Case Studies: Corporate Social Responsibility across world

Introduction

Over the past decade, Malaysia has witnessed tremendous economic and social changes. Hence, the business world is becoming more complex and demanding. Corporate social responsibility has emerged as one of the major issues in the modern-day businesses. However, developing countries are slower in reacting to this issue as the studies in this area are still scarce. Even though there is some increase in research and studies in corporate social responsibility (Abu-Baker & Naser, 2000; Belal, 2001; Imam, 2000; & Tsang, 1998), the results of these studies are not satisfying due to the scarcity of studies in the developing countries. Corporate social responsibility (CSR) is becoming more important for national and international businesses. Large corporations discovered and recognized the benefits of providing CSR programs in various locations, these multinational companies are serving as global providers. Now, CSR activities are being performed around the world. Customers nowadays believe that modern businesses have the obligations to serve them better or in a more responsible manner instead of just focusing on maximizing profits for its organization’s stakeholders or shareholders. However, only large firms apply this concept compared to those small or middle-sized enterprises due to the power which large firms have. We also refer CSR as corporate or business responsibility, corporate or business citizenship or community relations.

The environment that business organizations operate in is filled with dynamism, complexity and uncertainty. Thus, managers must take into consideration the interests of stakeholders and public in performing their respective duties. According to Wartick and Cochran (1985), the concept “corporate social responsibility” (CSR) has a philosophical orientation. Jones (1996) described CSR as an ‘ideology’ which has been enhanced and advanced during the past 50 years with the business and research. CSR refers to corporate performance that is normatively correct with respect to all constituents of the firm (Epstein, 1987).

How do we clarified the actions that certain firms took are related to corporate social responsibility? According to Carroll (1991), social expectations can be translated into four different stages of corporate social responsibility, viz: economic, legal, ethical and philanthropy. The first stage is economic responsibility. This stage is where the public and society expect corporate organizations to generate profit and at the same time producing goods and services that meet the customers’ needs. A firm’s prime social responsibility must be economic involving the production of goods and services at a reasonable profit. Second stage is legal responsibility. Businesses are expected to run within the legal boundaries in order to achieve their goals. However, not all ethical behaviour are codified, businesses should act in the manner that serve the society while meeting economic objectives. Hence, this is categorized as ethical responsibility. Last but not least, the philanthropy responsibility. A corporate organization should actively involve in programs promoting human welfare and goodwill. One common difference between philanthropy and ethical responsibilities is that the former are not expected in moral sense. Community expect firms to contribute their resources to social activities. However, they do not hold those firms unethical if they do not practice these social activities. Hence, philanthropy is more to voluntary part of business in conducting social activities.

According to Palazzi (2006), there are an increasing number of companies in Western Europe, Japan and North America discovered that by fully integrate the self-interest and needs of customers, employees, communities and their beloved planet, they can make good business. Therefore, corporate social responsibility includes 6 elements where management of each organization should implement in order to enhance growth and profitability. CSR is about how to manage these 6 responsibilities: customers, employees, business partners, environment, communities and investors (Palazzi et al., 2006). Providing goods and services in a fair price so that the customers will get to enjoy the added value of the products provided by the firm and at the same time the firm will earn profits. By adopting CSR, a firm’s image is strong and well recognised; it provides good welfare for its employees. Business partners such as suppliers, suppliers will only build long term relationship with firms that are well-respected and trusted. Firm must never conduct any operations that will harm the environment such as toxic dispersion; it will only bring damage to the environment and also the society. Health, stability and prosperity of the communities are the success factors of any businesses nowadays; businesses must involve themselves in social activities such as charity or donations. Practicing CSR in daily operations no doubt maximize profit in long-run which will benefit the investors.

In contrast of co-founder of Hewlett Packard Company in 1939, Dave Packard, he thinks many people assume, wrongly, that a company exists simply to make money. While this is an important result of a company’s existence, we have to go deeper and find the real reasons for our being. As we investigate this, we inevitably come to the conclusion that a group of people get together and exist as an institution that we call a company so that they are able to accomplish something collectively that they could not accomplish separately – they make a contribution to society, a phrase which sounds trite but is fundamental. No doubt that people assume the purpose of a company is to generate profit, primary objective of a company is to continue its existence or to survive, followed by maintaining growth and development and then make a profit. Company is a structure of people where these people wish to achieve objectives that could not be achieved by the efforts of individuals on their own.

