A company must make a competitive return for its shareholders and treat its employees fairly. A company also has wider responsibilities. It should minimize any harm to the environment and work in ways that do not damage the communities in which it operates. This is known as corporate social responsibility. Bowen argued that corporate social responsibility rests on two premises: social contract, which is an implied set of rights and obligations that are inherent to social policy and assumed by business, and moral agent, which suggests that businesses have an obligation to act honorably and to reflect and enforce values that are consistent with those of society.
Companies that operate in a socially responsible way strengthen their reputations. In business, reputation is everything. It determines the extent to which customers want to buy from you, partners are willing to work with you and your standing in the community. Corporate Social Responsibility (CSR) is also known as corporate responsibility, corporate citizenship, responsible business, sustainable responsible business, or corporate social performance.
According to World Business Council for Sustainable Development (WBCSD), “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large”
Three Perspectives of Social Responsibility
The three perspectives of corporate social responsibility are economic responsibility, public responsibility, and social responsiveness. The three perspectives represent a continuum of commitment to social responsibility issues, ranging from economic responsibility at the low end and social responsiveness at the high end. The economic responsibility perspective argues that the only social responsibility of business is to maximize profits within the “rules of the game.” Moreover, the proponents of this viewpoint argue that organizations cannot be moral agents. Only individuals can be moral agents. In contrast, the public responsibility perspective argues that businesses should act in a way that is consistent with society’s view of responsible behavior, as well as with established laws and policy. Finally, the proponents of the social responsiveness perspective argue that businesses should proactively seek to contribute to society in a positive way. According to this view, organizations should develop an internal environment that encourages and supports ethical behavior at an individual level.
Different Approaches of CSR
The stockholder view is much narrower, and only views the stockholders (i.e., owners) of a firm. The stockholder view of the organization would tend to be aligned closer to the economic responsibility view of social responsibility. The stakeholder view of the organization argues that anyone who is affected by or can affect the activities of a firm has a legitimate “stake” in the firm. This could include a broad range of population. The stakeholder view can easily include actions that might be labeled public responsibility and social responsiveness.
Stakeholders are all those who are affected by or can affect the activities of an organization.
- Primary Stakeholders: The primary stakeholders of a firm are those who have a formal, official, or contractual relationship with the organization. They include owners (stockholders), employees, customers, and suppliers.
- Secondary Stakeholders: The secondary stakeholders of a firm are other societal groups that are affected by the activities of the firm. They include consumer groups, special interest groups, environmental groups, and society at large.
The globalization of the business environment has had a remarkable impact on issues of social responsibility. As organizations become involved in the international field, they often find that their stakeholder base becomes wider and more diverse. As a result, they must cope with social responsibility related issues across a broad range of cultural and geographic orientations.
The four strategies for social responsibility represent a range, with the reaction strategy on one end (i.e., do nothing) and the proaction strategy on the other end (do much). The defense and accommodation strategies are in the middle. Examples of firms that have pursued these strategies are as follows:
- Reaction: Over 40 years ago, the medical department of the Manville Corporation discovered evidence to suggest that asbestos inhalation causes a debilitating and often fatal lung disease. Rather than looking for ways to provide safer working conditions for company employees, the firm chose to conceal the evidence. It appears that tobacco companies have done the same thing.
- Defense: Over the years, rather than demonstrating social responsiveness in terms of air pollution reductions, vehicle safety, and gas shortages, the automobile companies did little to confront the problems head on. Currently, the high demand for pickup trucks and SUVs encourages the problem to continue.
- Accommodation: Many financial service companies, along with meeting the minimum requirements of disclosure regulations, maintain a more proactive code for voluntary, on-demand disclosure of bank information requested by customers or by any other member of the public.
- Proaction: Becton Dickinson & Company is a medical-supply firm that has targeted its charitable contributions to projects it believes “will help eliminate unnecessary suffering and death from disease around the world.” Similarly, Starbucks makes contributions to literacy programs and was one of the first companies to give health benefits to partners.
Examples of Corporate Social Responsibility
The meaning of corporate social responsibility has remained contentious over the years but there are types of corporate activities that have been singled out as major forms of social responsibility, they include:
- Choosing to operate on an ethical level that is higher than what law requires, indicates that a business entity is not tied by the law to offer certain standards but rather sees it as a responsibility to adhere to its own set quality standards and ethics. This reduces the level of government involvement in regulation to an observer and ultimately guarantees the quality provision of products to the consumers and reduces tensions and mistrust between the government and private organizations.
- Making contributions to civil and charitable organizations and non-profit institutions, most organizations in America and on a bigger scale all over the world contribute immensely to worthy causes in the society to improve reputations and also to be seen to contribute to the well being of the society; this is majorly a philanthropic gesture which could compound to a marketing strategy.
