Introduction
In recent years, the term social corporate responsibility (CSR) has captured the minds of many people. It refers to the activities of corporations in giving back to the society. However, as CSR is being integrated into organizations, the debate on its concepts intensifies. As viewed in different studies, CSR is concerned about legal obligations of companies, which are directed towards the both the environment and society. Because of this fact, there are a number of measures, which are implemented to create an environment that is adaptive to enterprises (European Union, 2011).
As indicated in the European Union (2011) website, CSR not only emphasizes on legal activities, but it is a concept that can be used to influence the a company’s business and the market in general. For instance, companies that are socially responsible are able to understand various buying behaviors of consumers. In fact, proper research on CSR and how it influences new markets has helped many marketers and managers who are sustainable in nature to assess and adapt marketing strategies that are based on CSR.
Therefore, it is proper to argue that CSR can be employed as a driving force for the development of new markets and other opportunities that companies can use for their growth. Proper addressing of social responsibility will enable organizations to create long term customer, employee and citizen loyalty, which is the basis for sustainable business model. This concept also brings about high levels of trust, which allows companies to innovate as well as grow in a certain environment. Referring to the EU as a form of society, corporate social responsibility helps companies to significantly contribute to sustainable development objectives and the economy of a highly competitive social market (Tajani, 2012, p.22).
According to Carroll (1991), the past 30 years have seen corporate executives struggling with issues of the companies responsibilities to its society. Earlier, a number of corporations came up with the notion that, the sole responsibility of the corporation is to maximize the shareholders’ returns. However, this notion became apparent to almost everyone that this financial gain was required to gather a place with the laws of the land. Some of the important bodies that have ensured the implementation of CSR include OSHA (Occupational Safety and Health Administration) and EPA (Environmental Protection Agency) and the Equal Employment Opportunity Commission (EEOC).
Considering these issues, this paper critically evaluates the nature of CSR as far as new market and business strategies are concerned. It is essential to note that, even though CSR is recommended for what it stands for, when it is enforced or implemented ahead of business aspects such quality and functionality, it will have an undesirable impact on both the business and the market. This paper focuses on both sides of CSR.
Definition of terms
CSR
A definition provided by the European Commission describes Corporate Social Responsibility (CSR) as a concept which is used by companies to incorporate ecological and social concerns in their operations, as well as their interactions with stakeholders (European Union, 2011). Despite that, Smith (2011, p.3) argues that, the notion of corporate social responsibility has been advocated for centuries, and is constantly being employed by companies all over the world. Nonetheless, there is no universal agreement on how CSR should be defined while its implementation still remains a continuous debate among, business, academia and the society. This lack of proper definition brings about many problems for corporations since they are increasingly required to align with the norms of the society and, at the same time, generate revenues.
The same concept has been shared by Dahlsrud (2006, p.4) who argues that, even though numerous efforts to ensure there is a clear and unbiased definition of CSR, confusion still remains on how CSR should be defined. However, to launch a proper discussion on the topic in this paper, it is proper to use Carroll’s (1991) definition. According to Carroll (1991), a number of scholars have strived to establish an agreeable definition for corporate social responsibility for the last 30 years. One of these scholars is Keith Davis, who, in 1960, defined social responsibility as “decisions and actions a business take for reasons that go beyond the business’s direct economic and technical interests” (Carroll, 1991).
Almost at the same time, Eells and Walton (1961) came up with an argument providing that CSR identifies the “problems that arise when enterprises casts their shadow on the social scene as well as the ethical principles, which governs the relationship between the company and the society” (Morgan, 2011). While these definitions use different terms, they provide a ground on which a proper definition of CSR is provided. In this case, CSR is defined as a “business system, which enables the production and distribution of wealth to benefit stakeholders by implementing and integrating ethical systems and management practices that are sustainable” (Smith, 2011, p.3).
