Is the adoption by an organisation of a policy of corporate social responsibility no more than a form of enlightened self-interest?

University Degree Business and Administrative studies

Business is increasingly becoming a target for ethical concern. This is evident from the way that consumers act in response to some companies’ actions. For example, when it became apparent that Nike was employing cheap labour in ‘sweatshop’ style factories to produce goods.

One way for organisations to tackle this concern is through adopting an ethical approach to the way they treat both their workforce and external body’s.

There are two opposing theories on the issue of social corporate responsibility and role of business in society.

Firstly, there is the economist or classical view, which believes that management’s only social responsibility is to maximize profit. One supporter of this opinion is Friedman, who argues that managers or directors who are in charge of the business have no right to give away shareholders money by spending it on ‘social good’ because it adds to the cost of doing business. (Kobbins & Coulter, 1996). In addition he says that these costs are actually passed on to consumers through higher prices and smaller profits causing a lower dividend. This is true to a certain extent and is more applicable to public companies than those owned by managers and not responsible to shareholders. In the case of public companies though, they have a wider stakeholder responsibility. Stakeholders include shareholders, customers, employees, communities and others affected by corporate behaviours.

Stakeholder theory suggests that it is possible to improve decision making by identifying and considering all individuals or groups who have some significant personal stake or interest in the organisation (Boddy, 2002) Traditionally, the view that Friedman takes is the one taken on by management, but there is clear evidence from the growth of ethical unit trusts (Boddy, 2002) that some investors choose to invest on an ethical basis. This reflects the fact that they value social responsibility over their own wealth.

An emphasising point on this matter is that “just as society depends on business organisations for goods and services, so business depends on society. It cannot operate without inputs from society in the form of employees, capital and physical resources.” (Boddy 2002) So why not give something back?

The way in which businesses operate inevitably has an effect on society, some of which can be negative. The concept of corporate social responsibility (CSR) provides a way for organisations to give something back to the society on which they have effect. There are many different definitions of what CSR actually is however most definitions include voluntary management and reporting of environmental, social and financial performance in a manner that meets or exceeds ethical, legal, commercial and stakeholder expectations. (Ethical Corporation, 2002-3)

The view that CSR is a form of enlightened self-interest falls under the socio-economic opinion on the subject. This is the second opinion on the role of business in society.

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The view that CSR is a form of enlightened self-interest falls under the socio-economic opinion on the subject. This is the second opinion on the role of business in society.

The socio-economic view believes that management’s social responsibility goes beyond making profits to include protecting and improving society’s welfare. (Kobbins & Coulter, 2002) This position is based on the belief that society’s expectations of business have changed; public opinion now supports businesses pursuing economic and social goals. This is because they are now more aware of reasons why businesses should take action. For example, the damage a chemical company may inflict on its surrounding community by manufacturing chemicals in the form of waste products in surrounding waters. The socially responsible way of dealing with this would be for the company to ensure cleanliness standards are met.

It is the reasons and circumstances under which businesses decide to undertake policies of CSR that can be questioned.

Corporations are subject to multiple pressures to operate in socially responsible fashion, some of which come from government requirements or general expectations of social legitimacy (Cochran et al, 1999).

As far as legislation goes in the United Kingdom, a private members bill on Corporate Social Responsibility was introduced in June 2002 outlining provisions for CSR reporting, requirements for companies to consult interested parties on major projects, increased directors duties and liabilities and penalties for non-compliance (Freshfields Bruckhaus Deringer, 2003), but no actual laws or regulations have been passed. Although in June 2001, the European commission published a green paper ‘Promoting a European Framework for Corporate Social Responsibility’, which aimed to launch a European Union (EU) debate on the concept of CSR, and identify a framework for the promotion of CSR within the union and internationally. This was then followed by a white paper in July 2002, ‘Corporate Social Responsibility: Business contribution to sustainable development’ but still no actual regulations were installed, the paper states that CSR should remain a voluntary principle. (Freshfields Bruckhaus Deringer, 2003). This shows that governments are concerned but still do not see it as their responsibility to take action. They seem to be of the opinion that if organisations choose to be socially responsible they have provided some guidelines but ultimately it is the organisations decision. Saying that though, in the years to come the problem will be that much worse if nothing is done so the government may then impose strict regulations that businesses will have to comply with. If they have done nothing previously, the cost to the company to meet these regulations may be too big for them to cope with. Therefore by having a CSR policy, companies could just be pre-empting government actions.

Public perspective

Over the last few years there has been increasing interest from the public and stakeholders about the effects business has on the environment and how businesses actually relate to society. This increased awareness is due to societies increased demand for information, which is made accessible by tools such as the Internet, and through campaigns by pioneering companies such The Body Shop. With the knowledge people glean from the internet, such as how other countries are dealing with the situation better, the publics expectation of British firms also grow.