CSR involves the responsibilities corporations have to the societies within which they are based and operate. CSR is about the organizations and businesses taking actions beyond their boundaries which will impact the environment and society even though doing so incur higher cost. Several concepts that are closely related to CSR: social and environmental auditing, stakeholder theory, business ethics, environmental sustainability, strategic philanthropy and corporate governance.

Definition

The issues of corporate social responsibility has been debated and argued since 1950s, latest analyses by Secchi (2007) and Lee (2008) reported that the definition has been changing in meaning and practice. In both corporate and academic world there is uncertainty as how to defined. According to Jackson and Hawker (2001), ‘we have looked for a definition and basically there isn’t one’. However, this is not quite accurate because the truth is there is an abundance of definitions, which are, according to Van Marrewijk (2003), often biased toward specific interests and thus prevent the development and implementation of the concept. Five dimensions of CSR were identified through a content analysis of the definitions; these five dimensions are environmental dimension, social dimension, economic dimension, stakeholder dimension and voluntaries dimension.

Jones (1980) defined CSR as the notion that corporations have an obligation to constituent groups in society other than stockholders and beyond that prescribed by law or union contract, indicating that a stake may go beyond mere ownership. Corporate social responsibility is defined as a principle stating that corporations should be accountable for the effects of any of their actions on their community and environment by Frederick (1992). CSR is defined as the degree of moral obligation that may be ascribed to corporations beyond simple obedience to the laws of the state by Kilcullen and Kooistra (1999). According to Foran (2001), CSR can be defined as the set of practices and behaviours that firms adopt towards their labour force, towards the environment in which their operations are embedded, towards authority and towards civil society. CSR is also defined as the integration of social and environmental concerns in business operations, including dealings with stakeholders (Lea, 2002). According to Andersen (2003), he defined corporate social responsibility broadly to be about extending the immediate interest from oneself to include one’s fellow citizens and the society one is living in and is a part of today, acting with respect for the future generation and nature.

There are many available definitions of CSR and they are consistently linking to the five dimensions. From 1980s to 20th century, definitions of CSR must include the 5 dimensions, it is not a must to include all 5 but it is best to do so.

Importance of CSR

CSR has become increasingly important, now it is considered as a business strategy. Consumers prefer to purchase products or services from companies which they trust; suppliers want to form business partnerships with companies they can rely on; employees wish to work for companies they respect and being respected in return; and NGOs want to cooperate with companies seeking feasible solutions and innovations in areas of common interests. According to Carly Fiorina, Chairman and CEO of Hewlett Packard Company, winning companies of this century will be those who prove their actions that they can earn profit and increase social value at the same time. Shareowners, customers, partners and employees are going to vote with their feet in order to reward those companies that fuel social change through business. This has become the new reality of business, one that everyone should embrace and adopt. Arguments and debates about the importance of CSR, the main topic is why CSR became more important? Many factors and influences have led to increasing attention being devoted to the role of companies and CSR. These include:

Potential Benefits of Corporate Social Responsibility

Being socially responsible is increasingly important for modern organizations. This is due to the public becoming more demanding towards firms in terms of being socially responsible. Einer Elhauge, a professor of law at the Harvard Law School, as part of his contribution on the “Environmental Protection and the Social Responsibility of Firms”, quoted that “Corporate managers have the operational discretion to sacrifice corporate profits in the interest of the public”.

Lower Operating Cost

Companies must view this as an opportunity and see the benefit it can obtain from giving back to the communities and employees (McKee, 2005). Lower operating cost may be the most immediate and dependable benefit for a corporation committed to high ethical standards and social responsibility (Ashforth, 1989). On environmental issues, a company who is striving to minimize its emission of greenhouse gasses will be looking at ways of minimizing fuel consumption. Initial investment in more energy efficient vehicles and appliances may incurred very high cost, it will eventually lead to cost saving. If a company is using less energy, then its energy bills will be lower. If a company is minimizing water usage, then its water bills will be lower. The same is true for maximizing the use of recycled materials. Recycled materials are much lower priced compared to raw materials.

