What factors determine the extent to which a business is socially responsible?

What factors determine the extent to

which a business is socially responsible?

Introduction

Social responsibility is the responsibility which companies and businesses are perceived to have towards their stakeholders. This social responsibility can include the environment, shareholders, suppliers, employees, creditors, customers, and the community. These groups are collectively known as stakeholders. The community covers the area around which a business operates, in some case this can lead to global responsibility. My investigation will look to discover to whom business is socially responsible, and why they are so. Many companies however are socially irresponsible, and I will also seek to discover why they are so, and which motives drive them to do it.

Research Findings

I have researched both responsible and irresponsible companies through media reports, internet websites and through Business Studies textbooks. Every company behaves in a certain manner, this is their ethos, and it determines their actions. Corporate Social Responsibility (CSR) is a priority for some companies, less so for others. There are varying attitudes to CSR are that it either is a waste of money, or that it improves a reputation and therefore improve business.

There are many examples of CSR. This can range form the production of free range, or organic foods, and sustainable products. There are a variety of ways and areas in which a company can be socially irresponsible or responsible, and simply because a company is responsible in one area it does not necessitate that it would be responsible in another. These can include environmental issues, women's issues, health, and social issues, diversity issues and educational issues.

Discussion

We have seen from the above that there are many responsible and irresponsible companies, ranging from small businesses to large sized multinationals. They are responsible for various reasons, the most predominant would appear be that they want to help the communities in which they work. Is this necessarily the case though? The capitalist drivers behind these kind companies may be driven by the desire to appear responsible to boost sales and therefore profits.

There are in general three reasons as to why companies are socially responsible or irresponsible. These are Conscience, Perceptions, and PR. Conscience is the genuine leaning towards their stakeholders, that they are honestly committed to improving the situation and at the very least not making it any worse than it currently is. Perceptions is basically whether or not a company can get away with being irresponsible, and whether their activities will go unnoticed. PR is the way that the community and the other stakeholders see the company. This is in effect if they can hide any irresponsibility and promote their responsible acts further than their irresponsibility is criticised.

Shareholders are those who are least affected by the CSR of a company or corporation, as they are motivated by profits. In a cold, capitalist manner they seek profit over ethics and CSR. For example would those who were ethically motivated when purchasing and dealing in shares but stocks in Nike (1)? Probably not. They are well known for being unethical, as they use what are known as ‘sweatshops’. These sweatshops use many unethical and irresponsible methods to increase the profits of the company, regardless of the affect it has on the Community. Nike are of course not the only company who uses the trade-off of pleasing shareholders over the lives and standard of living of its employees. McDonalds is possibly, along with Coca-Cola the best known brand name in the world. Their products and advertising are seen every where, and meals such as their Happy Meal for children is something which is sold globally. It is somewhat ironic then that these ‘Happy meals’ are made using unethical employment (2). So why do McDonalds and Nike do it? In the case of MacDonalds, customers generally accept that corners need to be cut in order to save them money and for the company to make profits. They are lucky in that their unethical and irresponsible behaviour is relatively well hidden, they seem to have a good PR where they manage to bury most of their behaviour that’s unfavourable.

Not all businesses however believe that these corners need to be cut to achieve business success. In the case of the Body Shop their business has been built on their good name in ethical and responsible behaviour. Their shareholders feel that because of the conscience of the Body Shops customers, they will choose it in a trade off against a less ethical company for a similar product. They therefore want the Body Shop to keep a whiter than white record in CSR. If this image is tarnished it will ruin the company’s niche in the market, as an ethical ...

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From the view of the customers they would appear to be a genuinely concerned company as many are. It would also appear to make clear business sense (4)(5) in that people are more happy to buy a product which they believe was ethically produced as opposed to one which was of contentious origins. As the world has gotten ‘smaller’ and communication has increased, consumers have become increasingly aware of the business practices of certain companies, and such was the feeling against companies like BP that they were boycotted, and in extreme examples were violently attacked (6). Increasing bad publicity not only dissuades customers and sends them into the hands of the competition but it also ruins the share price as dealers pull out fearing collapse.

Conclusion

So far I have discovered that what motivates business is profit. They are fully aware that what determines the level of their profits is their customers, if they lose customers their profits and revenues fall. The prime concern for all companies is to at least break even. This would not happen if customers were not buying their products, but an equilibrium between being ethical and responsible needs to be made against the need to make profit to satisfy shareholders, in the eyes of many, the most important stakeholders.

