Corporate Social Responsibility

University Degree Business and Administrative studies

Introduction

The roles of organisations in society are considerably important and their actions impact on society significantly. Organisations are the centre of economy and competitiveness of local community and country. However at the same time, they cannot do businesses isolatable ways in order to achieve objectives. Therefore, their relationships and responsibilities in society, known as corporate social responsibility, have become increasingly an essential fact in corporate governance. It has become a fundamental criterion of operating businesses and organisations need to meet social responsibilities beyond legal responsibilities. In addition, both large or multinational companies and SMEs are subject of corporate social responsibility. This essay will examine whether corporate governance should play role in corporate social responsibility, and then after it will consider what roles corporate governance should play in corporate social responsibility, in a way promoting the welfare of society as well as benefits of businesses.

The concept of corporate governance and corporate social responsibility

The accountability of corporate governance has considerably increased, because wider stakeholders’ interests are important in organisations. The Green Paper (2001) defines the corporate governance as, “a set of relationships between a company’s management, its board, its shareholders and other stakeholders (, 10/02/2008)”. In contrast to the traditional view of corporate governance which maximise the shareholders or owner’s profits, these days it concerns a wide range of responsibilities on its stakeholders and society. Sheikh and Rees argue that corporate governance is responsible towards their shareholders and other stakeholders in the company including employees, customers and suppliers. In addition, it also includes social responsibility towards other stakeholders (Sheikh and Rees, 2000, 8) which includes environment and local communities. Therefore the corporate social responsibility has become a wide issue in corporate governance to deal with.

According to Green Paper (2001), corporate social responsibility means “companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis (, 10/02/2008)”. As it is demonstrated the above, corporate governance should consider responsibilities on environment, local community and relation between stakeholders based on good faith beyond legal obligations.

In general, each organisation approaches corporate social responsibility in different ways. Griffin distinguishes four types of corporate social responsibility approaches of the company. Firstly, in Obstructionist approach, organisations do as little as action to solve social or environmental problems. Secondly, Defensive approach is that organisations meet all legal responsibilities, but do not have further attention beyond that. Its management still aims for maximizing the profits of the company. Thirdly, in Accommodative approach, management considers both legal and ethical obligations, but still these obligations are selected. Lastly, Proactive approach companies play the highest degree of social responsibility in which they act as a citizen of the society and proactively contribute their responsibility on the society (Griffin, 2008, 102-3)

Two different views of corporate social responsibility

Proponents’ view of corporate social responsibility

In the proponents’ view of corporate social responsibility, corporate should generate the improvement of society rather than maximize shareholders, owner and company’s profits. Mullins says “stakeholder theory, which emphasise a much broader set of social responsibilities for business (Mullins, 2005, 167)”. In July 1992, fifty-five firms established the association, Business for Social Responsibility, in order to protect stakeholders which are affected by businesses’ actions (Scheoell et al, 1993, 44). Proponents of corporate social responsibility argue that companies should have responsibility on their actions. Griffin argues that organisations have to solve problems which are created by their business actions, such as air and water pollutions, resource depletion (Griffin, 2008, 99). In addition, Robbins and Coulter claim that organisation as a member of society, they have responsibilities beyond making profits and they should protect and improve society’s welfare (Robbins and Coulter, 2007, 116).

A survey supports this view that more than 4,200 managers in 116 countries agreed that organization should play their role in society beyond their shareholder obligation (Robbins and Coulter, 2007, 117). Furthermore, according to the survey by Economist Intelligence Unit, only 4 percent responded that corporate social responsibility is not worth ( 15/02/2008).

Opponents’ view of corporate social responsibility

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Opponents’ view of corporate social responsibility

Mullins presents that the agency theory, which the director of a company is an agent of the owner and their roles are to maximize owner and shareholders interests and profits (Mullins, 2005, 167). As an opponent of corporate social responsibility Milton Friedman, an economist, claims that one of the most important responsibilities of managers is to operate in the shareholders’ interests and maximize their profits (Robbins and Coulter, 116). Moreover, a management professor Alfred Rappaport claims that costs of corporate social responsibility expenditure do not increase the value of the company but it increases the price of products. Subsequently, employees get lower wages and shareholders get low returns (Schoell et al, 1993, 45) and it possibly prevent economic functions of the company and shareholders’ money are spent on social costs. In addition, environmental friendly business does not always bring expected outcomes. In Body Shop case, despite of its environmental friendly operation, people realised it commercially aims to make profits, as a result it failed to produce expected result (Hannagan, 105).

