005) and Monks & Minow (2004) have mentioned a list of people who are involved in the process and who would be affected by the company’s corporate governance and CSR activities. According to them it starts from the internal customers of the companies i.e. directors, managers, employees of the company followed by customers, shareholders, creditors, suppliers, regulatory bodies, etc. According to the study by Claessens (2003), Word Bank document, there are three different sets of relationships which the companies have to take care of. They are the relationship of the shareholders and creditors, relationship of the financial markets and the institutions and the relationship with the employees. According to Claessens the term Corporate Governance would also include the corporate social responsibilities and the cultural and the environmental aspects of the company.
The Ethical Investment Research Services, Maier (2005) has given a much broader definition of corporate governance which clearly shows the inclusion of Corporate Social Responsibility within the parameters of corporate governance.
“Corporate governance defines a set of relationships between a company’s management, its board, its shareholders and its stakeholders. It is the process by which directors and auditors manage their responsibilities towards shareholders and wider company stakeholders. For shareholders it can provide increased confidence of an equitable return on their investment. For company stakeholders it can provide an assurance that the company manages its impact on society and the environment in a responsible manner”.
Accoriding to the study conducted by Charkham (2005) the broadening of the term of Corporate governance has made the companies take notice of many factors within the company and the surrounding environment. The companies not only need to be profitable but also need to take care of the social and the ethical aspects followed with in the company. This has become more or less an obligation for the companies irrespective of it being labeled under the CSR activities or not.
Corporate Governance & Corporate Social Responsibility
There is some co-relation between the corporate governance and the CSR activities that a firm indulges in. As per the definitions that we have seen above, CSR is a part of the corporate governance policies of the company. But the extent to which the corporate governance and the corporate social responsibilities are related are dependent on the way these two terms are defined by any of the companies. There have been many interpretations of corporate governances and CSR among the corporate. So it’s necessary for the companies to have a clear understanding of both the terms and convey the same message across all the communication channels. However there is one common platform on which corporate governance and CSR meet. They both focus towards the ethical, social and environmental implications of the company’s policies and activities on the future activities. At present the attention of the companies towards these aspects are voluntary. The effect of the voluntary actions has been emphasized by Carroll (1999) in the study and the impact of ethical, social and environmental aspects on the business of the company.
The interlinking of corporate governance and CSR is also dependent on the scope that a company defines. In the opinion of Deakin & Hobbs (2007) the CSR is often limited to the external issues that the companies have to address. Most of these causes are the companies are focusing on are related to the ethical issues like fair trade, environmental problems, etc. However there are a few countries in which the internal aspects of CSR are also taken care of. As per the European Commission (2003), there are few countries which take care of the internal aspects like the working condition of the employees, their issues and concerns, rights of equality within the company, equal respect to the women employees, etc.
The companies need to focus on the internal and external aspects of the CSR activities and both together would come under the corporate governance policies of the company. It’s the company who needs to decide the scope of activities that it needs to indulge in. As per the study of Freeman & Reed (1983) the stakeholder’s perspective was included to help the companies decide the scope of involvement in the internal and external CSR activities and the responsibilities that the companies should undertake. Thus the companies need to go beyond the normal objective of just profit making and try to incorporate the interest of a larger audience. The companies are compelled to broaden their focus and look at the long term benefits of these activities. Thus, the companies are also considering the interest of the people other than the stockholders, therefore taking into view the demands of all the stakeholders of the company. According to Freeman (1984) the stakeholders have been defined as, “any group or individual who can affect or is affected by the achievement of the organization’s objectives”. Following the stakeholder’s perspective would increase the complexities for the companies. As the number of stakeholders increases, there are chances of conflicting interest and may pose challenges to the companies following this approach (Daily et al., 2003).
3.2. Definition : Corporate Social Responsibility
Corporate Social Responsibility (or CSR as we call it throughout the paper) is a concept that has become quite familiar in the world of business today. (Asongu, 2007)CSR has become a global phenomenon and an interesting topic which continues to grab the attraction of audiences across the world like writers, analysts, governments, think tanks, non-governmental organizations, many of whom believe that CSR is irrelevant to business through those like Milton Friedman (1970) who do realize its relevance but believe that it is bad for business, to the large number of authors who believe CSR is definitely of strategic importance to business.
CSR is one of the important principles on which modern business is built. We now-a-days hear that big companies are adopting a more socially responsible behavior towards the world around, their environment, i.e. the society at large. (2007, p. 122)In the view of Visser, Matten, Pohl & Tolhurst, the concept of CSR is another name held for the belief that the ever-growing numbers of citizens have towards modern businesses, they now believe that modern businesses have a responsibility towards the society that goes beyond their obligations of generating and maximizing profits for the shareholders or financers (investors) in the firm and this responsibility of businesses is towards the societal stakeholders, to typically include employees, consumers, the community at large, government and the natural environment. CSR is an idea that does apply to organizations of all size but the focus lies only on large organizations or corporations rather than small and middle-sized enterprises (SME’s) as large firms are more visible and have more power. With power come responsibility, and thus these large corporations do become more vulnerable to criticism.
