Corporate Social Responsibility

University Degree Business and Administrative studies

Table of Contents:

Introduction

Ethics was derived from the Greek word ethikos which is the adjective for custom or habit. It covers the analysis and employment of concepts as right, wrong and responsible. Ethical concerns incorporate the application of ethical vales to business behavior, conduct and boardroom strategies and relations with suppliers. Ethical organisations focuses on positive contribution to the community for example; the Co-operative Bank where they take a different approach to Banking.

Corporate Social Responsibility [CSR] is the voluntary actions taken by a firm to address ethical, social and environmental aspects of the business operations and the concerns of its stakeholders. The stakeholders of the company would include employees, investors, suppliers any other organisations that interact with the company and also the external customers and community. The European Union [E.U] have identified that CSR and Ethics are linked; “CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in their interactions with their stakeholders.” Ethical concerns and CSR is imperative in the United Kingdom’s [UK] business world as it is now a growing part of corporate governance and corporate culture as the both aspects can have positive and negative influence on UK firms.

Stakeholder Views of Ethical and Socially responsible Firms

Organisations are a part of UK society and Corporate Responsibility and Business Ethics have a vital role; as they both influence the views that stakeholders would have about the firm, these views and opinions can have a huge impact on the company as they can be either positive or negative.

The UK society expects a certain standard of Business Conduct, supported by a MORI research in July 2002; eighty percent [80%] of the UK public believes that, ‘Large companies have a moral responsibility to society.’

There are increasing number of customers who are taking into account a firm’s behavior in their purchasing behavioral decisions when buying products and services. One may ask how and why ethical and CSR influences firms? It can be seen as it indirectly determines sales from existing and can also attract potential customers. Java Sutra, a coffee company in the UK contributes twenty-five [25%] percent of their annual profits to charities and even goes further having their customers voice as to the selection of the Charity Organisation to which the contributions would go to. These organisations include Together against Malaria, Tabitha [USA], Angel Covers and Clean Water for Haiti.

Stakeholder views can indirectly determine the success of companies. As seen through companies like The Body shop and Avon, their consumers review their marketing of products that are not tested on animals. This level of responsibility by the firms can establish their sales and market share. As consumers observe companies behavior they would be attracted to firms like Avon who is in support of Breast Cancer Campaigns and The body Shop that provide financial support to poorer countries as they both contribute to local and global communities.

Taking leadership position through ethics and CSR help differentiate and provide a competitive advantage.

Stakeholder Views of Ethical and Socially responsible Firms

In contrast, stakeholder views can adversely affect the company’s reputation and corporate status. When UK firms invoke unethical practices and ir-responsible behavior they open themselves to Boycotts and industrial action, that can impact negatively on their Image resulting from this can reduce their sales and profits.

According to the UK Guardian, mobile company, Siemens faced a shareholder revolt in January 2007 over a £275 million Bribery Scandal as more than 10,000 of their investors were in disagreement to their Unethical business conduct. This additionally resulted in increased distrust from the stakeholders of Siemens whereby, 72% of their Executive Board members and 65% of Supervisory directors was amiable and the company had anticipated 90%

Ethical practices and CSR influences UK firms as it affects the stake holder’s views can disrupt investment if it is adversely affected.

Why Ethical concerns and CSR influence UK Firms?

Due to: Compliance to UK’s Policies and Legislation

Ethical concerns and CSR provides a motive for businesses to take an interest and comply with the Legislation and Standards that are set by the UK. In the UK companies have to work with the UK Legislation and if they fail to do so they can be charged and ...

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Ethical practices and CSR influences UK firms as it affects the stake holder’s views can disrupt investment if it is adversely affected.

Why Ethical concerns and CSR influence UK Firms?

Due to: Compliance to UK’s Policies and Legislation

Human Rights Act [1998] and Ethical Trading Initiative

Non-Compliance of Legislation can lead to severe effects on company’s corporate image.

According to report from BBC News, ‘Textile workers in Bangladesh get paid as little as five pence an hour to make cheap clothes for UK companies; Tesco, Asda and Primark.’

War on Want, an anti-poverty group wanted UK consumers to know what they identify as the “true costs” of clothes sold by three UK retailers.

War on Want Findings:

Mainly female workers spent eighty hours per week
Factories Wages starting at as little as £8 a month [Barely one third of living wage in Bangladesh]
Workers spent ninety-six hours per week without a day off period.

In addition to this, according to Labour behind the label [LBL]; children seemingly as young as twelve years old were found producing clothing for Tesco Florence & Fred range in Bangladesh.

