"Corporate
Social Responsibility (CSR) analyses economic, legal, moral, social, and
physical aspect of environment – Barnard (1938)" (Crowter & Aras, 2008).
Introduction
According
to (Crowter & Aras, 2008), Corporate Social
responsibility is a concept, which has become dominant in business reporting.
Every corporation has a policy concerning CSR and produces a report annually
detailing its activity. In addition, of course each of us claims to be able to
recognize corporate activity that is socially responsible and the activity that
is not socially responsible.
In a broad
sense, CSR is the relationship between global corporations, governments of the
countries and individual citizen (Crowter & Aras, 2008). Narrowing it down,
the definition considers the relationship between a corporation and the local
society where it operates. In other words, CSR is concerned with the
relationship between a corporation and its stakeholders –parties affected by
the corporation's activities.
As cited by
(Crowter & Aras, 2008), according to the EU
commission [(2002) 347 final: 5] "… CSR is a concept whereby companies
integrate social and environment concerns in their business operations and
their interaction with the stakeholders on a voluntary basis."
Organizational Social Responsibility
Social
responsibility is the set of obligations an organization has to protect and
enhance the societal context in which it functions (Griffin, 2008). Generally, there are organizations'
three areas of social responsibility, towards the organizational stakeholders,
towards the natural environment, and towards general social welfare. Few
organizations emphasize on all three areas equally, whereas others give greater
emphasis to one or two areas. Business ethics also matters because society
cares (Treviño & Nelson, 2011).
If the organization is not socially
responsible, it might have to face severe consequences. They might be the
strike if the organization does not fulfill its responsibility towards
employees or the customers might stop buying the products or services if they
do not fulfill the obligations made to the customers responsibly. The managers
of the organizations should also act socially responsible to avoid the negative
publicity. 'Nike' for example had to face negative publicity for not acting socially
responsible and employing sweat shop labors in Vietnam and using child labor in
Bangladesh. This act of the managers led the conscious customers to boycott its
product. Therefore, the companies must consider ethical grounds before taking
any decisions, which might reflect on the companies' future.
The Ethical Decision – making Process
The
organizations must take ethical decisions. The decisions taken ethically does
not guarantee it would benefit all the stakeholders and make them happy at the
same time. However, the decision that benefits most of the stakeholders at the
same time is considered as the most ethical in the business context. For the
organization ethical decision – making is very much essential and is very
crucial. The ethical decision making process include creating ethical awareness,
to value the decision on the ethical grounds, and to implement the decision if
applicable and benefits most of its stakeholders. The corporate reputation can
sometimes depend on the ethical grounds of the decision made by the managers of
the organization. The very much-reputed company like the 'Nike' faced a
downturn just because of the decision to establish the sweatshop at Vietnam.
Corporate Reputation
One concept,
which is of growing importance for business management, is that of corporate
reputation (Crowter & Aras, 2008). In the book Management, (Griffin, 2008), borrows the statement of Aramark CEO; Joseph
Neubauer – "It takes a lifetime to build a reputation, and only a short
time to lose it all." This statement makes it clear that building a
reputation needs a long time and much effort, whereas the so hard to build
reputation can end in a matter of days. The organizations must be very careful
about the ethical grounds before taking any decision to maintain its
reputation.
The corporate reputation has become
the most important asset for the businesses to gain competitive advantage, and to
have financial and social success. (Treviño & Nelson, 2011), have stated in
their book; Managing Business Ethics:
Straight Talk about How to Do it Right, according to Business Week,
"business has a huge stake in the way the rest of the society perceives
its ethical standards." On the negative side, scandals give business a
black eye and cost money (Treviño & Nelson, 2011). However, on the
positive side the benefits are enormous.
The benefits
of having a good reputation are very large and it pays out in the long term
though the company would have to face huge short-term losses. One of the
important benefits that the organization would obtain is the fact that good
corporate reputation increases the shareholders' value. The strong corporate
reputation inspires confidence in the investors, which in turn leads to a
higher stock price for a company (Crowter & Aras, 2008). In its 2 march 1998
issue, Fortune reported that if an
investor had bought $1,000 worth of stock in its top 10 admired companies and
reinvested the dividends, the investment would have compounded to $146,419
–three times more than a similar investment in the Standard & Poor's
(S&P) 500 would have produced over the same period time period (Treviño & Nelson, 2011). The corporate reputation
also leads to increased customer loyalty to the company's products and
services.