(Hancock, 2005, p. 5) “CSR as defined by Nigel Griffiths, MP Parliamentary under Secretary of State for Construction, Small Business and Enterprise, is about the way businesses account of their economic, social, and environmental impacts in the way they operate- maximizing the benefits and minimizing the downsides”. Crowther & Aras (2008) believe that every corporation has a CSR policy which is accounted in their annual report giving details of their activities and even though anyone is able to recognize and differentiate between activities that are socially responsible and activities that are not socially responsible it is not necessary that each one of us would agree on what is socially responsible and what is not socially responsible, and although we all tend to recognize this, we still do not have a common definition for CSR. Thus there are different definitions to CSR in the globalised world, though a common definition in the words of Mallen Baker, a writer, commentator and strategic advisor on corporate social responsibility and chief executive of Business Respect is – ‘CSR is a way of self regulation adopted by companies through which they are able to have a positive impact on the society.’
Also known by terms like, Corporate Citizenship, Corporate Responsibility Sustainable Responsible Business (SRB) and Corporate Social Performance (CSP), CSR is a voluntary decision taken by corporations, it is integrated into the strategic model of business in the form a self regulating mechanism that lets them monitor and ensure their adherence to ethical standards, law and international norms. Fundamentally, CSR is governed by the Triple Bottom Line (TBL) i.e. People, Planet, and Profit. By incorporating CSR policies, businesses embrace their responsibility towards the environment, consumers, employees, stakeholders, suppliers, communities and the other members of the community, and contribute to their social obligations by promoting and encouraging community development and eliminating the practices that harm it.
(Baker) In the view of Baker, we would now look at what CSR is perceived as, by the different societies across the world. In the US, CSR is defined in terms of a philanthropic model. In Philippines, “CSR is about business giving back to the society”. The European model of CSR is more sustainable as it focuses on operating in a socially responsible way complemented by investment in communities. (2005, p. 7) According to Lord Tim Clement-Jones CBE, Chairman, DLA Upstream, there exist three views in which CSR is defined i.e. a skeptic view, a utopian view and a realist view. CSR is looked at critically in the skeptic view, Milton Friedman.
(Visser, Matten, Pohl, & Tolhurst, 2007) The most comprehensive definition of CSR is given by Archie Carroll (1979) which included: “the social responsibility of business encompasses the economic, legal, ethical and discretionary or philanthropic expectations that society has of business at a given point of time.” (Crane, Matten, & Spence, 2008)Whilst Carroll’s definition of CSR is arguably the most commonly cited definition, it remains contested, and the heterogeneity of CSR definitions has continued to be apparent. Thus different writers rather than defining CSR on the basis of responsibilities, seek to include definitions based on the different opinions on CSR evident. An example to include is a definition by Matten & Moon (2004a) which says that “CSR is a cluster concept which overlaps with such concepts as business ethics, corporate philanthropy, corporate citizenship, sustainability, and environmental responsibility. It is a dynamic and contestable concept that is embedded in each social, political, economic and institutional concept”.
Another very aptly put definition of CSR- (Visser, Matten, Pohl, & Tolhurst, 2007, p. 123) “CSR is all about performance in a variety of social and environmental topic areas that usually embrace issues such as philanthropy, diversity, socially responsible investing, human rights, business ethics, environment, workplace issues, sustainability, corporate governance and community development”.(More definitions are given in Appendix 1)
Origin and Growth of CSR
CSR has been around for 50 years now. Rather more pertinently, CSR has been there ever since commerce began. (Asongu, 2007) “While some authors do believe that CSR is a relatively new concept, CSR is perhaps as old as business itself and in some societies one cannot do without being socially responsible”. (Lord Tim Clement-Jones CBE, 2005) Though traditions of corporate philanthropy date back to the Victorian Era where Quaker companies like Cadbury’s, Rowntrees and Hershey’s always worked towards improving their employees’ standard of living along with developing the communities they lived. (Henriques, 2003) In the seventeenth century, the East India Company’s concerns about their excesses were also commonly expressed. Thus it is seen that CSR was carried out in a paternalistic form where it was initiated by the owners of the firms, while if we see today CSR is practiced by corporations that owned by the shareholders and run by employed managers.