The benefits of social responsibility

As it is demonstrated in the above the two different views, corporate social responsibility has advantages and disadvantages. However, nowadays, corporate social responsibility is a global agenda and albeit it is difficult to calculate the financial returns of social responsibility, it makes much more profits than average companies. Post claims that studies illustrate that good social responsibility performing companies have better outcomes of making profits and growths (Post et al, 1996, 53). As it is said in the Green Paper (2001), directly, it improves the working conditions of employees which produce better quality of products and profits. In addition, indirectly, a good reputation of organisations gets more attentions of consumers and investors (www.europa.eu, 10/02/2008), Subsequently, it could increase the value of shares. Furthermore, Post illustrates the principle, long-run profits versus short-run profits, is that even though input of money on socially responsible actions would not make short-term profits, it would be returned more in longer period (Post et al, 1996, 54). For example, when children and students, who saw its good performance of social responsibility or got benefits from that company, find jobs they will willing to work in that company, consequently company can recruit intelligent employees.

Dimension of corporate social responsibility

Corporate social responsibility is a wide spectrum of activities in businesses and society. Boddy distinguishes corporate social responsibility into four sectors; (1) economic responsibilities, (2) legal responsibilities, (3) ethical responsibilities, and (4) discretionary responsibilities (Boddy, 2005, 146-147). Corporate governance should play their roles based on these responsibilities because these affect on management of businesses internally and externally.

The internal dimension of social responsibility

Socially responsible actions involve within the company, in particular to their employees. The most important asset of the company is employees and they expect to meet their needs from organisations. Boddy argues “employees expect organisations to meet a range of needs such as security, safe working conditions, rewarding work and fairness, as well as esteem and personal development (Boddy, 14)”. Organisations should treat their employees fairly from the recruitment stage to their working conditions. According to the Sex Discrimination Act 1975 and the Disability Discrimination Act 1995, organisations have to recruit their employees fairly regardless sex and disability and further ethnic, age, sexual orientation and marital status. In addition, according to the Equal Pay Act 1970, employees, who have similar work experience and abilities, have to get equal pay. Moreover, they have to gain the same opportunities to get promotions, training and rewards. Child labour and long hour working also should be banned. . In addition, providing leisure and social facilities within company can promote employees demands. As increasing demands of women employees, it would be benefits to establish the nursery in the company rather than intelligent women leave or rest work for a long period of time. Essentially, Health and safety are fundamental criteria of social responsibility within organisation. Organisation must promote a good working environment in order to employees work in safe condition because and it also impact on providing a good quality of products and service

The external dimension of social responsibility

Corporate social responsibility is not only limited within the company, it also embraces a wide range of social responsibilities into stakeholders which include local communities, environment, suppliers, business partners, investors and customers.

Organisations have economic responsibilities in local community and businesses and local community reciprocate each other. According to the Green Paper (2001), companies contribute to local communities, but companies also depend on communities. ( 10/02/2008) Businesses provide economic growth in local community, but at the same time they get resources from local community including human capital, and local community is one of the biggest consumers in the business. Therefore, organisations should have responsibilities on their business activities and promote local communities’ welfare, in a way providing facilities such as hospital, school, transportation, funding and entertainment.

In addition, as Hannagan define an environmental issue among the PESTEL framework, (Hannahan, 2005, 104) corporate should prevent the creating of environmental damages, because it pollutes environment and affects ordinary people’s life due to pollution of water, air and soil. Several years ago, one of Ashland Oil’s tanks erupted and spelt more than 500,000 gallons of diesel fuel into Pennsylvania’s Monongahela River. It polluted environment enormously and they breached the US environmental law (Griffin, 2008, 99). Therefore, it would be better to prevent potential accidents in advance in a way establishing socially responsible facilities such as sewage and purification systems rather than take action after damaging environment. In addition, if they reduce the use of natural resources and pollution, it will reduce the costs of energy and waste disposal bills.

Organisations also have to treat their suppliers and business partners fairly. Plunkett and Attener claim “Suppliers and businesses should build relationship based on mutual trust (Plunkett and Attner, 1994, 778)”. Organisations should agree with suppliers and business partner to pay on time and fairly. In addition, they have to give proper information so that suppliers and partners are not damaged or lagged behind in competition. Moreover, customers have rights to receive high quality of products and service and they should be given information about products because customers expect safety, durability and after-sales service of products. According to OECD Trade Policy Working Paper No 47 (2006), organisations should attach labels, such as trade marks, brand name, documents and referring to products, and a consumer guide which gives product information, price, specification and result of the test (, 10/02/2008). In addition, through advertising, organisation should aware customers the danger of abusiveness of particular products, such as tobacco, alcohol and drugs.

