Commitment by business to behave ethically and contribute to economic development
Introduction
According to the World Business Council for Sustainable Development (2007), Corporate Social Responsibility (CSR) 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 the local community and society at large.
1.1 Aim and Objectives
The main aim of this essay is to prove that socially responsible management is more about addressing stakeholders concerns than it is about shareholders concerns. In order to prove that, the following objectives are set; to identify importance of being socially responsible, evaluating organizations’ social performance and corporate responses towards social demands, identify the stakeholders and analyze their interests and provide evidence that socially responsibility management goes beyond the economic responsibility.
However, as stated by Asongu (2007), CSR is a controversial issue in today’s business environment that keeps on attracting a lot of attention. From those who debate that CSR issue is not relevant to businesses (Freeman and Liedka, 1991), through those who see the relevance, but that is not a good idea for businesses (Friedman, 1970).
1.2 My Research
I have done a lot of research regarding this issue. My research is mainly based on secondary data’s collected from different sources such as book, journals, articles, the internet and reports and also to demonstrate a logical argument, I have included different real world business examples.
1.3 Context and Issues
Now, let us come to the issue of CSR. According to Asogu (2007), the concept of CSR is underpinned by the idea that the business can no longer act as isolated economic entities and traditional views about “profit Maximizations” are swept away. Because of this, today business owners, politicians and academies are focusing appreciable attention on the concept of CSR. According to a result of a global survey in 2005 by the Economist Intelligence Unit, 88% of executives said that CSR is a “central” or an “important” issue. As a result more and more companies are working harder to make positive impact on the society.
CSR is a significant issue because it determines all aspects of a company’s operations. Consumers want to buy product from companies they trust, suppliers want to business relationship with companies they can rely on, employees want to work for companies they respect, large investments funds want to support firms that they see as socially responsible, and nonprofits and NGOs want to work together with companies seeking practical solutions to common social goals. Satisfying each of these stakeholders groups allows companies to maximize their commitment to their owners, who benefit most when all of these groups needs are being met (Werther & Chandler, 2006, p.19).
So, Placing CSR at the heart of the businesses would help to win hearts and minds of the people and it makes businesses more innovative, productive and competitive through enhancing employees’ relations and stronger relationship with communities. Most importantly it would improve reputation, loyalty and public goodwill.
2.0 Evaluating Organizations’ Social Performance
A model for evaluating organizations’ social performance is presented in Exhibit 2.1. This model indicates that the total corporate social responsibility can be divided into four criteria such as economic, legal, ethical and discretionary responsibilities (Carroll, 1979 & Swanson, 1995).
Exhibit 2.1: Criteria of Corporate Social Performance
Sources: Carroll, 1979, 499; Carroll, 1991.
As stated by Samson & Daft (2005, p.170), these responsibilities are arranged bottom to top based on their relative importance and the frequency with which managers deal with each issue.
2.1 Economic Responsibilities
According to Samson & Daft (2005, p.170), a company is in business to make money by producing goods and services that society wants. Profits have to be a goal of any business in order to survive because, when business fails, it impacts everyone.
This economic responsibility got translated into notion of profit maximization view. According to Frideman (1970), “There is one and only social responsibility of business: to use its resources and energy in activities designed to increase its profit, as long as it stays within the rules of the game.” However purely profit maximizing view is no longer accepted an adequate criterion of performance in many countries (Samson & Daft, 2005, p.170).
Sophi Tranchell, managing director of Divine Chocolate Ltd says: “The present situation has shown us that the purely profit motivated business model hasn’t worked and it never worked.” Therefore, only economic responsibility could lead companies into trouble.
2.2 Legal Responsibilities
Legal responsibility defines what society considers important with respect to appropriate corporate behavior. Therefore, business are expected to comply with the laws and regulations imposed by local council, state and federal government, and their regulatory bodies. So, organization that breaks the laws and regulations are poor performers (Carroll, 1991).