- Providing benefits for the employees and improving the quality of life in the workplace beyond economic and legal requirements, some organizations like Timberland are known to offer family-friendly programs like child care, flexible work programs, and even time off for volunteer work, this clearly indicates a shift from belief in the past when organizations would only offer this services simply because it is lawful to the modern-day belief in which it is out of responsibility and the fact that they feel owed by the society.
- Taking advantage of an economic opportunity that is judged to be less profitable but more socially desirable than some alternatives, this includes organizations shunning from some products simply because they are from endangered species like Home depot on wood and also paying more above-market rates to benefit and groom the sectors in poor countries like it is the case with Starbucks on coffee.
- Using corporate resources to operate a program that addresses some major social problems like improving working standards of employees, suppliers, and the immediate society; and giving donations of drugs, food, or any other product to the less developed countries, which may not bring in economic benefits to the corporations and may even involve sacrificing some profits but would contribute immensely to the betterment of the society.
Benefits of Corporate Social Responsibility
Corporate social responsibility has a lot of benefits to both the organization and the spheres of influence, the following are some of the benefits:
Human Resources
Good programs could be the main sources of recruitment and talent retention, with the current competition in the job market, favorable CSR program could contribute to successful recruitment and retention through improving the perception of a company among the staff mostly by involving them in the programs; this boosts the sense of ownership amongst the existing employees and provokes interest among potential or prospective employees.
Risk Management
Risk management constitutes a very vital component in development of any business entity, and could be used to build reputations which need to be guarded and protected from all forms of corruption and environmental accidents. A favorable CSR program could build up public confidence within and outside the corporations ultimately offsetting these risks. An example is Johnson and Johnson’s transparent handling of the crisis facing its Tylenol brand in 1982, the company went way above the expected recall capacity following a suspected poisoning incident; acting this way the company saved the brand and it has since remained to be a strong revenue earner for the company; a good CSR program or policy would be an effective means of protecting investments and maximizing its impact.
Brand Differentiation
Market places are currently crowded by suppliers of the same or even closely related products, implying that each supplier must have a marketing edge in order to maintain or improve on sales; a good and favorable CSR policy can play a very vital role in strengthening if not building consumer loyalty based on distinctive ethical values. CSR makes consumers feel appreciated and cared for and in most cases they are compelled to reciprocate by being loyal to the organizational products and activities. The modern marketplaces have been defined to be mature, efficient and highly selective, only the top most brands survive the longest in these markets; this implies that a brand differentiation is important in creating a competitive advantage. It could be argued that competitive advantage can be derived from numerous sources but a strategy that incorporates social responsibility is one of the surest ways especially in the modern global economy where differentiation of the companies along with its product from competitors is key. A good example is NIKE international which has established itself to be one of the most progressive global corporations in terms of CSR with a fully pledged secretariat and annual reports; through this it has achieved a lot in mitigating public opinion and established its brand as a representative of a much more committed corporate citizen.
License to Operate
Issues to do with taxation and meeting some certain laid down regulations can be challenging to organizations and if not well handled could pose a great interference in the running of organizations. It is with this in mind that most organizations would strive to take voluntary steps in view that this would persuade the governments and the entire public that they are taking issues such as health and safety, diversity or the environment seriously as good corporate citizens with respect to labor standards and impacts on the environment, ultimately being granted a clean bill of operation and good will from various spheres of influence.
Reduction in Cost through Recycling
A good implemented CSR policy would be in a position to help the business unit in tracing worth recycling products after consumption by the immediate society and an organization can easily craft means of collecting these wastes and recycling at a reduced cost other than buying the materials afresh.
Corporate Social Responsibility and Strategy Formulation
The tensions between corporate and societal interests is a hot topic of debate in them business literature under the heading of corporate social responsibility. The essential question is, do corporations have broader social responsibilities beyond their economic mandates? If they do, then how can these responsibilities be acknowledged and fulfilled through firm strategies? There are many opinions on these questions.
One dominant opinion holds that corporations are primarily economic entities whose sole purpose is to increase shareholder wealth by producing and selling goods needed by customers. This conception harbors a narrow economic view of a corporation’s responsibility to society. In contrast is the view that corporations have grown to such large size and complexity that they affect many non-economic aspects of society. These areas include health, politics, culture, and social relations. Therefore, corporations should be held responsible for these non-economic influences on society.
There is no unambiguous resolution of this debate. On the balance, however, it seems reasonable to expect businesses to be sensitive to the new demands placed on it by society and be responsive to them. It is also clear that the resolution of this debate depends largely on individual personal values.
In general, power and responsibility have a reciprocal relationship. The scope and power of corporations to influence all aspects of social life, and their symbiotic relationship to society, impose on corporations broad social responsibilities.