Corporate Social Responsibility Definition

Before we start to explore the social responsibility of a given company we need to understand what the term actually means and thus this paper starts with a few definitions. According to Dr. John Schermerhotn’s “Exploring management” (2012) corporate social responsibility “is the obligation of an organization to serve its own interests and those of its stakeholders.” In October 2011 the European Commission published a new policy on corporate social responsibility, which states that to fully meet their social responsibility, enterprises “should have in place a process to integrate social, environmental, and ethical and human rights concerns into their business operations and core strategy in close collaboration with their stakeholders”. (Commission, 2011)

A Carroll’s four – part definition of CSR focuses on the types of social responsibility a company has. They are economic, legal, ethical and philanthropic. The economic responsibilities a company has are to produce goods and services that society wants and deliver them to the consumers at a fair price. The legal responsibilities of a company are to obey the rules and mechanisms posed by the society. But laws cannot cover the full range of behaviors expected of the business by the society .Thus come the ethical responsibilities – they embody the full scope of norms, values and expectations that reflect what the community regards as fair and just. And also important the fourth type of responsibility according to Carroll is philanthropic – not a responsibility in the real sense of the word but is view as one as a reflection to the expectations to the current business by the community. [1] 

In other words CSR policy is an integrated, self-regulating mechanism, by which companies monitors and ensures that they act in accordance with the laws, ethical standards, and international norms. CSR is a process which main purpose is for the company to embrace responsibility for its actions and encourage a positive impact through its activities on the environment, stakeholders, consumers, employees, and all other members of the community who may also be affected by the company’s actions.

Development of CSR [2] 3

The concept of corporate social responsibility is a relatively new one but the meaning behind the term has gone through quite a lot of changes. And even though the term CSR has become popular in the 1960s, it is accurate to say that all communities all through history have had some expectations to the organizations.

In the 18th century Adam Smith manifested his traditional or classical economic model of business. The classical view held that a society could best determine its needs and wants through the marketplace.And by acting in a self-interested manner, individuals could produce and deliver goods that would earn them a profit, but also meet the needs of others. But even 200 years ago Smith recognized that the free market could not perform perfectly if the participants didn’t act honestly and justly towards each other and intervention was needed to ensure just that.

After Smith came the Industrial revolution and with it radical changes in the economy – technologies allowed for more efficient production, people started living better and large organizations acquired great power. This was the time of “Social Darwinism” – the idea that the principles of natural selection were applicable to business and social policy. Thus, even though many individuals were great philanthropists at the time, the companies that made them rich were practicing business methods that were exploitative to the workers.

Around the start of the 20th century the community turned against the large corporations and their exploitation of workers and laws and regulations were enacted to protect employees, customers and society at large. Between 1900 and 1960 the businesses gradually began to accept additional responsibilities other than making a profit and obeying the law.

In the 1960s and 1970s the civil rights movement, consumerism, and environmentalism affected society’s expectations of business. It was expected of companies to not cause societal problems but to also start to participate in solving the already existing problems. This was based on the view that corporations should go beyond their economic and legal responsibilities and accept responsibilities related to the betterment of society. This view of corporate social responsibility is the prevailing view in much of the world today.

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CSR guiding principles and aims

The main guiding principles and aims of corporate social responsibility we already mentioned in the two previous parts of the paper but now they will be summarized. One of the guiding principles is that a company should conduct its business in an ethical way and with the interest of the whole community in mind. Another principle is that a company should reach positively to emerging social priorities and expectations and try to answer them ached of regulatory confrontations. And maybe the most important of the guiding principles of CSR for a company is to balance the shareholder interests against those of the community.

The aim of CSR policies is to transform companies form polluters and expositors, which they have been in the past, to good citizens of the community, that manage to balance their interests with those of the community and have an overall positive impact on the society.