Internal Stakeholders and External Stakeholders
Internal stakeholders may comprise of employees, owners and managers while external stakeholders are individuals and entities that exist outside of the environment (Morgan, 2011). Such stakeholders involve investors like banks, shareholders and other financial companies. In some cases, customers and suppliers are regarded as potential external stakeholders.
The Link between Stakeholders and CSR
As argued by Sun and Yuan (2010, p.166), corporates performs corporate social responsibility for the interest and maintenance of stakeholders. The expected returns of stakeholders make them pay attention as well as do their own effort to the long term financial targets in unique ways. In this case, the enterprise is able to obtain long term stable cash flow from the assistance of stakeholders. This concept is achieved with lower operating and financing risks while comprehensive cost of capital is also low (Sun and Yuan, 2010, p.166). The link between corporate social responsibility and stakeholders helps the company to create cash inflow, which enhances the value of the company.
In their view about the missing link between CSR and financial performance, Peloza and Papania (2008, p.169) assert that, considering the action of a company, different stakeholders may have different opinions on what being socially responsible means. In their argument, Peloza and Papania (2008, p.169) provide that, the universal measures are inadequate since they fail to consider the variety of preferences of a range of stakeholders of a firm. This concept is essential since the stakeholders’ valuation of a company as well as its activities influence the share price of the company, support from its consumers, employees’ loyalty and attention that are directed to the company by the media (Morgan, 2011).
According to Tokoro (2007, p.147), CSR provides theoretical support required to transform the management of businesses. Since shareholders are the main stakeholders in a company, they want profitable returns from what they have invested, which brings about the need for high profits, share prices and growth. However, if high profits are not achieved, shareholders seem to put pressure on the company management or simply, they sell their shares. In other words, shareholders’ actions contribute to restrictive factors on the activities of a corporation (Tokoro, 2007, p.150).
Despite that, there are some activities, which have been taken by shareholders in CSR context. This concept is well illustrated by examining the role of social responsibility investment (SRI) funds. SRI funds employs approach to investment, which involves taking environmental and social factors into consideration as well as the financial performance of a company when they select a company they want to invest (Tokoro, 2007, p.150). These funds are used to maintain a strong position among institutional investors like pension funds in the US and Europe (Tokoro, 2007, p.150). Regarding this concept, it is essential to provide that the SRI funds requests firms where it invests to act according to the environmental and social concerns, which are essential to shareholders. This means, shareholders use their rights like the right to make decisions to implement motions, as well as have the lawsuit brought on their behalf. When these options are considered, stakeholders are viewed as a restrictive factor to CSR (Morgan, 2011).
CSR Background
As Marewijk (2003, p.96) asserts, the past eras have indicated acts of fairness, charity, and stewardship like the medieval chivalry and pricing scholastic view, the aristocracy’s noblesse force, the contemporary ways of companies sponsoring sports, arts, neighborhood development and the early 20th century paternalistic industrialists. However, the CSR background is offered by different scholars in different approaches, with each not only including but also transcending the other one and in the process providing their responses to the question to which an organization is responsible.
In 2000, Quazi and O’Brien used the shareholders’ approach to formulate a classical view of CSR (Tench and Yeomans, 2009, p.108). In their view, Quazi and O’Brien provide that social responsibility of an organization is to increase its profits, a concept that was put forward in 1962 by Milton Friedman (Marewijk, 2003, p.96). Milton Friedman (1970) provides that, the shareholder, in his pursuit of profit maximization, becomes the focal point of a company and responsible activities that are socially responsible do not belong to the organization domain but are regarded a major governmental task.
Friedman’s approach can be interpreted as the business being concerned with CSR to an extent that CSR will contribute to the objective of the business, which is the creation of long term value for the business owner (Marewijk, 2003, p.96). The other approach, which has been studied through the history of CSR, is the stakeholders’ approach, which was also developed by Milton Friedman in 1984. In this view, Friedman provides that, an organization is not only accountable to its shareholders, but it is necessary to stabilize stakeholders’ interests that are likely to affect or can be affected by the achievement of the organization objectives (Marewijk, 2003, p.96).