Employees: Recruitment, Retention and Productivity

According to Ivy (2005), the other benefits of adopting corporate social responsibility practices include attracting the most talented and loyal workers. Their employees are more committed to their work because they are proud to be part of that organization. Employees value a corporation that is able to improve the life of the community. A Socially Responsible Corporation considers a worker’s dignity and offers good health care and retirement plan. Therefore, these employees are not keen to take lifts when opportunity is at hand. Bloemer (1992) found out that the corporation benefits from a stable workforce and reduced training costs. Evidence for this view are clearly stated in the Kelly survey in Crain’s Detroit Business report found that corporations that behave in socially and environmentally responsible manners attract the top talent and ninety percent of those interviewed would prefer to work for organizations are ethically and socially responsible.

Brand Image and Customer Loyalty

McKee (2005) suggested that the most significant business benefit of corporate social responsibility is the positive effect it can have on brand image and customer loyalty. If a company is known to be responsible and ethical, and if it markets itself as such, then it will be well positioned in a competitive market. Consumers, weary of the tales of ruthless corporations doing everything in their power to maximize profits, are becoming more and more interested in supporting companies who are socially responsible. Many firms which have such practices include Body Shop that uses all natural, non chemical substances to make their products. They emphasis on no animal testing and many customers are proud to be using their products that support the humanity values that the company share.

Differentiated Products

According to Klein and Dawar (2004), differentiated product is one of the benefits that enable an organization in order to remain competitive in today’s marketplace. Through product differentiation, organizations aim at achieving a competitive advantage by increasing the perceived value of their products relative to the perceived value of the products of their competitors. Particularly, for organizations that implement socially responsible policies, product differentiation can satisfy the unmet needs of consumers offering both financial and business benefits to the firm. Firms that offer environmentally friendly products experience higher sales growth than firms that sell conventional products (Ramasamy & Ting, 2004). Besides, firms that offer unique value propositions to consumers differentiate their products in consumers’ minds and contribute to building customer loyalty based solely on ethical values. Therefore, in the context of corporate social responsibility, organizations develop new products aiming, not only to become more competitive, but also to make a greater impact on society through their ethical practices. A CSR Europe MORI study in 2000 showed that 70 percent of European consumers say that a company’s commitment to corporate social responsibility is important when buying a product and one in five would be willing to pay more for products that are socially and environmentally responsible. On the other hand, one in six shoppers frequently boycott or buy products because of the manufacturer’s reputation.

Improved Risk Management

Improved and proper management is one of the benefits gained when a corporation embarked in corporate social activities. Modern organizations implement risk management strategies to decrease or even eliminate the risk posed on the organization by a variety of practices associated to several potential threats (Porter & Kramer, 2002). Organizations that have made countless efforts over the years to build a good reputation and have spent a lot of money to maintain it through product development and customer loyalty strategies. However it could be ruined is seconds (Tencati, Perrini, & Pogutz, 2004). Such incidents include scandals, environmental accidents, foreign labour transgressions and internal corruptions draw the attention of the media and may cause irreversible damage to a firm’s reputation. The only way to anticipate such events are to embed social responsibility into organizational culture that contributes to a stable reputation for a form and in order to offset such risks. This could save cost and time in repairing and building firm’s reputation using the usual ways.

Access to capital

Financial institutions such as banks and private loan companies are increasingly incorporating social and environmental criteria into their assessment of projects. When making decisions about where to place their money, investors are looking for indicators of effective CSR management. Maignan, Tomas and Hult (1999) argued that a business plan incorporating a good CSR approach is often seen as a must for good management. When a company engage in corporate social activities shows that they care about their planet and it give a good impression towards to the investors. Hence both private and public investors are more willing to invest in such ventures because it will gain support from many parties and corporate social responsibility based companies tend to last longer.

Arguments underpinning CSR

Today many persons are discussing the social responsibilities of business; there are various reasons both for and against business’s assumption of social responsibilities. People in the business world argue and debate about social responsibility, some supporting this concept and some do not see it that way.