Though CSR in not a new phenomenon, it has been under much retrospection over the last decade. Much has been talked about and written about CSR. We would be now taking a look at how the
Government’s Role in CSR:
(Visser, Matten, Pohl, & Tolhurst, 2007) CSR now-a-days is not only a topic for the business community, but the governments too are progressively getting involved in promoting and fostering CSR, like most notable UK government with its CSR Minister – Nigel Griffiths, and the European Union with its White Papers and the recent European alliance for CSR. As already earlier stated that CSR is fundamentally about good business, to achieve this bottom line it is the government that comes into the picture. (Hancock, 2005)In the view of John Hancock, “the role of the government is essentially to provide the right conditions and policy frameworks so that the contribution of business is maximized. This regulatory framework devised by the government forms the baseline for corporate behavior, while CSR is what companies adopt voluntarily to raise their performance beyond minimum legal standards. Therefore governments are those entities that set decent standards or codes of conduct while stimulating companies to raise their performance beyond those levels”. (2008, p. 11)For example, in issuing the US Apparel Code of Conduct, the US government provided a regulatory basis for CSR in overseas supply chains.
(Crane, Matten, & Spence, 2008, pp. 10,11) The other role of Governments or the public sector is itself being socially responsible in their undertakings. In most industrialized or developed countries, it is seen that governments are responsible for 40 to 50 per cent of the Gross Domestic Product (GDP) as governments in these countries still supply a large number of goods and services themselves. Furthermore, given the size of public bodies and their agencies, it is believed that the demands for CSR are more pronounced and are likely to have an impact on the society which is far greater than the impact of a large corporation. Thus accordingly governments are also expected to operate in a socially responsible manner as the corporations. More and more they’re also facing similar environmental as well as social demands for more responsible, accountable and transparent behavior. And hence many of CSR ideas have been developed and implemented by governments across the world. Thus there has been a steady rise in social reporting and auditing, by these public bodies. An example is of a publicly funded UK media organization, the BBC that now publishes an annual CSR report.
(2008, p. 11)Another role that governments are playing is that of multipartite initiatives to expand and extend CSR, such as the UN Global Compact, which is a set of principles issued by the United Nations for voluntary adoption by corporations globally. We would discuss about the role of UN Global Compact in detail later in this paper.
3.3. Principles of Corporate Social Responsibilities:
Many companies are adapting to the CSR idea and are involved in some activities that they consider to be CSR. However there has been a lot of uncertainty the has surrounded this term and its necessary to have a clear idea to be able to measure it later on. According to David Crowther & Guler Aras, there are three main principles of CSR. They are Sustainability, Accounting and Transparency.
Sustainability
As the word sustainability suggests, sustainability is all about the decisions taken at present in a company and its impact on the future. Sustainable development is both possible and desirable by most of the companies. So, firms should make a conscious effort to invest in technology and in development towards the society. As per the study by Zwetsloot (2003) every company needs to continuously invest in technology and be actively involved in continuous improvements and innovations to be able to have sustainable development.
A detailed study is done on sustainability and published in the Brundtland Report published in 1987. As per the Brundtland Report the sustainable development has been defined as
“Development which meets the needs of the present without compromising the ability of the future generations to meet their own needs.”
As per the Brundtland Report there have been other report formats also that have been developed and the concept of Triple Bottom Line has evolved from this report. Most of the companies now consider that focusing on the economic, social and environmental aspects is sufficient for the companies to sustain themselves. However, in the present scenario these three parameters under Triple Bottom Line are considered to be insufficient and are not accepted to be the only aspects to sustainable development. The study by David Crowther & Guler Aras has redefined the components of sustainability. First parameter is societal influence, which is defined as the measure of societal impact on the companies, stakeholders influence and their future actions. Second, is the environmental impact, which considers the influence of the company’s decisions and actions, taken at present on the surrounding environment. Third, is the Organizational culture, which is defined as the relationship of the company with its employees and other internal stakeholders. The fourth and final parameter that is used to ensure sustainability of the organization is the financial parameter. This is defined as the amount of return that the company generates for the investment that they have done and the risk taken by the company. All these parameters ensure a fine balance between sustainability and sustainable development of the company.
Accounting & Transparency
There is a great emphasis on the ethical aspects of the company and this in turn demands the company to be accountable to its internal customers i.e. employees, its external employees and the stakeholders. Businesses attempts to maximize profits as their first and foremost goal, however now days companies cannot just stop at that. They have to focus on the ethical and the social factors also equally and ensure the they maintain transparency in their accounting systems and the policies that they follow in the companies. According to the study by Crowther, David (2005) ethics is a natural and structured process of acting in line with the moral judgments’, standards and rules. As ethics is a very subjective topic is it difficult to define it accurately and its implication for each and every company could be different. Companies need to follow business ethics and need to maintain a certain standard, as the companies who don’t follow ethics and don’t maintain honesty would be far away from achieving their goal and keeping their stakeholders satisfied (Aras, 2006). Most of the consumers believe that the companies which maintain the ethical standards are having more open accounting standards and are transparent in their processes. Accountability of such companies is considered to be much higher than the other companies.