Other benefits of a strong
corporate reputation could be the opportunities to form partnerships and
strategic alliances as the partnering companies have the possibility to improve
their own reputation by association. On the other hand, "employee morale
and commitment are high in the corporations with a good corporate reputation"
(Crowter & Aras, 2008). During crisis, the
strong corporate reputation can protect the company from deprecation. (Crowter & Aras, 2008), in their book Corporate Social Responsibility say; a
good example is the Pepsi Cola tampering case according to which products on
sale were found to contain hypodermic syringes. Pepsi dealt effectively with
the crisis by defusing public alarm with public relation campaign that
highlighted the integrity of its manufacturing process and its corporate
credibility.
The Corporate Social Responsibility Pyramid
A conscientious
businessperson will only accept the Corporate Social Responsibility if the
framework of the entire business responsibility are held together. There are mainly
four types of responsibility that constitute CSR; economic, legal, ethical and philanthropic.
Moreover, these four types of responsibilities can be shown as a pyramid. To be
sure, all these kinds of responsibilities have always existed to some extent,
but it has only been in recent years that the ethical and the philanthropic
functions have taken a significant place (Carroll, 1991).
The
economic responsibility is the foremost among the four. This responsibility
involves the production and distribution of the products and/or services the
consumers need and want while realizing the acceptable profit. This is the
primary responsibility for the business because without the financial strength,
fulfilling other responsibility would become arguable. Fulfilling this
responsibility effectively is considered to represent an important ethical
purpose of business because it provided good jobs, important products and
services, and contributes to a vibrant economy (Treviño & Nelson, 2011).
Legal
responsibilities reflect a view of "codified ethics" in the sense
that embody basic notions of fair operations as established by our lawmakers (Carroll, 1991). This responsibility
though shown as the next layer in the pyramid, it happens to coexist with the
economic responsibilities. The businesses must act as the prevailing law of the
state in which it operates.
Ethical
responsibilities cover a much wider range than covered by the legal responsibilities.
Sometimes ethics does not fit within the boundary of law. Many things are legal
but are unethical behavior to practice. For an example, it is be legal to sell
tobacco products to the minors in Indonesia, where toddlers are found smoking cigarettes,
but is this act of the tobacco industry ethical? Ethical responsibilities deal
with such things that are out of reach within laws of the nation. The business
ethics movement of the past decade has firmly established an ethical
responsibility as a legitimate CSR component (Carroll, 1991). The ethical responsibilities also help
to widen the scope of the law. We can hope a day will come in Indonesia that
the selling of cigarettes to minors will not only be unethical but also
illegal.
Philanthropic
responsibilities are those that establish firms as the good corporate citizens.
This responsibility includes organizations' participation in activities that encourage
human wellbeing. Donating time, money, products and/or services are some
examples of fulfilling the philanthropic responsibilities. However, failure to
fulfill the philanthropic responsibility is not considered unethical because it
is voluntary aspect of the corporate social responsibility.
The Importance of Trust
Trust is
very important in our daily life. Similar is the case in business
organizations. The trust in any business organization depends on the corporate reputation
earned by the firm. People tend to trust the Wal-Mart more in comparison to any
next-door shops. The world would not have existed without trust. In other
words, trust is what has kept us alive. When there is no trust, people would be
terrified and fearful of every other human being. The companies would not have been
where it is now. Most of the business transactions are credit based. These
businesses run on trust. People deposit their money in the banks with the trust
that it would be much safer place to keep than to keep at home. Similarly,
banks loan also sanction based on trust. Banks only provide loans to those people
who the banks trust are capable of repaying the loan back at all costs.
Therefore, trust is the fourth basic need in human life other than food,
clothing and shelter.
Conclusion
The concept
of CSR has become very popular. There are various components of corporate
social responsibility like the organizational social responsibility, the
corporate reputation, the trust and its importance.
Reference
Carroll, A. B. (1991, July - August). Business
Horizons. The Pyramid of Social Corporate Responsibility: Towards the Moral
Management of Organizational Stakeholders .
Crowter, D., & Aras, G. (2008). Corporate
Social Responsibility. London: BookBoon.
Griffin, R. W. (2008). Management (8th ed.).
New Delhi: Biztantra.
Treviño, L. K., & Nelson, K. A. (2011). Managing
Business Ethics: Straight Talk about How to Do it Right (5th ed.). New
Jersey: John Wiley & Sons Inc.