2.3 Ethical Responsibilities
According to Samson & Daft (2005, p.171), ethical responsibilities include behaviors that are not necessarily codified into laws and may not serve the organizations direct economic interest. Ethical responsibilities embody those standards, norms, or expectations that reflect a concern for what consumer, employees, shareholders, and the community regard as fair, just, or in keeping with the respect or protection of stakeholders’ moral rights (Carroll, 1991)
Since, business ethics is rising across the world, many companies realize that in order to succeed they need to earn respect and confidence of their customers, employees and society and also they know, they are accountable for their actions, as demand grows for higher standards of CSR.
2.4 Discretionary Responsibilities
Discretionary responsibility is purely voluntary and guided by organizations desired to make social contributions not mandated by economics, law or ethics. This includes actively engaging in acts or programs to promote human welfare or goodwill (Samson & Daft 2005, p.171). The differentiating feature between discretionary and ethical responsibilities is that the former are not expected in an ethical or moral sense. Society desire firms to contribute their money, facilities and employees but they do not regard the firms as unethical if they do not provide the desired level. Therefore, this is more discretionary or voluntary on the part of business even though there is always the societal expectation that business provide it (Carroll, 1991).
Corporate Responses towards Social Demands
When organizations face, with a specific social issue, they tend to respond. To respond social issues, management scholars have developed a scale of responses that organization use (Carroll & Gatewood, 1981). Actions can be Obstructive, Defensive, Accommodative or Proactive as show in Exhibit 3.1.
Exhibit 3.1: Corporate Responses to Social demands
Source: Samson & Daft, 2005
3.1 Obstructive Responses
It is one of the four ways a management may choose to respond to social issues. According to Samson & Daft (2005, p.172), obstructive response means a response to social demands in which the organization denies responsibility, claims that evidence of wrongdoing is misleading or distorted and place obstacles to delay the investigation. For example, Tobacco Industry in the USA was accused of using obstructive actions by hiding their research indicating possible health hazards of smoking (Perter & Kramar, 2006).
3.2 Defensive Responses
An organization that adopts a defensive response admits to some errors of omission or commission. The company defends itself but is not obstructive. Defensive managers believe that these happen, but they are nobody’s fault (Samson & Daft, 2005, p.172). For example, Sanlu, chain’s biggest milk powder manufacture sold milk powder produced with industrial chemicals (melamine) and resulted six infant deaths. But, Sanlu claimed that it was an industrial accident (Macartney, 2008)
3.3 Accommodative Responses
Organization’s acceptance of its responsibility to the society and take steps to solve social problems caused by its activities. Firms that adopt this action try to meet economic, legal and ethical responsibilities. Exxon’s decision to clean up the oil spill in Prince William Sound, Alaska, after an enormous public and political pressure and boycotting of its products. This was an example of accommodative responses (Samson, & Daft 2005, p.172).
3.4 Proactive Responses
A proactive response means that an organization takes the lead in social issues. The organizations seek to learn what the public interest is and respond without persuasion or pressure from the stakeholders. They take discretionary responsibilities to enhance community welfare (Samson & Daft, 2005, p.173). The chairman of Villa company (largest private company in the Maldives), has announced that Villa Company will help to set up Computer labs at schools to educate more students in computer and IT knowledge and also Google organization was created to find ways to fight climate change, poverty and emerging diseases and Google makes high-profile environmental efforts to be a carbon- neutral company (Lomax, 2009).
4.0 Stakeholders
An organizational stakeholder is any group within or outside the organization that has a stake in the organization’s performance. Each stakeholder has a different interest in the organization. Today, all the organizations take a serious effort to satisfy their stakeholders because, businesses are affected by the environment in which they operate and they come into regular contact with employees, investors, owners, suppliers, customers, government, the community and special interest groups and also decision made by a business affect one or more of these stakeholders (Ssmson & Daft, 2005, p.165).