There are four main imperatives that the companies need to pursue while practicing the CSR. They are maintaining the minimum legal, economic, ethical and philanthropic aspects that are expected by the customers and stakeholder.
3.4. Importance of CSR
There has been extensive research on Corporate Social Responsibility and the all the aspects and roles where the organizations could be benefited. Many great scholars and researchers have quoted CSR to be one of the firm’s strategies to derive benefit from its customers, ultimately resulting into the gains or profits for the companies. In the opinion on Michael Porter (Michael E. Porter & Mark R. Kramer ,2002) CSR and related philanthropy is a major source of deriving competitive advantage from the consumers and finally helps the firm’s bottom line. Most of the researchers have felt that this link, could be helpful for the companies to make a positive impact on the customers, employees and suppliers to a certain extent. As per the study conducted by Daniel W. Greening & Daniel B. Turban, (2000), CSR could also help the companies to attract better and high quality talent as their future employees. According to Peter Navarro (1988), corporate indulge into CSR as a part of their brand building exercise, to increase its visibility in the eyes of the investors and other stakeholders, to appeal to a wider set of customers, to spread good will of their brand name in the market, etc. As the times have changed where all the stakeholders demand a greater amount of transparency and visibility in the system, most of the corporate have started becoming open about the CSR activities that they indulge in and advertise them too. This has helped the firms in gaining public attention and subsequently gains. The firm is undoubtedly benefited in one way or the other; however this is not the focus and the main reason why they should indulge in CSR. The firms should have strong faith in the act of doing well, not just for themselves and their immediate intermediaries but all the stakeholders of the firm. Evaluators should also consider the good that these firms are doing towards and society and not just focus on the profits incurred by the firms. Over the period of years all the organizations have realized the necessity of CSR being an integral part of their corporate philosophy. Many studies have supported and emphasized the role of CSR benefiting the company also though the focus of the company may just be to help the society at large.
4. ANALYSIS & DISCUSSION
Now that we are aware of the basic principles of CSR and its basis let us try to understand the basic drivers of CSR, for companies to adopt CSR practices.
4.1. Drivers of CSR:
The catalytic forces of the Exxon Valdez oil spill, Shell’s Brent Spar oil spill and (Reis, Dayr; Betton, John; Pena, Leticia, 2004, p. 5) the hanging of Ken Saro-Wiwa, the writer and champion of Ogoni rights in the Niger Delta were the main causes that ignited the Corporate Social Responsibility movement. The forces that are driving CSR today are essentially due to the overwhelming shift in the interaction of the state, the individuals, and the market. The core drivers of CSR are the growth in stakeholder expectations, the responsibility for the supply chains, the diminishing role of the state and the increasing pressure from the shareholders. (2004, p. 1) An article by Reis, Betton and Pena indicates that stakeholders of businesses that are affected by the management’s decisions have come into the mainstream by voicing their ever growing interest in the workings of the corporations and is forming different stakeholder groups which include employees, consumers, activists, community members, shareholders. Also chief executives and politicians both are recognizing that their good relations with their own as well as other countries would determine their future environment. They have realized the benefits of an open country and are thus involving stakeholders in its decision making process as well as are being accountable to them.
(Mr. Doug Miller, 1999) According to the survey by Environics’ Millennium on Corporate Social Responsibility conducted on approximately 25000 citizens from 23 different countries found that 20 per cent of consumers were content and suitably rewarded or fell short and therefore punished by the companies based on their perceived social performance, also the majority of them wanted that companies should highlight their social and environmental goals rather than their economic goals. (Ltd., 2001) It also reported that companies that did not address social responsibility held their market share at risk.
Another driver of CSR is the shrinking/diminishing role of the state, and it is also linked to the growth in stakeholder expectations. (Ayres, 1997)Political theorist Jeffrey Ayres comments “globalization, by weakening the powers and capacities of the state to intervene in traditional areas of social, political, economic, and cultural concern, has in turn reduced the attractiveness of the state as the locus for dissent”.
The basic drivers for propelling the CSR practice in the companies are as discussed below:
Maintaining Quality Employees:
It has become an essential factor for all the companies to retain their employees and maintain a certain quality of the employees. Most of the companies are finding it difficult to manage the attrition rate of their companies as employees are opting for companies that have better social visibility and are actively involved towards the betterment of the society. According to a survey reported in International Business Report (IBR) in 2008, most of the companies cited employee retention as one of the major drivers for CSR activities. The companies have indicated this factor as a driver for CSR across a wide range from 53% being the factor for countries in Hong Kong to 89% in the companies located at Denmark. While some employers in certain countries face the problem of skill shortage, while in other countries there is a major problem to retain the employees.
According to Moller, Jan Hetland from Grant Thornton, Denmark
“Business ethics is a key factor for recruitment and retention in Denmark’s tight labour market. Privately held businesses ignoring CSR issues are facing future skills shortages that will threaten their global competitiveness.”