Arguments for corporate social responsibility

Long-run self interest

Long-run self interest is one of the arguments which favour corporate social responsibility, this ideology makes the society expects the businesses to accomplish and conduct various social goods and actions. According to Davis (2001), a business must conduct social practices if it expects to achieve objectives and earn profits in long-run. The firm that responds fastest to the needs of the society hence will have a better community in for the firm to run its business. Recruiting employees will be easier, the employees hired are better in quality. Besides that, absenteeism and turnover will decrease. As the social of one society improved, crime rate will definitely go down and money can be saved up as the properties are well protected. The dispute can lead to several directions, for example a better society provides a better environment for business. It is hard to believe that incurring higher cost for social activities will result in higher profit for the business. However, it is the normal outcome that business can perform better when it runs in a better environment. “Recent surveys confirm that the correlation between social and financial performance is their positive or neutral” (Margolis & Walsh, 2003).

Public Image

A firm’s main objective is to attain and retain more customers, desirable employees and various benefits through enhancing its public image. According to Davis (2001), it is easy to extend this public-image concept through the accomplishment of a variety of social goods. Public holds social goals as top priority, firms which has intention of achieving a benevolent public image must reinforce and prioritize these social goals. CSR has become a vital tool in promoting and improving the public image of some world’s largest corporations (Christian, 2004).

Let Business Try

Many institutions tried and failed in handling social issues, why not give business a chance to do so. Many comments were made due to the failures of other institutions, people are turning to business. Comments like the following:

“Give business a try. Maybe they can come up with some new ideas.”

“Let business have a role. They couldn’t do any worse!”

These comments were made out of frustration and desperation instead of reasoning; many people are expecting that business institution will fail in handling the social issues. The truth is that there is no evidence showing that we perform badly in handling and solving the social problems using business’s capabilities (Davis, 2001).

Business Has the Resources

Business is believed to have valuable resources which can be used in handling social problems; hence society should put the resources into good use. Sadly, many people wrongly assumed that business has all the money where the society need to do is to tap the till of business and the social problems will just fades away. In most cases, there is a reasoned assumption that business has a pool of management talent, functional expertise and capital resources (Davis et al., 2001). With this pool, business definitely has the requirements to solve social problems in the society. In addition, business is well known for its innovative ability. In some social problems, innovation is needed badly for application.

Problems can be Profits

While the creativity of business can contribute to social problems, it can also be an advantage at times when apply conventional business theories to these social problems. Although this idea cannot be applied to all of the social problems, it is encouraged that business should involve in social areas more effectively. According to Davis (2001), many problems can be solved and settled profitably according to traditional business concepts.

Prevention is better than Curing

It is argued that business should resolve social problems once encountered. This supports the idea of saving resources and the management’s time and also preventing the social problem from developing into a disastrous situation to the business. Furthermore, the progress of producing goods and services can be affected when business is busy dealing with serious social problems that have yet to be resolved.

Argument against Social responsibility

Profit Maximization

The most prevailing argument against business assumption of social responsibility is the classical that it challenges the traditional mindset of the companies is to focus on profit maximization (Friedman, 1971). According to the industry’s point of view, the company’s desire is to think in the best interest of the shareholder and satisfy them by maximizing profit and find all means to increase profit. One common practice in most industries to maximize profit is to minimize cost. Friedman (1971) mentioned that in a free enterprising firm system, employee’s responsibility is do what their superiors command them to do as long they do what their are told, they would survive in the economy provided their actions are abiding to the laws and ethical customs of the society. The employees’ desire is accord with the shareholders’ interest that is to maximize profit. However imposing a new concept of corporate social responsibility, the company dilutes the aim of profit maximization and makes the shareholders unhappy. This is due to the managers spending their money on something that has no direct impact on their cash flow. Besides that, Friedman argued that the concept of corporate social responsibility may overthrow the old doctrine of the economy to maximize profit.

