"Corporate Social Responsibility (CSR) analyses economic, legal, moral, social, and physical aspect of environment – Barnard (1938)" (Crowter & Aras, 2008).
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.
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.
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.
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.