Denmark is considered to have the lowest rate of unemployment.
Managing Cost:
It is necessary for every country to manage its expenses and try to reduce the costs whenever possible. One of the ways of keeping the company expenses in check is by maintaining good quality standards and following the standard operating procedures. In today’s competitive world managing the levels of carbon dioxide emission in the environment would also save a considerable cost to the country. More than 50 % of the countries responded this driver to be of foremost importance to indulge in CSR activities. More than eleven countries have rated cost management as the most important driver for CSR activities. Brazil and India are among the top two countries with 89% and 85% respectively for cost management as the most important driver.
Brand Building
Many companies believe that indulging in CSR activities would bring a lot of fame to the companies. This can go a long way in promoting a company’s brand name and thereby helping the company in brand building exercise. It has also been noted that the attitude of the people changes towards a company if it indulges in any CSR activities. 56% of the countries considered positive attitude and brand building to be an important driving factor for CSR. In some countries like Mexico and Greece, this is the driving factor for a company to indulge in CSR contributing to 85% to 89% while in countries like France this factor contributes to only 27% among the drivers. It is interesting to note that brand building is a drive which comes after employment and cost management for most of the companies. This implies that companies are moving towards ethical practices for employee welfare and cost management and giving more importance to these aspects than public image and brand building of the company. A contrasting factor is that as the companies expand and move towards global markets, brand name and public opinion would matter much more than for the smaller companies.
Tax benefits
Many countries believe in indulging in CSR activities for tax relief. Tax benefits were cited as the largest incentive any company could get in countries like Brazil and Vietnam. Many companies who would like to be publicly listed have to maintain transparency in their taxations and have standard employment practices. In Brazil this is prerequisite for any company to have public listing, which is desired by most of the companies.
Investor relations
Some countries consider maintaining investor relations as an equally important factor and in an effort to do so these companies comply by the ethical business practices. It has been seen that Vietnam is one of the countries which gives Investor relations considerable importance as compare to other countries. Most of the emerging countries like India, Philippines, Brazil, Turkey are giving importance to investor relations. About 60% to 70 % of the respondents in these countries consider it to be a driving factor for a company to invest in CSR activities. These countries believe that it’s the investors who would help the company to expand, would give the necessary boost to the company to compete with the competitors and to make necessary reforms in the company to meet the changing needs of the customers. However, this is not a very strong drivers for other countries that already have a established network and have managed their companies for a number of years. For the developed countries like Singapore, United States, countries of Europe and Japan this is a very mild factor and only 10 to 25% of the respondents of these countries have mentioned Investor relation to be a factor for the companies to indulge into CSR activities.
Government pressure
Many countries are realizing the importance of the pollution that is being caused by the companies and the amount of destruction that these countries are causing to the world and its environment. Government is also stepping in actively in many of the countries and is taking the initiative to reduce the carbon emission from the companies and involve themselves in activities that nullify their effect of carbon emission.
According to Dato’ Narendra Jasani from Grant Thornton, Malaysia
“Private businesses in Malaysia are being forced to change their products and services to reduce their environmental impact. Businesses satisfying the global demand for more ethical production and delivery are best placed to capture the rapidly growing market generated by discerning consumers and multinationals.”
Saving the environment was considered to be a driver in only the emerging countries like Brazil and India, where nearly 75 to 85% of the respondents mentioned this to be a factor. However in developed nations like United States only 21 % of the respondents mentioned the environment to be a driver. Government pressure to ensure the standards was the least motivating factor among all for the countries. Less than one third of the respondents of the developed countries mentioned government to be one of the factors for the CSR activities that the companies engage in. Though the impact of government pressure is less, it should try to increase its efforts to ensure that maximum companies comply with the standards and adopt the CSR activities.
Some of the causes in which companies commonly invest under CSR are as listed below
Donating to good causes Diversity/equality in the workplace Flexible working Waste management and energy efficiency Global Warming Animal adoption Children’s Hospitals Children in Need Arthritis
CSR Segmentation Map
According to an interesting report by Monitor (2001) on Corporate Social Responsibility, the CSR companies could be classified into two different categories according to the activists with two distinct opinions of looking at the corporate. The developed countries have higher inclination towards social and environmental causes and have taken many CSR initiatives. One group of people who belong to the Conventional Activists believe that every company should fulfill all their operational activities and responsibilities in their normal course of business like taking care of their employees, following processes that are environment friendly, etc. The other group of people i.e. Social Activists, believe that companies should go beyond their normal operational processes and should take active initiatives in social, environmental and ethical issues. For the social activists it’s much more than the operational responsibilities that the companies need to fulfill while for the traditional and conventional and traditional activists fulfilling the operational responsibilities is of utmost importance.