Cost of Social Involvement

Friedman (1962) found out that imposing the culture of corporate social responsibility in a firm takes away a lot of the firm’s financial resources though the outcome may not be as rewarding as predicted. The company must make wise decision to allocate their resources in the right causes for it is scarce. Most companies commit small resource to corporate social activities due to social pressure and obligation. However, the public tend to forget the firm’s effort towards corporate social activities after a period of time. Therefore it is very tiring for a company to keep renewing their commitment towards social acts since the customers cannot remember the organization’s contribution towards society even it was just last month ago. When the business is pushed into social obligations, many additional costs will drive out marginal firms in all the industries (Friedman et al., 1971). In the chemical industry, many chemical firms shut down because they are unable to meet the requirement of purchasing the new pollution equipment that is highly priced.

Lack of Social Skills

Traditional companies do not have the skills to handle the social matters regarding the public’s concern towards the company’s effort in corporate social goals. As mentioned Friedman (1971), it is insane for a firm to give social related duty to technicians or accountants. They are unfit for the job because they are not trained to work in such way. The firm may need to hire sophisticated people which are public relation officers to create an image for the company and handle all the social matters. This may require the organization to create a new department just to achieve these goals. Problems may arise since the firm needs to incur new costs to the company.

Dilution of Business’s Primary Purpose

Friedman (1962) suggested that a firm’s involvement in social goals might hinder business’s emphasis on economic productivity, divert the interest if its leaders, and weaken business in the market places, with the result of the firm achieving poorly in both economic and social aspects. The effect of social goals in corporations is confusing the society’s perception in the economic role of the business. If a company is inadequate to achieve its social goals, the society would suffer socially and economically (Friedman et al., 1962).

Weakened International Balance of Payment

Argument against business assumption social responsibility requires the international balance of payments thought it is frequently ignored. In normal practices, social programs are counted in business costs. In order to recover these costs, the business would usually add the cost into the price of the product. If social activities dilute business’s capacity for high productivity, then this lower efficiency is likely to lead to higher product cost (Friedman et al., 1962). A company would lose its competitive advantage in the international market if they comply with the social obligation. In the international market especially regarding raw material, the price is an essential criterion to consider. When a product is priced higher than its competitor due to social obligation, the clients will choose cheaper choices and outcome is the company loses out a lot of customers.

Lack of Accountability

From economic point of view, entrepreneurs have no accountability towards the public. Friedman quoted that “Accountability always go with responsibility”. A firm which embarks into social activities must be responsible towards the people. Until the firm is ready to be establish a proper line of social accountability from business to public, the business is preferable just focus on maximizing profit and not engage in any social activities.

Lack of Broad Support

One final point is that social involvement may lack a broad range of support from all groups of the society. Although many people support the idea of corporate social responsibility, many parties opposes it (Henderson & Hazel, 2001). Unlike China, there are a lot of countries that does not give full support to firms that has social goals. The lack of agreements is among the general public, in government, even among the businessmen themselves. Many reasons are mentioned in the above statements. Such hostile oppositions will create disastrous effects on the company if it fails its social mission.

Case Summary

Burgerville USA is a family owned fast-food restaurant, founded by George Propstra in Vancouver, Washington 1922. Burgerville applies this mentality “made fresh from local ingredients”, this concept still stand strong up till today. Burgerville had never used frozen patties, used only the freshest ingredients. Besides that, onions rings sold in Burgerville are made from onions grown in nearby Walla Walla.

Burgerville has expanded up to 39 locations in the northwest United States, currently run by Propstra’s son in law, Tom Mears. The key element in the company’s strategy remains unchanged which is the “fresh, local” concept. Company is using fresh, local products in order to offer higher quality food. This strategy moves Burgerville out from the fast-food industry into fast-casual dining sector, a niche in the restaurant industry. Mears decided that the company will not play the cheap hamburger game when he realized that there is a change of strategy as Burgerville is losing market share to national franchised chains.

Since Burgerville reluctant to play the cheap hamburger game, it charges averagely $7, higher than its competitors whose average check is $4.55. An average sale per outlets is just slightly lower than its competitors. Burgerville offers several dishes which customers cannot find at others fast food restaurants, dishes such as wild Coho salmon, Oregon hazelnut salad, Tillamook cheeseburger, Halibut fish and chips, milkshakes made with real ice-cream. Burgerville was named as the nation’s freshest fast food restaurant by Gourmet magazine in 2003.

