Assessing the validity of Corporate Social Responsibility: Do we really need it?

Under the Single European Act of 1986, objectives were established to protect and enhance the quality of human life and the environment (in which they reside).

The ‘polluter pays’ principle was also established to compensate for the damage done to the environment.

“Problems with EU environment policy include the potentially enormous cost of attaining policy targets, difficulties in reaching consensus in minimum standards, and basic conflicts of interest between the EU’s industrially advanced and less industrially developed countries. Europe’s poorer nations are more interested in stimulating economic growth than in environmental protection “(Pearce et al1989).

Pearce (et al1989) discusses the anticipatory and reactive approaches that can be taken to combat the problems of the environment.

We are more likely to take a risk averse or anticipatory approach in the face of uncertainty, especially because disastrous effects would be experienced if the wrong decision were to be made.

If a more reactive approach is taken to tackle the environmental problems, an opportunity is provided in which we can gather more information on the problem and therefore increase the likelihood of dealing with the problem more effectively.

But “…delay is only justified if the benefits outweigh the costs: good scientific research needs to accompany delay” (Pearce et al1989).

“What the future can afford depends on what we leave them by way of inherited wealth, natural and man-made”

(Pearce et al1989).

Pearce (et al1989) goes on to argue that a monetary value must be placed on the ‘natural’ wealth that it provided as a resource. “For example, by treating the ozone layer as a resource with a ‘zero price’ there never was any incentive to protect it” (Pearce et al1989).

The problem with this is that based on the economic supply and demand theory, a resource or product that is perceived as having no value (i.e., zero based or priced) will ultimately become ‘overused’.

This is where the demand increases at a rate that is disproportionate to the rate of supply. The cheaper something is, the higher the demand for it – even more so when there is no price on it.

Supply and demand theory implies that markets are commonly created in times of scarcity. It is therefore reasonable to believe that as environmental resources become scarcer, the more its use will be regulated (within markets and so forth). By the time this comes into place, however, it may be too late, especially if the damaged done is irreversible.

4.3. Corporate Social Responsibility versus Business:

The concept of ‘Pareto optimality’ occurs where,

“It is not possible to make one person better off (improve his or her “welfare”) without making another person worse off. Translated into the intertemporal sphere this means that Pareto optimality across time involves not conferring gains for one generation at the expense of another. The present, for example, must not be made better off at the expense of the future. Pareto optimality is of course consistent with making the future better off so long as the present is not made worse off. This last proposition should serve to remind us that the future has an obligation to the present just as much as the other way round”

(Pearce et al 1989).

This sets the scene for the cases in support of and against the concept of CSR.

The Mallenbaker group argues that the stakeholder approach to management deprives shareholders. It is true that without the shareholders, there would not really be a company in the first place and so one could argue that “any money they spend on so-called social responsibility is effectively theft from those shareholders who can, after all, decide for themselves if they want to give to charity” (Mallenbaker 2005)

This delves deeper into the view that to care for the environment in which our global society inhabits should be classed as charity. The essence of ‘charity is to help those in need’. In the case of the environment, it affects everyone and therefore the shareholders would also be caring for themselves as they too reside upon this planet.

Also, the shareholders ultimately stand to benefit if they take a proactive approach to CSR rather than being coerced by governmental regulation and decreased customer base. In the future they could see themselves losing a lot more money thru taxation and financial penalties for not acting responsibly.

Instead, if a company takes a proactive approach to CSR, they attain a better reputation, which is becoming increasingly important in today’s global consumerist society.

One could also argue that this ‘CSR business’ takes up too much time, as the company has to invest time and money on training staff; and investigating, learning and educating around CSR.

If we take a more long term view – as any self-respecting company should, the company will ultimately save money in staff retention.

An employee who is proud of their place of work and feels that they have been invested in will be more likely to invest more effort in their work and be more innovative. Also the longer their time of employment, the more experience and skills base they will hold and therefore be able to perform their job role better. This ultimately benefits the company as they will not have to spend money on training new staff from scratch due to the decreased level of staff turnover and bad public relations.

A valid point against CSR exists where a company will have to make large investments as mentioned above, not just with training and so forth but also with fines and ever-changing regulations, etc. This could eventually reduce the growth of the economy and infrastructure and there is no point in enhancing the quality of life if there is no ‘real income’ to adequately support the lifestyle attached.

A reply to this view is that a company will have to make significant investments but it is long overdue and the investment would be of a ‘long term’ nature, which would have to be made to a higher degree in the future.

Some may argue that the environment exists to be used and exploited; it is our right as the inhabitants of this planet to extract whatever ‘natural wealth’ is available in order to survive

In any case, at the rate at which modern technology is being developed, the future generations will have mechanisms in place to deal with the lack of environmental resources they may even be better off than the current generation.

Why should the current generation and its economic growth suffer, when there is no conclusive evidence to prove that the generations of the future will not be all right with whatever they may inherit from us?