High expectation for operational responsibilities
Low expectation for operational responsibilities
High expectation for Citizenship Responsibilities
Low expectation for Citizenship Responsibilities
Traditional
Conventional
Social Activists
High level of Action
Low level of Action
4.1.1. Benefits corporate have over non-governmental organizations
Most of the researchers conclude that the corporate do get benefits from the CSR activities that they carry out. Irrespective of the objective that a company sets out for their CSR activity, they are bound to benefit and gain higher profits either directly or indirectly. Some companies may only take up CSR activities for the benefits of the society at large. One question that could arise in our minds could be – who exactly is the beneficiary of the CSR activity in the company. It could be the consumer, shareholder, employee or the top management or it could also be all of them. Let us now see the benefits that the corporate would gain and the competitive advantage that they garner by indulging in CSR activities.
Below, we consider several of the most important competitive advantages corporations are likely to have in the market for altruism: using economies of scope to lower costs of delivering public goods, bundling charitable and regular goods to reduce free riding, using diversification to tailor public good delivery to market demand, reducing agency costs through competitive pressures, and providing positive network externalities in warm glow.
Economies of Scope.
Most of the corporate try to offer better products and large bundle of benefits to the producer. Most of the corporate are already present in the business of that particular and have an established set up in terms of factory, supplies, manufacturers and the latest technology to develop the product. This helps the companies to have economies of scale and can offer the same product at a much more competitive price as compare to others who newly try to enter into this product or government organizations and non-profit organizations who don’t have prior experience in that product. The basic reason for this is that, companies that are already in the business of a certain product would have the expertise and could have higher efficiency for procuring the best raw materials and at the cheapest available price also greater efficiency would be maintained during the manufacturing process, better technology for packaging and other processes. Thus companies having higher efficiency would save a substantial amount during the manufacturing process. This benefit can be passes on to the consumers also. As per the study conducted by researchers, many of the corporate are already enjoying these benefits due to the economies of scope.
A very good example as cited by the researcher is the case of Starbucks. Starbucks already has a well established network and fleet of outlets through which they can offer coffee produced by the farmers in far-off places and in developing countries a fair chance to sell their products and follow all the Fair Trade standards. The premium that is charged by the consumers is utilized towards the development of the producers in every respect and provides them an opportunity to develop themselves, have better working conditions, avail the basic facilities for the production and develop schools and other educational institutions to increase the literacy levels of the people in the developing country. The premium that is offered to the producers and the minimum rate that the retailers agree upon to pay the produces as per the Fair Trade Standards would be much higher if offered by a brand that is already having its business in the same line of product than government or other non-profit organizations trying to help these producers. Starbucks would not need to invest any additional amount in setting up a distribution channel as they already have a very efficient distribution model in place. However some part of the premium that is collected by the government or other non-profit organizations would be needed for investing in the distribution channel. The premium that Starbucks are able to charge for such products is more than double that of their competitors. This benefit is directly passed on to the producers. This is one of the ways to motivate the farmers to work hard and produce better quality products with an incentive to receive welfare for themselves and the society around them in terms of better education, medical facilities, infrastructure, better quality raw materials and equipments to enrich their experience and improve their quality of life. Starbucks may or may not be earning any monetary profit by offering such products under their product range, but the good-will that they create thru such CSR activities in minds of the consumers and the ‘feel-good’ factor that they are able to generate in the minds of consumers, shareholders, employees and others by offering such products is immense. It’s only due to the economies of scale that they are able to facilitate the producers with an aid of such magnitude.
Bundling
Most of the corporate have the advantage of already having an established product line. The corporate can bundle two products or can offer two different services by combining both of them and this would result in benefiting the consumers as well as the producers.
The corporate bundle the products in such a way that they would be offering higher product values to the consumers at a lower price. If any consumer would have to buy the product individually they would have to pay much more than the amount that they pay as in the case of the bundled product. The bundling effect enables the consumers to indulge in some charity activity along with having their regular product and this combination turns out to be inexpensive for the consumers. Most of the companies follow one of the two strategies for bundling the product. They either bundle the products with low value to the products with higher value or bundle a subsidiary product to enhance the value of the main product. Companies generally bundle products with a very high demand and that with less demand together. This ensures that the products with low demand are also sold due to the demand for the other product. Consumers would opt for these bundled products as the overall cost to the consumers for a bundled product is much less than the individual prices of the products. Continuing with the Starbucks case, they offer a product complying with the Fair Trade standards. This product, offered at a premium to the consumers, apart from providing coffee of a different style also combines an opportunity for the consumers to donate towards the development of the underdeveloped. If any consumer would have tried to have both the products individually, it would have cost him much more. As suggested by Geo. L.J. (2005), the bundling effect enjoys the benefits that the companies derive due to economies of scope. Thus the consumers enjoy more of the services or products keeping the price as constant. From this it can also be inferred that bundling changes the relative price of the individual product.