The process of making policies and taking actions of social responsibility

At the first stage of corporate social responsibility, companies set the policies and adopt mission, code of conduct, core value and responsibility towards stakeholders in order to achieve objectives. These values are converted into action across the organisations. (, 10/02/2008). According to Certo, the main points are that companies need to examine whether corporate social responsibility exists in their business areas and whether companies have a right to take actions. In addition, they need to consider whether benefits outweigh the inputs and whether they can afford these inputs. Afterwards, they need to examine whether they can acquire competitiveness through these actions. Finally, when they come to an agreement to make policies, they take proposed actions (Certo, 2006, 58).

These policies are converted into action in three phases. Firstly, when the top management notices the socially obligatory issue, they communicate policies to organisation members and increase awareness. Then, the top management gathers information and the staff specialists give technical advice and design data in order to make technical and informational groundwork. Lastly, the top management try to obtain commitments from the organisation member and attempt to get realistic outcomes. At this stage the staff specialists encourage the organisation to accept the socially obligatory action and the division management commits resources and modifies procedures. Eventually, socially responsible actions can be performed (Certo, 2006, 60-62).

Evaluating the corporate social responsibility

Corporate social responsibility is a system in which organisations and stakeholders or society can benefit intractably and they can continue business without consideration of the stakeholders or society. Therefore, corporate governance should play active roles in corporate social responsibility. Companies need to assess their socially responsible actions through social audit, accounting and social responsibility reporting so that they can review and reinforce their performance on corporate social responsibility. Corporate social investing is also demanded in certain amount.

In addition, it is an essential point to compromise conflicts which can be caused between management and stakeholders while corporate governance performs corporate social responsibilities. Hence, it is crucial to compromise these conflicts. For example, when companies lose competitiveness or even do not make optimum profits and if recipients of corporate social responsibility get higher than companies it will lead improper operation of corporate social responsibility, so it will influence negatively the overall organisation’s economic function. In addition, when recipients of corporate social responsibility are not satisfied it will also impact on operating businesses. Thus, the crucial point is establishing balance between achieving organisations’ aims and satisfying stakeholders’ expectations.

Moreover, corporate social governance is not only limited in company, but it is also operated in national level as we can see the UK government’s CSR strategy. It covers the national vision, strategy, priorities and keynotes action areas in order to encourage the accountability of corporate social responsibility in UK organisations (Hannagan, 569-70). In addition, frequently corporation cannot solve social problems by themselves, but it is needed involvement of government. The government is a director of corporate social responsibility, but it can be one of stakeholders of corporation. Therefore, it would be a vital the relation between corporate governance and the government.

Bibliography

Books

David Boddy (2005) “Management An Introduction”; 3rd edition, Essex, FT Prentice Hall

Griffin (2008) “Management”; 9th edition, Boston, Houghton Mifflin

Hannagan, T (2005) Management Concepts & Practices (4th edition) Essex: Prentice Hall

James E. Post, William C. Frederick, Anne T. Lawrence, James Weber, (1996) “Business And Society, Corporate Strategy, Public Policy, Ethics”; 8th Edition, McGraw-Hill

Laurie J. Mullins (2005) “Management and Organisational Behaviour”; 7th edition, Essex, FT Prentice Hall

Saleem Sheikh, William Rees (1995) “Corporate Governance & Corporate Control”, London, Cavendish

Samuel C. Certo, S. Trevis Certo (2006) “Modern Management”; 10th edition, New Jersey, Pearson Prentice Hall

Stephen P. Robbins, Mary Coulter (2007) “Management”; 9th edition, New Jersey, Pearson Prentice Hall

Warren R. Plunkett, Raymond F. Attner, (1994) “Introduction To Management”; 5th edition, California, Wadsworth Publishing Company

William F. Schoell, Gary Dessler, John A Reinecke (1993) “Introduction to Business, Opening Doors”; 7th edition, Mssachusetts, Allyn and Bacon

Electronic Resource

COMMISSION OF THE EUROPEAN COMMUNITEIS, Green Paper, “Promoting a European framework for Corporate Social Responsibility”

[Accessed 10th February 2008]

Economist “Does CSR work”

[Accessed 15th February 2008]

OECD “CSR AND TRADE: INFORMING CONSUMERS ABOUT SOCIAL AND ENVIRONMENTAL CONDITIONS OF GLOBALISED PRODUCTION”

[Accessed 10th February 2008]

Corporate Social Responsibility

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