Approaches of CSR

In his book “The Civil Corporation” Simon Zadek has identified four different approaches by which businesses respond to CSR and they are defensive, cost – benefit, strategic and innovation and learning approach. [4] The defensive approach is for companies that are willing to do only the bare minimum in the field of CSR in order to avoid pressure that makes them incur costs. The cost – benefit approach entails that a company will undertake sustain activities only if they see a direct benefit from them for the company and if this benefit exceeds the costs incurred by undertaking this activity. Firms, which recognize the changing environment and engage with CSR as part of a deliberate emergent strategy, are operating under the strategic approach. And finally, in the innovation and learning approach an active engagement with CSR helps the company to understand the marketplace and enhances organizational learning, which in the long run leads to competitive advantage.

Models of CSR

There are many models of CSR just as there are many differences in the way people understand the term CSR and what it entails. In this paper there will be only three models discussed – Carroll’s CSR pyramid, the intersecting circles model and the concentric circle model.

Carroll’s pyramid

The leading model of CSR is Carroll’s four – part pyramid. It presents all expectations the society has of the companies and defines them in separate categories. “It is intended to illustrate that the total social responsibility of business is composed of distinct components that, when taken together, make up the whole.” [6] The components of the pyramid have been treated as separate components in practice they are not mutually exclusive and are even connected. The separating of the components is done mainly in order to help the managers see that the different types of obligations are in constant and dynamic tension with one another. The most critical tensions naturally are those between the economic domain and the other three domains of CSR according to Carroll – legal, ethical and philanthropic. “The traditionalist might see this as a conflict between a firm’s “concern for profits” and its “concern for society,” but it is suggested here that this is an oversimplification.” [7] 

The intersecting circles model

The Intersecting circles model is very different from the Pyramidal one and the two main differences are that it recognizes the possibility of intersection between the CSR domains and it eliminates the hierarchical structure. Since the interconnection between the different domains of CSR is one of its integral characteristics and is of great importance Carroll, together with Schwartz, revised his model and proposed an alternative approach. The IC model holds that “the different responsibilities are in dynamic interplay with each other, and it is the overall corporate responsibility to advance harmony and resolve conflicts between them.” [9] This model claims that the economic responsibility is not necessarily the most fundamental, but all responsibilities a company has to the community are equally important.

The concentric circle model

The concentric-circle (CON) model is similar to both the pyramidal and the IC models. The similarities with the pyramidal are in that it views the economic role of business as its core social responsibility. And the similarities to the IC model are in that it emphasizes the interrelationships among the different corporate social responsibilities. But apart from those similarities this model is quite different from both the previous models. The CON model defines the corporate economic role in terms of enchasing the good of society – “be constructively profitable”, while the pyramid defines it in terms of narrow self – interest – “be profitable”. In contrast both with the pyramid and the IC model, the CON model outlines the non economic social responsibilities as embracing and permeating the core economic responsibilities. [11] 

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Potential business benefits of CSR (Arguments for CSR)

There are a number of potential benefits a business could receive by implementing a CSR policy. Their impact on the said business may vary depending on the nature and scale of the company and on the intensity of the CSR policy adopted by the company.

Some of the reasons a company decides to implement a CSR policy are:

Enlightened Self-Interest

Or in other words that businesses’ long – term interest is to be socially responsible. The society faces some very serious problems brought largely by the rise of the large corporations and the increased use of resources and in order for the businesses to have the opportunity for a future development and in a more extreme matter for a future they must try and do their best to solve or at least ameliorate those problems.

Also nowadays people are more and more concerned about the future of the Earth and the abovementioned problems and are prone to look for a developed CSR program in the company they work for. This means that a CSR program can be an aid to recruitment of new employees and retention of the existing ones. CSR can also help improve the perception of a company among its staff, particularly when said staff is involved in the policy through different benefits and activities provided by the company.

Government restrictions

Another reason companies implement CSR policies are the Government regulations and interventions and the benefits the Governments has for “model citizens”. Corporations are keen to avoid interference in their business through taxation or regulations. They prevent them by taking substantive voluntary steps, whit which they can persuade governments and the community that they are taking issues such as health and safety, diversity, or the environment seriously.