Studies conducted by Henderson, M. T, et.al. (2009) indicates that it’s due to the economies of scope that the companies benefit so much and are able to pass on the benefits to the consumers. This is overall helping to reduce the free riding on other consumer’s contribution to the public good.
Diversification:
The corporate are generally have the tendency to follow consumer the consumer centric approach and make sure that the product is accepted by the consumers, if required by modifying the product and customizing it to suit their needs. This enables the companies to generate the required profits and sustain themselves amidst competition. The same policy is adopted by the companies in case of the CSR activities also. The non-profit organizations and government when indulging in CSR activities only focus on the good for the society and let go the profit that they could derive from their activities. Government and non-profit organizations, beyond a point cannot customize their products or diversify into other related products to serve the customer needs as they lack the experience that corporate would have. This would also ensure that the companies have a competitive advantage for these products over their counterparts. Also taking an early initiative for a certain product category would also ensure the company of the first mover’s advantage. Most of the companies can also choose from the cause that they would like to support and which would be closely related to the existing business line of the companies. There is a plethora of causes that could be supported. The researchers have indicated that most of the companies that indulge in CSR have taken up to support the causes like providing the basic facilities to the developing nations, basic infrastructure, medical aid, ensuring sufficient nutrition by providing quality food etc. The consumers also would get a larger choice of products to choose from as different companies are involved in different CSR activities. The company’s focus on these products just as they focus on any other product of their company. This focused approach ensures that the quality of the product offered does not suffer in any respect. The competition in these products among companies is also very healthy, ensuring that the consumers get the best of the products at competitive rates. As there are and more companies are entering into the CSR the companies would need to not just keep track of what they are offering the customers, but also of what they are unable to offer these customers. These products also compete among themselves for the market share and profitability of the company. If every firm decides to contribute in one way or the other by diversifying their product range a large number of products would be available to the customers to choose from and would do a lot of good to the overall society.
Agency Costs :
Most of the non-profit organizations and the charitable trust collect the donation amount from most of the donors and allocate a certain percentage of these funds for the general administration of the organization and the expenses of the employees. As these organizations are not oriented towards making profits from the services that they offer, these organizations are not self sustaining. So a part of the donations is naturally devoted towards their requirements. However in the case of profit making companies, they are already self sustaining and are not dependent on the sale and profits of the CSR activities to cover their daily expenses. Also as they are focusing on the profits that these activities generate, they are better equipped in sustaining themselves. Most of the customers and other stakeholders who invest in the development of the society would like the amount to be best utilized and be assured of it reaching the right hands. In case of the companies, they are already being scrutinized by different organizations and institutions for each and every activity they do. So, the CSR activities details would also be scrutinized and they would ensure that there is no lapse in the funds being utilized judiciously. The stakeholders and consumers can demand a number of requests for disclosures increase the transparency of the accounting system followed in the company. Such restrictions and demands cannot be made in the case of non profit organizations and government organizations. In case the companies do not follow the set standards, the company could get into many legal hassles. To avoid this most of the companies follow the accounting and reporting standards and maintain a high level of transparency in their records by having regular reporting and audits of their processes. As per the study by Theodor Baums et al. (1994) there are many reasons to choose the corporate.
Most of the nonprofit organization work with the objective of doing good to the public, but have been on the receiving end of a lot of criticism from all the direction due to lack of standard rules and regulations that are followed by them. Also according Ron, Nixon (2008) most of these charitable organizations lack accountability. Greenlee, Janet suggests that these organizations are not governed properly, which ultimately would be the reason for a lower amount of utilization of the funds towards the cause and more of it being wasted towards administrative and other expenses. As these intermediaries are reducing the benefit being transferred to the needy, the corporate channel is a much more efficient way of transferring the same in all respects. Thus, the corporate are a better choice to directly provide the benefits to the society than the charitable organizations.
Network Effect
Most of the corporate are already having a well established network and channel and could easily continue this CSR activity through the same channel. This would considerably reduce the investment that these companies would require for the distribution and to provide the necessary reach to the products. Companies can also take advantage of the scale of economies that they have and the wider access to the market that they could provide as compare to the charitable organizations. The companies could focus on improving their efficiency and profitability as they are disclosing their investments and returns and profitability of the activities in the reports that they generate periodically. This is one of the major incentives for the corporate to improve their existing processes, as the results are visible one and all.
4.2. Brands following CSR in practice
Many companies realizing the importance of CSR activities are indulging in CSR activities, not just as a side function, but have tried to make it an integral part of their business strategy and marketing campaigns. The companies have already taken up CSR initiatives on a large scale and have scaled substantial heights.