4.1 Employees
Employees are the heart of the organization. Organizations should believe in the dignity of every employee and should take the employees interests seriously. Employees expect fair pay, good working conditions that respect each employee’s health and dignity, listen their suggestions, ideas and compliant and avoid discrimination. Employees who are satisfied with their organization’s commitment are likely to be more positive and productive (Goessl, n.d.). According to Viskorich (2009), Starbucks Company (world largest coffeehouse company) holds its employees in very high standard and Starbucks employees have 82% of job satisfaction rate compared with industry average of 50%.
4.2. Customers
Customers are the most important people for organization. They are the resource upon which the success of the business depends. So, organization should meet customers’ expectations. Customers expect the highest quality product with their requirement, more choices, health and the safety of product etc. For an example Apple Company provide high quality product to their customers and received top honors among computer manufacture for customers satisfaction (Perter & Kramer 2006).
4.3 Owners, Investors and Suppliers
One of the most important parts of business is to meet their owners/ investors expectation. It’s not a big secret that people invest their money to get fair and competitive return on their investment (Grant, 2007). In order to get fair and competitive return, they expect managerial effectiveness and efficiency in using resources.
Organization relationship with suppliers is based on mutual understandings and respect and they seek fairness and truthfulness in all business activities and also they expect their payment on time in accordance with agreed terms of trade (Grant, 2007).
4.4 Government
As stated by Werther & Chandler (2006), organizations are expected to behave scrupulously, ethically and responsibly. There are laws, rules and regulations to protect the employees, customers, community and even the environment. The government is committed these laws for oblivious reasons. Therefore, government expects from the organizations to compliance with laws, rules and regulations and other environmental protection requirements.
4.5 The Community
Today, business does not live in a vacuum. The citizen and groups that populate its geographic operation area are essential to its operation. As a result, the community has certain expectation like peace, security, safety, good natural and physical environment and etc (Cohn, n.d.). To demonstrate this responsibility Starbucks announced (2009), “100% Starbucks cups will be reusable or recyclable and they will contribute one million community service hours per year”.
4.6 Special Interest Groups
The Special Interest Group is a community with a particular interest in a specific technical area. Special Interest Groups include, trade associations, political action committees, professional associations. They expect organization decisions to support their particular area of interest. An example of such group is the “Global Compact”, launched in 1999 by the United Nations, the Global Compact is a coalition of large trade unions, environmental and human rights groups, brought together to share the dialogue on CSR ( Viskorich, 2009).
5.0 Social Responsibility Management Goes Beyond Economic Responsibility
According to Val Carter, Director of Aramank: “Most companies these days expect to have a CSR policy. It could make the difference between winning and losing business.” So, the success of every business is dependent upon, how they deal with CSR. Let’s look at some good businesses that go beyond economic responsibility.
The Kellogg Company (world leading producer of cereal and convenience foods), is a good example of how CSR has been practiced by a modern company for an over hundred years. Its CSR activities have contributed to this success. The founder of Kellogg, Will Keith Kellogg said, “Invest my money in people” and legacy continues to guide the company and its people. It further claims that “Social responsibility is a way of life at Kellogg” (Asogu, 2007).
Microsoft (biggest software company), works closely with international organizations such as the World Food Programs and save the Children programs and Bill Gates, founder of Microsoft and a major philanthropist launched his idea of “wealthier people serve poorer people as well.” (Viskorich, 2009)
IBM is the largest and most profitable computer company. According to IBM CSR report (2008), IBM supports its employees in becoming volunteers and provides them with IBM technology tools to be used by non-profit community organizations and schools.
From the above examples, it’s also clear that the business success and relationship with CSR. Therefore, it is not a surprise that the socially responsible management goes beyond the economic responsibility.
6.0 Conclusion
CSR influence all aspects of business operations. Everything an organization does interact with one or more of its stakeholders groups. Companies today need to build strong image with respect to all stakeholder. Because, CSR improves the public image of the business, voluntary social involvement discourage additional government regulation and socially responsible managers know, it is better to prevent problems than provide solutions or cures after a problem emerges and also investors are making decisions based on criteria of CSR concerns. Recent studies have shown that investor prefer companies with strong CSR programs because, they see CSR involvement as an indication of the company’s long-term potentials.