Brand differentiation

A good CSR policy can also help a company improve its standing with the community. In the modern marketplace companies look for ways to set themselves apart from their competitors and a CSR policy can have a big role in building customer loyalty. Within the past decade a poll revealed that, with a 95 percent majority, the public believes not only that companies should focus on profits for shareholders but also that companies should be responsible to their workers and communities, even if making things better for workers and communities requires companies to sacrifice some profits. [12] 

Risk management

Risk management is a central part in most corporate strategies. Reputations that take decades to build up can be ruined in hours through incidents such as corruption scandals or environmental accidents. A good CSR program and a culture of “doing the right thing” can offset these risks and prevent from drawing unwanted and negative attention from the Government and the regulatory organs.

Criticisms and concerns (Arguments against CSR)

Even though there are many supporters of CSR, there is also a lot of criticism and concerns. Some of them are:

Nature of business

In the classical economics the main purpose of a company is to earn profit. Milton Friedman, argued that social issues are not the concern of business people and that these problems should be resolved by the unfettered workings of the free-market system. [13] And if the free market cannot solve the problems then the government and legislation should do it. Friedman also claims that since only people can have social responsibilities, corporations are only responsible to their shareholders and not to society as a whole.

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Some critics believe that CSR programs are undertaken by some businesses just to distract the public from the core operations of the said business. They argue that some corporations start CSR programs for the commercial benefit they enjoy through raising their reputation with the public or with government and suggest that corporations which exist solely to maximize profits are unable to advance the interests of society as a whole. [14] One such company is McDonald’s.

Since the 1970s, the McDonald’s Corporation’s association with Ronald McDonald House has been viewed as CSR and relationship marketing and more recently the company has strengthened its CSR programs related to its labor, environmental and other practices. Nevertheless, in the case of McDonald’s Restaurants v Morris & Steel it was ruled that to say that McDonald’s employees worldwide do badly in terms of pay and conditions and that if one eats enough McDonald’s food, one’s diet may well become high in fat etc, with the very real risk of heart disease is true. [15] 

Dilutes Business Purpose

Another criticism id that businesses and in particular managers are more focused on finance and operations and are not equipped to handle social decisions. This leads to dilatation of the business’ purpose. Critics argue that implementing a CSR policy would put business into fields of endeavor not related to their “proper aim” – to earn profit.

Too much power

Another argument against CSR is that businesses already have enough power in their hands – economic, environmental and technological. Why should they have even more? In reality this argument is void because businesses have this social power and furthermore this view ignores the option that businesses could use their social power for the public good instead of their personal gain.

Social Accounting and Auditing

Social Accounting and Audit establishes a framework for ongoing monitoring, evaluation and accountability to stakeholders both internal and external to the organization. It helps companies to examine their performance and attempts at reaching social, environmental and economic objectives and ensure that it is working according to its values. Some of the key principles of Social Accounting and Auditing are encompassing the views of people that are important to the company; comprehensiveness; ability to be viewed in comparison with other companies; done on regular intervals; checked by a third person and readily available to people in and outside of the company.

There are three main steps in Social Accounting and Auditing. Before the actual process starts there is a step called Getting ready and stands for the period in which a company learns how Social Accounting works, what recourses it requires and how it is managed. The first step is Planning – the organization clarifies its mission, objectives, activities and values. The second step is the actual Accounting – the company decides the focus of the social accounting, collects relevant information and analyses it. The final step is Reporting and Auditing – the information collected and analyzed in Step 2 is brought together in a single document, which then is reviewed by people for outside the company and presented to the wider public.

Practical part

JUNG – Company’s history

JUNG is a limited liability company established in 1994.It was founded by Nikolay Penev and Hristofor Naydenov. The company’s main scope of activities includes construction and trade.

In 2004 Jung Project is registered and in 2007 the company reorganizes. The two core activities of the company are divided into different companies with JUNG carrying out only commercial activity and JUNG Project – only construction activity.

Nikolay Penev and Hristofor Naydenov become Chief executive officers of JUNG Project and develop the construction services of the company. JUNG Project offers many services – turn-key construction, making and mounting of metal structures, roofing and façade units and elements, design work, etc.

Ivo Georgiev and Tinka Dimitrova were appointed for CEOs of JUNG in order to carry on the trade related activities of the previously joined business. They trade with construction products, construction chemistry and mixtures, heat insulations, dry construction systems, paints, varnishes and coatings, doors, bathroom furnishing, drainage systems, tools, roof lighting.

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