Many big brands are following the corporate and ethical practices. Let’s take an example of some of the famous brand names known all over the world, and understand the CSR practices that they follow. A cause supported by one of the MNCs is the monitoring of working conditions in factories in developing countries by clothing and footwear manufacturers. After negative press coverage exposed Nike’s use of factories with unsafe conditions and employment of children, consumers demanded better working conditions for workers in developing countries. 81 The government or nonprofits could have been used to satisfy this altruistic demand, but the most efficient mechanism for delivering this public good was through a for-profit corporation.
Many companies have altered their product offerings or innovated in such a way that the new product that is offered is more focused towards a sustainable environment. The hybrid car that is developed is an example of such innovation in the automobile industry.
The hybrid cars enjoy the benefits of economies of scope that the companies already have. As per the changing demand of the consumers with respect to the environment and the other social or cultural aspects, the company is customizing their products and is producing new and innovative designs that is more environment friendly and are more acceptable to the changing taste of the consumers.85 Hybrid car is a unique combination of bundling a fuel efficient car with appropriate investment by the company in technology and research work. Here the company uses the bundling of two services or products to maximize the benefit to the consumers and the company. The consumers can consider buying such products and donating a part of the amount towards the research and development activities. They benefit that the customer would get would be much more as the combined price of a hybrid car with fuel efficiency and donation towards the cause would be much more than the amount the consumer has paid for the bundled product. The premium that is charged for the hybrid car can be used for any cause, in this case being for research. This additional cost can be best utilized by the companies that are already into the field of manufacturing the cars, than the government or the charitable organizations, who would have to set up the facilities and make a lot of investments before being able to pass on the benefits to the producers. 89
CSR Initiatives by McDonalds
Many big brands have realized its responsibilities and have supported different causes under its CSR initiatives. Let’s see some of the brands and the CSR initiative taken by them. McDonalds is a very famous and well known brand name across the world and has taken several CSR initiatives. These initiatives have helped different causes in different ways.
Cause Promotion
Cause Related Marketing
Social Marketing
Corporate Philosophy
Community Volunteering
Socially Responsible Business Practices
Description
Supporting social cause through promotions, to raise funds increase awareness, volunteering
Donating a percentage of revenues to a specific cause, based on product sales
Supporting
behavior change campaigns
Making direct contribution to a charity or cause
Providing voluntary services in the community
Adapting and conduction discretionary business practices and investments that supports social causes
Example
McDonalds sponsored the Olympic Youth Camp program held in 2000 in Sydney, Australia
McDonalds earmarked 1$ for children’s causes from sale of Big Macs and other items on World Children’s Day, November 20, 2002
McDonalds promoted timely childhood immunization
Ronald McDonald House offers places to stay for families with seriously ill children
McDonalds provided means for professionals and volunteers on September 11 disaster site
McDonalds changed to recycled- content packaging and reduced packaging material
* Source: Kotler, P., & Lee, N. (2005), “Corporate Social Responsibility-Doing the Most Good for Your Company and Your Cause”.
4.3. CSR Reporting and its Standards
The essence of responsibility is accountability or reporting. CSR reporting practices are more prevalent in countries like Japan and UK
As we have already discussed the nature of CSR and how it can prove to be profitable for businesses, we would now be discussing the most important part of forming an effective CSR strategy. Though companies today are aware of the fact that they should start acting on their CSR agenda, still a number of questions like what should companies decide to do and what approach to take for the development of an effective social responsibility strategy, leaves them perplexed.
CSR has been developing at a fast pace and along with it are the increasing number of frameworks and codes that surround it. These frameworks and codes have delivered a variety of guidelines and approaches that are different for the diverse businesses operating in the globalized world. On one level, there is a proliferation of individual company codes of conduct and company value statements which outline the standards of functioning for their employees as well as suppliers, while on a broader level, there is an assortment of external auditable standards which allows companies to counter and gauge their commitment to social and environmental responsibilities.
There is a rise in the various governmental as well as non-governmental organizations (NGO’s) along with businesses that have constructed a series of frameworks or guidelines that companies can follow to seek, and measure their commitment to socially responsible business practices.
This section focuses on the different types of codes and guidelines for developing CSR strategies. (Leipziger, 2003, p. 36)In his book, The Corporate Responsibility Code Book, Leipziger has identified a scale within the CSR field that runs from values and principles to codes of conduct and norms to standards. Values and principles are the internal character of an organization that determines and gauges its workings while codes of conduct provide a set of rules of the action and behavior which are scrutinized internally in an organization. (Burchell, 2008, p. 120) ‘In contrast to both values and principles and codes of conduct, standards have a far more expansive purpose applying broadly across geographic regions and industry sectors. In this way they are not solely the realm of an individual company or indeed the business sector itself, but become a more broad-ranging, consensual multi-stakeholder process’.
We would first be looking at what Codes of Conduct are and what their main purpose is. Codes of Conduct are essentially guidelines to the internal stakeholders of a firm which clearly define what the