Therefore, companies that embrace CSR can open door on new markets, new opportunities and new relationships, set the scene for long term profitability and increase the competitiveness of the communities in which they operate. Conversely, companies that fail to manage their responsibilities to society as a whole risk of losing their business (Werther & Chandler, 2006)
CSR is no longer an option to the businesses. It is necessary to the businesses whether they like it or not. So I strongly believe that the wining companies of this century will be those companies who are more precisely concerned stakeholders than shareholders.
7.0 References
Alyce Lomax (2009), Most Socially Responsible Company. Retrieved January, 10, 2010 from http://www.fool.com/investing/general/2009/01/09/fool-awards-most-socially-responsible-company.aspx
Archie B. Carroll, (1991), the Pyramid of Corporate Social Responsibility, towards the moral management of organizational stakeholder: balancing economic, legal and Social Responsibility . Retrieved, January, 13, 2010 from http://findarticles.com/p/articles/mi_m1038/is_n4_v34/ai_11000639/pg_2/
Danny Samson & Richard L. Daft, (2005), Fundamentals of Management, Second Pacific Rim Edition, (Ch 5, pp 165-173), Australia, Nelson.
J.J Asongu, (2007), The History of Corporate Social Responsibility. Retrieved January. 10, 2010 from http://www.brass.cf.ac.uk/uploads/History_L3.pdf
Julio Viskorich, (2009), Good Examples of Corporate Social Responsibly. Retrieved January 10, 2010 from http://www.helium.com/items/1411478-starbucks-and-social-responsibility
Macatney Jane (2008), Chinese Milk powder Contaminated with Melamine. Retrieved, January, 10, 2010 from http://www.timesonline.co.uk/tol/news/world/asia/article4758549.ece
Martin Cohn (n.d.), the importance of Community Relations. Retrieved from January, 11, 2010 from http://www.evancarmichael.com/Public-Relations/216/The-Importance-of-Community-Relations.html%20(mark)
Miltion Friedman, (1970), The Social Responsibility of Business is to Increase its Profit, The New York Time Magazine. Retrieved from January, 09, 2010 from http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html
Ney Grant (2007), Setting Business Owners Expectations. Retrieved, January 12, 2010 form http://www.allbusiness.com/buying-exiting-businesses/4974293-1.html%20(G)
Perter M.E & Kramer M, (2006), Strategy and society: The Link between Competitive Advantages and Corporate Social Responsibility, Harvard Business Review: November – December, pp.78-92
The corporate Social Responsibility, (2007). Retrieved January, 03, 2010, from http://www.wbcsd.org/templates/TemplateWBCSD5/layout.asp?MenuID=1
William B. Werther & David Chandler, (2006), Strategic Corporate Social Responsibility, 1st Edition, U.S., Sage Publications. Inc
Table of Contents
1.0 Introduction
1
1.1Aim and Objectives
1
1.2 My Research
1
1.3 Context and Issues
1
2.0 Evaluating Organizations’ Social Performance
2
2.1 Economic Responsibilities
2
2.2 Legal Responsibilities
3
2.3 Ethical Responsibilities
3
2.4 Discretionary Responsibilities
3
3.0 Corporate Responses towards Social Demands
5
3.1 Obstructive Responses
5
3.2 Defense Responses
5
3.3 Accommodative Responses
6
3.4 Proaction Responses
6
4.0 Stakeholders
7
4.1 Employees
7
4.2 Customers
7
4.3 Owners, Investors and Suppliers
7
4.4 Government
8
4.5 The Community
8
4.6 Special Interest Groups
8
5.0 Social Responsibility Management goes beyond Economic Responsibility
9
6.0 Conclusion
10
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