The final approach to CSR is the societal approach, which is also regarded as the broader view on CSR. In this view, companies need to take the responsibility of the society they are implemented in or they are associated with. Therefore, firms need to operate by public consent in order to serve the constitutional needs of the society, which is required to satisfy the society (European Competitive Report, 2008, 107). In 1968, Abraham Maslow came up with yet another approach known as the philanthropic approach, which is also regarded as the roots of CS (European Competitive Report, 2008, 107). Maslow’s societal approach is a strategic response to new corporate challenges and changing circumstances, which did not occur previously. Maslow’s argument was that, organizations are required to fundamentally think their position and act according to the societal context, which organizations are a part of despite its complexity (European Competitive Report, 2008, p. 107).
Critical Review of CSR
While activities and other research continuously require organizations to incorporate CSR in their activities, there is an ongoing debate on whether a company should exist for making profit alone or whether the company should pay heed to social and environmental concerns, which accompany social corporate responsibility practices. The advocates of the response that a company exists only to make profits provide an argument concerning the market, which is viewed as the final authority of allocating resources as well as point to the market as a location where incentives for environmental and social causes are obtained (Morgan, 2011).
The opponents of this debate provide that, everything cannot be associated with the market, providing that a mechanism should be implemented and be used to take care of social and environmental causes. By examining both sides of this argument as well as considering the attempts of businesses to implement CSR services to their activities, the first thing that comes to mind is that businesses need to invest in CSR to mitigate their poisonous effects of industrial paradigm on an environment (Morgan, 2011). As indicated by Martha Nussbaum, for the world to be a decent one in the future, organizations need to acknowledge they are part of an independent society, which has been held together by fellowships that are mutual (Tokoro, 2007, p.150).
While CSR is considered as a voluntary concept, it is being enforced and being voluntarily embraced. This fact can be used to ascertain that businesses do not contribute to corporate social responsibilities voluntarily. Considering the link between CSR and stakeholders, there is a great concern about not for profit organizations, which are also stakeholders of many businesses. NPOs are increasingly forming third sector, in addition to business and the government, and recently they have shown tremendous interest in environmental protection, welfare as well as education (Tokoro, 2007, p.150).
Considering the fact that the objectives of profit making and non-profit organizations differ, there is no understanding between the two entities, which means their relationship is argued to be antagonistic. In many cases, when corporations destroy the environment or expose their workers to poor working conditions in pursuit or profits, they are criticized or exposed by not for profit organizations. The two examples that fit this argument are Royal Dutch Shell and Nike. Royal Dutch Shell, which is considered as the largest oil company, had problems with disposal of Brent Spar (Tokoro, 2007, p.150). The company regarded their disposal of Brent Spar in the Atlantic Ocean as a proper move, not for profit organizations like Greenpeace provided their objections on the grounds that this will pollute the ocean (Tench and Yeoman, 2009, p.98).
Considering the Saro Wiwa case, Shell’s involvement in the Nigerian’s economy brought the company under pressure from the government of Nigeria, which made it unwilling to involve itself in Nigerian politics and, therefore, no response (Tench and Yeoman, 2009, p.107). Because of this, Shell found itself in a heavy criticism from human rights organizations as having been defeated by political pressure, and by that, decided to put their profits first. Another corporation is Nike, which is known to make profits by outsourcing its operations in third world countries. However, Nike outsourced operations are heavily criticized by NPOs for subjecting their employees to low wages and harsh working conditions. Therefore, while both cases indicate the lack of corporate social responsibility, they also provide the fact that stakeholders act as restrictive factors on CSR.