There are several business theories behind CSR. The first is that it is a waste of time, and unless adverse publicity is going to harm your business as it was doing to BP then there is nothing which needs to be done. Another is the strike a balance, that is to put forward some considerations to try and balance out unfair or unethical practices. British Airways for example tries to put something back socially in response to its practise of the use of aviation fuel, unavoidable, but still a polluting and limited resource. There is a sliding scale along which a company has to find it rightful place. Some companies like Levis and the Body Shop are wholeheartedly responsible and ethical, building the success of their business upon this. Perhaps the failings of Levi Straus can be attributed to the fact that the awareness of their practises is limited. Many companies find it hard to strike a balance without ‘putting back’ something to the community from which it has taken so much. Other companies have a hard time in drawing a line between the profit and ethical motives, such as Iceland with their debate as to whether to sell tobacco products.

Research Findings

(1)Nike's Evil Empire
"Quite simply, for many workers around the world the oppression of the unchecked commissars has been replaced by the oppression of the unregulated capitalists, who move their manufacturing from country to country, constantly in search of those who will work for the lowest wages and lowest standards. To some, the Nike swoosh is now as scary as the hammer and sickle."
-- New York Times columnist Thomas Friedman, July 30.

Indonesian women making Nike clothes and shoes are subject to senseless punishments and extreme verbal abuse if they work too slowly or break other factory rules, according to a 1999 survey of 3,500 workers by the Urban Community Mission in Jakarta. The punishments include wage deductions, having their ears pulled, being pinched or slapped on the buttock, being forced to run around the factory yards or having to stand for hours in factory yards (being "dried in the sun"). The survey was conducted between September 10 and October 18 this year (1999) and involved surveying workers from 11 different factories producing for Nike. More than 2,000 workers (57% of respondents) indicated that they had seen workers being subject to this sort of extreme verbal abuse or excessive punishment. Workers also reported that they are forced to work extensive overtime, that it is often extremely hot in work rooms, that access to drinking water is inadequate and that they receive very low wages (77% indicated that their basic wage without overtime was less than $US2 per day).

(2) 'Sweatshops make McDonald's toys'
Hong Kong: Toys given away with McDonald's meals are being produced with the help of child labourers in a sweatshop factory in China, a newspaper reported yesterday. Children as young as 14 work up to 16 hours a day in the factory packaging Winnie the Pooh, Snoopy, Hello Kitty and other toys, the South China Morning Post said. They are paid £1.90 a day, work seven days a week and live 15 to a room in spartan quarters where they sleep on wooden bunk beds with no mattresses, a Post reporter who infiltrated the factory found. A trade union that has visited the factory, City Toys in Shenzhen, southern China, several times, estimates 20 per cent of the 2,000 workers are under China's legal working age of 16. The company's Hong Kong-based director, Mr Jack Lau Kim-hung, said he knew nothing about underage workers. McDonald's expressed concern over the allegations but said it carried out audits on its suppliers and had no reason to believe the factory was employing underage workers. However, pictures in the newspaper show youngsters clearly aged under 16 sitting on a bed and queuing to make phone calls in the factory's living quarters. The children, most of whom come from Gaozhou, 40kilometres west of Shenzhen, told the paper they produced bogus identification cards, and the factory did only rudimentary checks on their age. City Toys is contracted to produce toys for McDonald's by the fast food chain's supplier Simon Marketing (Hong Kong) which insisted it carried out regular checks on conditions at the factory. More than 13 million children aged between 10 and 14 are estimated to work in China, according to the International Labour Organisation.

(3) The Body Shop
The Body Shop was founded in 1990 and raises funds through profits to give to what it see as socially responsible projects. It also endeavours to ensure that as many as possible of its ingredients in its products come from sustainable and natural sources. They use locals to produce their goods and try and pay them a fair price by eliminating the middleman. So far the Body Shop has donated over £5 million pounds to charities and organisations. They have what is called a mission statement, which sets out all of its aims with regards to stakeholders and the environment. The Body Shop has started what it calls Community Trade, where they buy directly from the communities who produce their ingredients. They work in a variety of ways. In Nepal, They have paid for scholarships to ensure girls go to school, they have replanted barren areas with sustainable shrubs, and have promoted AIDS awareness.

(4)Business Benefits of CSR
Customers: 30% of customers have selected or boycotted a product over the past year because of its ethical or social reasons. More than 50% believe those companies working in countries with poor human rights should take some responsibility for the state in which their workers live.
Employees: The majority of managerial level professionals said that knowing a company is socially responsible would improve the esteem in which they held it. One third of business analysts believe that being social responsible directly affects a company's performance financially.

(5)MORI

Poll 1997 18% of people had carried out at least 5 green activities in the last year. 24% avoided using products that were produced by a company with a poor environmental history.