This has lead to pressures from the public to be socially responsible, which can be expressed through consumer boycotts, ethical consumers and the costs of being irresponsible. (Boddy, 2002) Consumer boycotts reflect the active disapproval of society, as well as generating media interest that spreads the news of corporate misdemeanour. An example of this is the 1996 French boycott concerning nuclear testing issues. Ethical consumers tend to act on initiative. They alter their consumer decision making to take into account information regarding ethical issues. Therefore, if a company has been irresponsible and earned a bad reputation in this area, the business could suffer as a result.

Some consumers are also of the opinion that business has an ethical obligation. They should be socially responsible because it is the right thing to do. In addition they also have the power and resources to instigate change. This can be by doing things such as supporting public and charitable projects that need assistance or even simply trying to address social problems before they become too serious and costly to rectify.

Business perspective

There are also benefits that businesses will actually gain from too. Businesses can create a favourable public image by pursuing social goals. This relates back to the fact that the public are more aware of the problems; therefore if a company is seen to be doing something to resolve these issues, they are smiled upon. A good example of a company that has a reputation for and good public image from chasing social goals is The Body Shop. The Body Shop’s mission is ‘To dedicate our business to the pursuit of social and environmental change’. (Boddy, 2002) Although the company did not set out to create a good public image, through its actions the business has benefited hugely, with no need for the usual advertising campaigns. BT also attributes a third of its image, reputation and trust to its CSR activities. (Simms, 2002)

Another benefit associated with advocating corporate social responsibility is that, according to Kobbins & Coulter (2002) socially responsible companies tend to have more secured long-run profits and in turn, business stock prices are improved in the long run. This could be a direct effect of a company being socially responsible or it could just be that the companies that do take on the added responsibility are already doing prosperous business, without further research it is not possible to say exactly. Although, if a CSR policy promotes a good image for a company, this will generally increase interest in the business through increased sale, in store and of shares, which in turn could be reflected by the company increasing its long-run profits.

From looking at these points, it is possible to say that corporate social responsibility is a form of enlightened self-interest, but only if putting these policies into action actually created a cost for the business. As Boddy (2002) says that “enlightened self interest is the practice of acting in a way that is costly or inconvenient at present, but which is believed to be in one’s best interest in the long term.”

In conclusion, it is possible to see how CSR has become integrated into the way businesses operate. It has come as a result of businesses responding to trends concerning changing consumer expectations, opinions and sometimes pressure. In most cases, the best solution to these changes has been to introduce a CSR policy into their way of working. This also reflects businesses awareness of their different stakeholder needs and their attempts to satisfy them.

As with many new business opportunities, surely the pros and cons of integrating such a system will have been measured. For example, they are not going to set out on a new project without looking at costs they will occur, and benefits they will gain, both in the short and long term situations. So if it does in fact cost them a small amount to initiate a CSR policy, but the long-term gains are substantial – as enlightened self-interest suggest – then the organisation would be fool not to take it on. But I do not believe that this is the only reason that companies are socially responsible. Generally one of the greatest sources of feedback on new systems such as CSR is the workforce. In fact according to Cairncross (1995), in many companies the pressure to adopt sound environmental policies came initially from the workforce. Another factor is that managers often want to have an environmental record to be proud of, and one way to go about getting one is to instigate a good CSR policy with long-term benefits for consumers, public and the business. But more often than not, I believe that businesses instigate social policies like these because they realise that they have the power to make a difference and actually want to do something. When it is partially them that are responsible for the initial need for action, it is only right that they do at least try to compensate.

References

Adams, R, Carruthers, J & Hamil, S. (1991) Changing Corporate Values London: Kogan Page Ltd

Boddy, D. (2002) Management: An Introduction Europe: Prentice Hall

Cairncross, F. (1995) Green, Inc. London: Earthscan Publications Limited

Cochran, P, Trevino, L & Weaver, G. (1999) Integrated and Decoupled Corporate Social Performance: Management Commitments, External Pressures, and Corporate Ethics Practices. Academy of Management Journal; 42; p539

Davis, J. (1994) Greening Business Oxford: Blackwell Publishers

Ethical Corporation (2002-2003) The Business of Business: Managing Corporate Social Responsibility: What Business Leaders are Saying and Doing 2002-2007 [On-line] accessed from http://www.nimahunter.com/PDFS/CSR_ExecOverV.pdf (accessed 12/12/03)

Freshfields Bruckhaus Deringer (2003) Are You Being Responsible? [On-line] accessed from http://www.legal500.com/devs/uk/ev/ukev_080.htm (accessed 1/4/04)

Gunther, M. (2003) Tree Huggers, Soy Lovers, and Profits: Some of America’s biggest corporations believe that the best way to make money is by saving the world. And guess what? They just might be right; Fortune; 147; p98

Kobbins, S & Coulter, M. (2002) Management Europe: Prentice Hall