Mears discovered another way to make Burgerville to shine in the hotly competitive restaurant industry in 2004. He wants Burgerville to stand as social responsible restaurant. Firstly, Burgerville purchases its beef which is never frozen from nearby Country Natural Beef cooperative. This no doubt is the extension of “fresh and local” concept. In addition, the berries to make the milkshakes are grown locally. Burgerville stopped offering huckleberries milkshakes when the company found out that it was over-harvesting; this action let the customers down as the huckleberry milkshake is one of the best-selling milkshake.

Customers ignore the idea of local and sustainability, being responsible and environmental friendly but they are changing now. Burgerville purchases electricity from the wind generators which cost $200,000 more than obtaining electricity in the traditional way. The cooking oil used is converted into biodiesel fuel. These are some of the actions Burgerville took in showing the intention of operating in a socially and environmentally responsible manner. Even though Burgerville did not release its financial statement, analyst estimated its net profit margin is about 10 percent of its sales. Jeff Harvey, chief operating officer of Burgerville said: “Our hope is to challenge the industry [to change its ways].” It means that Burgerville thinks that incurring higher costs is acceptable in order to run its daily operations in a more socially responsible manner.

Case study

Do you think that incurring higher operating costs is an acceptable trade-off for running a company in a socially responsible manner? Explain.

Question 1

Customers today expect businesses to be fair and socially aware; consumers will only turn to businesses or companies that hold high reputation for doing the right thing. By nature, people reluctant to patronize companies that involve in unethical, wrong doing. Nobody is forced to make the decision on which business to invest, which ever businesses they want to give their money, the decision is in their hands. And I’m sure that no one likes companies that treat employees and customers unfairly. “While it is true that a for-profit business must operate on the premise of turning a profit or the business will cease to exist, there is nothing wrong with mixing up profitable objectives with social responsibility”. (Goessl, 2005) In order to gain the approval of the society, one company must engage in corporate social responsibility actions. The company has to build a strong reputation, image so that public, consumers will always remember in their heart that this company operates fairly in and out of the organization. Even though it requires higher cost in the beginning, it could be beneficial in the long run. For those who have problems in executing social responsible actions, they won’t last long in long run or they might shut the door one day in future. In addition, a firm can lower its operating cost in future once it has settled down in the industry. Lowering operating cost is one of the potential benefits of corporate social responsibility. To sum up, incurring a higher operating cost is an acceptable trade off for a company to operate in a socially responsible manner.

What other steps could restaurants such as Burgerville take to operate their businesses in a more socially responsible, environmentally friendly way?

Question 2

This question is referring to the ways and steps to implement the corporate social responsibility in the organization. Hohnen (2007) quoted that “There is no “one-size fit- all” method for pursuing a corporate social responsibility (CSR) approach.” Each company has different condition in terms of financial status, leadership, economy and many more. Some corporation may have better favor in financial resource while others have better management of its employee. So, their mission and vision towards CSR is different. Each company would have its own way of implementing CSR. Hohnen (2007) has proposed a CSR implementation framework which has the following steps: Plan Do Check Improve

In terms of the case study of Burgerville, what they need to do is choose the right partner for their social involvement activities. Most companies have the practices of distributing their financial resources through a non profit organization or charity in order to carry out the specific project within a reasonable budget. Therefore, choosing the partner is a critical process (Swaminathan & Reddy, 2000). Burgerville have the choice of having a sole non profit organization to handle its entire social budget or it could give the responsibility to a pool of non profit organizations. Therefore, Burgerville should choose to sponsor campaign such as thirty hours famine which is more related to their business.

Other method that Burgerville can implement is to build up the community and help to reduce the poverty rate in rural areas. According to Neumeier (2009), Companies should focus on the “wicked problems” that has seems to be insoluble in the society such as poverty, crime cases, racial discrimination. When Burgerville implement such tactics, it can be profitable in long term as Friedman (1970) stated that “the social responsibility of business is to increase its profits.” When the poor are given opportunity to work in the community though social programs, they have more purchasing power and in turns they will become customers in the future.

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