(6) BP

BP was the largest company registered on the London Stock Exchange, and as oil producer was seen to be socially irresponsible. BP is such a global company that it was dragged into arguments over community problems in Alaska to Cambodia to Tibet. It felt it had to do something. They have increased their communication with groups such as Greenpeace, have produced tough targets for pollution for itself, and have invested in future fuels such as solar and wind power. It even changed its logo to go with its new modern image. BP has invested £68 million in local community projects this year alone. They also support humanitarian work such as that done by the Red Cross, Save The children, and children’s cancer charities in the Middle East. This turnaround has led to it being in the top three of many lists of socially responsible businesses in Britain.

(7) Iceland
Iceland Foods are also a socially responsible company. They have attempted to protect wildlife and the environment, sacking a supplier for unethical fishing practices. They have also started selling foods that it guarantees as being free of GM ingredients. However Iceland merged with the Booker group, over 25% of whose revenue comes from the sale of tobacco. Iceland says that their dream is to retail food with a conscience.

(8)The Stock Makret

The FTSE 100 index has tried to reward its ethical members and to expose those who are driven purely by the profit motive. To do this they have created FTSE4GOOD a list of the top 15 ethically aware companies. Last year these companies were: BP, GlaxoSmithKline, Vodafone, HSBC, AstraZeneca, Shell, Lloyds TSB, BT, Barclays, Diego, CGNU, Halifax, Abbey National, Unilever, and Prudential.

(9)Levi Jeans

Levi-Strauss has wholeheartedly thrown themselves into CSR. However in the last year since it was introduced, their brands share price has plummeted, sales have fallen, and declining profits. Their director was sure that “a company driven by social values would outperform a company hostage to profits alone.”

(10)Boots
Boots is a British company, well established nationally. It began in 1849, and now has 1,500 stores and £580 million profits. Last year alone Boots gave £4million to CSR projects. It opened a Community Investment Centre on its site, and for the last 15 years has been part of a ‘waste not, want not’ scheme. Any left over medicines or unsold products are resorted and sent to communities in need, both here and abroad. It has also sent aid packages worth £1/4 millions each to disasters struck areas such as Kosovo and to Turkey. It also works with the local community. It liases with the Nottingham Probationary Service, and offenders spend their Community Service helping to package products to be sent to aid and community projects. They also develop literacy, and until the 1950’s ran a library scheme. Now they create libraries for babies and children in the community and as such have 15,000 babies and toddlers registered alone.

(11)Ikea
Observer Newspaper, 2001
Ikea's global reach is rivalled only by McDonald's, it employs workers in some of the world's most impoverished countries, and has aggressive expansion plans for its huge retail complexes - the bane of planning authorities and traffic controllers everywhere. So how come its name isn't writ large alongside those of Nike, Wal-Mart, and McDonald's on the banners of anti-globalisation protesters from Seattle to Doha? This may have something to do with Ikea being from virtuous Sweden rather than the big, brash US, but probably has more to do with hard work. Since the early Nineties, when a Swedish documentary showing children chained to weaving looms of a supplier in Pakistan triggered protests, Ikea has made strenuous efforts to protect its 58-year-old brand. Beyond tightening up its monitoring of suppliers, it has conducted a root-and branch examination of its business to see where it can lessen its environmental and social impact - and has disarmed critics by enlisting their support. Ikea has given money to UNICEF to set up schools in Indian villages, and to Greenpeace, which Dahlvig describes as its 'roving conscience'. Ikea gave $2.5 million to Greenpeace's campaign to save ancient forests and sources wood only from forests certified by the Forest Stewardship Council. Its catalogue - the longest print-run in the world - is printed on chlorine-free paper. Ikea has increased its purchasing from developing countries from 32 to 48 per cent over the past five years in its relentless drive to keep prices low. The further it goes into such countries, the more important the issue becomes. Dahlvig, age 44, has been CEO only since 1999, but his first big project was to complete a code of conduct for Ikea's suppliers - a three-page document called the Ikea way on the environment, a tortuous process that took a year to complete. I-way, an independent auditor, defines a single set of standards for its 1,400 suppliers - the same rules apply in Sweden (still its main source of supply) as in China.

(12) British Airways
In an interview with a manager of British Airways I asked: In what ways are British Airways responsible to their local community?

BA is committed to developing the community not only within their employees and their families but also within the wider area. We sponsor schools, and organise family events, day trips, and special excursions for disabled children and promote self-awareness within our employees. We have a dedicated education section where our employees can learn new skills or gain qualifications during their spare time.”