If we refer back to the concept of ‘Pareto optimality’, it is unfair to risk the well-being of the future generations. So although we currently can not prove that the future generations will suffer, at the same time, we can not prove that they will not suffer.

This also takes us back to the choice between taking a pro-active or reactive approach.

At present, the anti CSR campaigners don’t have much of an argument against CSR relative to the compelling arguments in support of CSR.

Also, due to increased use of the variety of mediums - especially the internet, and including television and radio), there is a greater opportunity present to voice opinions and issues against companies.

4.4. Case Study

4.4.1. B&Q

This (B&Q’s efforts in general), however, has not been without its critiques, many have commented on the large amount of expenditure and time spent by B&Q concerning CSR related activities.

A BBC report commented on B&Q’s fall in profits “citing poor UK and French sales”, but it is more likely to be related to the general downturn in consumer spending in the UK which has been reported since the end of December 2004.

The “Office for National Statistics indicated a slowing in demand for furniture, electrical and DIY goods” showing that this market is extremely competitive at the moment.

At present the only incentive and recognition businesses are receiving for their efforts in CSR is from their stakeholders, mainly in the form of consistent or improved customer base or focus groups with the local community in which the business operates.

In order to keep the current momentum going for businesses, support is needed form the media and the government. In the same way a company/business can attempt to satisfy their employees need for personal praise, the media/government can do the same for businesses that are displaying ‘good practice’. This is depicted in the figure/illustration below:

There has been a small start towards such a system by way of press articles and  “…initiatives that seek to evaluate CSR, such as the FTSE4Good index and the Good Corporation kite mark.”

Having said this, governments all over the world produce ‘good practice’ guides in the form or another in many areas of administration. For instance, the British government produce many ‘good practice’ guides in the form of reporting their praise for local authorities that are performing well in achieving targets or implementing policies particularly well.

The Economist takes a cynical view of CSR and has received a lot of ‘backlash’ for it in various academic journals and the professional media.

“It is hazardous to generalise, because CSR takes many different forms and is driven by many different motives. But… for most companies, CSR does not go very deep. There are many interesting exceptions… But for most conventionally organised public companies—which means almost all of the big ones—CSR is little more than a cosmetic treatment. The human face that CSR applies to capitalism goes on each morning, gets increasingly smeared by day and washes off at night.”

At present, despite CSR and other ‘concepts’ (such as sustainable development, environmental management) related to protecting the environment being present in our global society for well over a decade, there is still no system of public praise or accreditation for companies/businesses leading in socially responsible behaviour in their operations.

In the run up to the enlargement of the European Union, many policies were emphasized concerning cohesion and competition. This is not a new concept. The Thatcher government of the 1980’s in the UK made large attempts to re-introduce a more competitive nature amongst businesses and this has been continued under the New Labour government. The reason competition is considered to be so important is mainly that competitiveness encourages efficiency. This is beneficial to both businesses and the customers it serves because it makes the business more productive (likely to minimise waste in production, etc) and the customers receiving the best ‘deal’ possible (through price wars for instance).

This may be why some may hold valid views that CSR is a threat to business.

This paper has presented many arguments for and against the application of CSR to business operation. The strongest and most frequent arguments have been in support of CSR.

The concept of CSR and its discussion is hardly practical, but instead works better with less difficulty in theory.

Media productions such as ‘Volcano’, ‘Deep Impact’, and more recently ‘The Day After Tomorrow’ reflect the views of our global society.

If it believed that a competitor is on to a ‘good thing’, other competitors will follow suit, especially if competing in a homogenous environment, where the competition is fiercer.

The key to improving industry’s environmental performance is not only appropriate legislation and its enforcement, but also measures to increase the accountability of industries.

Whatever significant action is taken now will be partly reactive and part anticipatory. It would be reactive to the damage already done; and anticipatory of the problems that is believed to be reasonably foreseeable of occurring in the future.

Businesses have to decide which box they want to fit into; the archaic on where they are operating in a ‘cut-throat’ and highly competitive environment, having to be sneaky and ruthless at all times. Alternatively, businesses can follow the current trend where businesses at least pretend to care about the ‘mess’ they may be making and performing their operational activities in a socially responsible manner, which can still generate a profit if it done effectively.

A lot of businesses still seem to retain the lassiez-faire attitude surround the industrial revolution, where the environment would either take care of itself or the politicians would deal with it. Businesses are there to make a profit.

Companies have to go beyond the simple and old-fashioned process of selling products and paying taxes to make a profit.

Consumer power has increased greatly over this century and more businesses have become more market orientated in their increasingly competitive markets as a result.

One could take the view that consumers are to blame: Businesses only act in response to the demands of their customers in order to satisfy their needs.

Therefore, if the consumers act – or demand more responsibly, the companies as a direct result will ‘supply’ more responsibly.

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