Despite that, there are some stakeholders, which have advocated for CSR to be implemented in the right way. The UN is one of these stakeholders. As an international organization, the US has currently hosted three international conferences on global environmental protection, with the latest one taking place in Johannesburg. In these conferences, the US requires global businesses to put in mind world inhabitants, in order to benefit from globalization (Tench and Yeoman, 2009, p.98). While not all companies might implement the 10 principles developed by UN, all the companies that implement them do this voluntarily and are not forced to implement them.
According to research, it is essential for companies to know when to apply sustainable business. Research shows that customers are willingly to spend money on some green products but less on others. In a case where consumers are questioning eco-product performance, it is essential for companies to come up with strategies that will prove that their products will perform and are competitive. Therefore, if eco-products refuse to perform, firms need to think twice about marketing the product using their brand name. This is a case where CSR influences the company business in a negative way.
While the CSR is trying to create green market and sustainable businesses, putting it first might compromise the position of a company in the market. Research shows that, consumers are critical about ethical features considering these features do not supplement the quality of the product (Tench and Yeoman, 2009, p.98). On the other hand, companies that implement CSR in their innovation practices are likely to capture more customers than companies that only invest in innovation. This is a case where CSR positively impacts the business of the company.
CSR also influences a company’s business by giving it a good reputation in the market. Research shows that companies with good reputation are likely to sell their products at higher prices for ethical products. Consumers who respect a firm’s reputation are willing to pay high amounts for a product than consumers with no respect for the reputation of the company. For instance, in America, consumers are willing to pay $3.45 more for Fair Trade coffee but are only willing to pay $1.34 for coffee that has been produced unethically (Tench and Yeoman, 2009, p.103).
Conclusion
In this report, it is obvious that there are some controversies between CSR and its stakeholders. Also, it is imperative for business owners to understand various aspects of CSR in order to stay ahead in the market. Knowing when to go green is an essential concept since consumers will only spend on some products and not on other. The quality and functionality of business comes before CSR. However, the most essential concept discussed in this paper is that of CSR and innovation. Research has shown that, companies which implement CSR as part of their innovation strategy are likely to prosper than company that chose to invest in innovation only.
Bibliography
Peloza, J & Papania, L, 2008. The Missing Link between Corporate Social Responsibility and Financial Performance: Stakeholder Salience and Identifi cation. Corporate Reputation Review, 11(2), p. 169–181.
Carroll, A. B., 1991. The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders, Business Horizons, s.l.: ISBN.
Dahlsrud, A., 2006. How Corporate Social Responsibility is Defined: an Analysis of 37 Definitions, s.l.: Wiley InterScience.
European Competitiveness Report, 2008. Overview of the links between Corporate Social Responsibility and Competitiveness, s.l.: ISBN.
European Union, 2011. COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS A renewed EU strategy 2011-14 for Corporate Social Responsibility. [Online] Available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52011DC0681:EN:NOT[Accessed 27 12 2012].
Friedman, M., 1970. The Social Responsibility of Business is to Increase its Profits. [Online] Available at: http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html[Accessed 27 12 2012].
Marrewijk, M. v., 2004. Concepts and definitions of CSR and Corporate Sustainability. Journal of business ethics , 44(3), pp. 95 - 105.
Morgan, C.-A., 2011. Keeping Your Ear To The Ground - Stakeholder Consultation, s.l.: White Paper.
Smith, R. E., 2011. Defining Corporate Social Responsibility: A Systems Approach For Socially Responsible Capitalism, s.l.: University of Pennsylvania.
Sun, Z & Yuan, H, 2010. The Relationship between Corporate Social Responsibility and Corporate Value Using the Game Theory. International Journal of Business and Management, 5(9), pp. 166 - 169.
Tench, R & Yeomans, L, 2009. Exploring public relatons. Second edition ed. Essex: Pearson Education Limited.
Tokoro, N., 2007. Stakeholders and Corporate Social Responsibility (CSR): A New Perspective on the Structure of Relationships. Asian Business & Management, 6(2), p. 143–162.