The corporate images were exploited as it was concluded and made public as; “Bargain retailers such as Tesco and Asda are only able to sell at rock bottom prices in UK because Women workers were being exploited in Bangladesh.”

Compliance to UK’s Policies and Legislation

Bribery and Corruption

A culture of corruption is distinguishes through unethical trade and payment of bribes. This is unacceptable behavior for UK Companies and is support of this is Legislation on Bribery and Corruption; Part 12 of the Anti-Terrorism, Crime and Security [ATCS] Act 2001.If UK firms does not comply or disregard this law they can be prosecuted by the UK State.

Reports from the UK Guardian; UK firms GlaxoSmithKline Kline [GSK], AstraZeneca, Eli Lilly and Taurus Petroleum were under severe investigations through the Serious Fraud Office[SFO] where they were reviewing the allegations that the mentioned companies paid bribes to Saddam Hussein’s Regime in Iraq.

Maintenance of Corporate rank and UK Standards

Ethical Concerns and CSR are incorporated through the formal Stock exchange Indices to rank corporate performance of firms. In July 2001 a new FTSE 4 Good Index was launched using social and ethical factors for the rank criteria; environment, human and social rights.

Ethical Conduct and CSR influences UK firms as it can determine if they are exempted or not from the FTSE list of companies. Such a company is KESA, the parent firm of the electrical retailer Comet, was exempted from the FTSE Ethical Stock Index as they had failed to meet the Index’s strict environmental standards.

In the UK there is a growth of demand for corporations of ethical systems, legal compliance and Social Accountability. The Ethics Compliance Management System [ECS 200] was made available as a guideline for corporations to operate in an equitable and responsible manner.

Ethical Concerns and CSR influences Profitability

Companies have now been able to see the linkage between ethical and environmental practices and increases in corporate profits.

The Co-Operative Bank claims, “Ethical and ecological positioning makes a sizeable contribution to the Bank’s profits.”

The Bank’s 2002 Partnership report reflects; “for 2000 the profits retained from ethically motivated customers was 15-18% of the profit before tax.”

Improved financial performance:

The Co-Operative Bank identifies that it’s Social and environmental records accounts for twenty [20%] Percent of the company’s profits.

According to the FTSE group, it states that European Oil & gas companies have shown improved performance, these include; Repsol and British Gas.

Environmental screens are consistently co-related with higher returns .This is revealed through the findings that companies that are leaders in Environmental management have increased performance through higher profits in their competitive groups.

April 2005, Cummins, an Indiana based engine maker considered a leader in emissions reduction have spent millions in Research and Development on emission reduction technologies. This company has reduced diesel engine emissions by ninety percent.

This resulted in a 34% increase in sales and tripled the company’s earnings to $545 million dollars in 2004.

Ethical Concerns and CSR influences efficiency.

British Gas [BG], social responsibility through their green business aim has launched a green energy unit. The business aim is to drive its offer of low carbon products to reduce the carbon footprints and would advise and educate homes and businesses as to become greener

B.G Green Focus

British gas contributes $100 million a year to the government’s energy efficiency commitment. The company invests to make homes more energy efficient for example; Council tax rebates for households who install insulation.

B.G Green Responsibility

Investing in renewable energy to recycle paper to reduce emissions
Plant a tree for every 100 customers who switch to paper less billing .Currently BG has 8200 saplings
Partnerships with major charities to make one million homes warmer, safer and comfortable

British American Tobacco’s –[BAT]Corporate Socially Responsibility

BAT is the world’s second largest tobacco corporation and holds 15% share of the global tobacco market and sold 807 million cigarettes in 2001.

The decisions and actions of management in an organisation have an increasing impact on individuals and the community.

BAT conducted fairly expensive campaigns globally that induces kids to smoke, “Hey, smoking is an adult custom; we don’t want kids to smoke.” This irresponsible marketing would actually incite and encourage young individuals to smoke.

Anti-Tobacco groups had considered BAT’s markets as “going dark” with types of Tobacco Advertising and Promotion.

EQ Management described BAT as a multinational company that “needed to demonstrate a serious commitment to change in order to retain its legitimacy to operate.”

BAT’s newfound interest in social responsibility came in relation to the success of the Tobacco Control movement. According to Shortland (1998), “The concept of Social Responsiveness means that companies respond to stakeholders and concerns from society by considering more than just the companies own interest. Evaluations of the needs for stakeholders can position the company to be socially responsible.”

BAT’s social responsibility consultation with EQ Management for work on BAT social reporting project was costly to the company and due to their reactive approach to CSR cost approximately £350,000.

Ethical Concerns and Fair Trade

Research conducted by Oxfam in March 2007 for Fair Trade Fortnight revealed that 92% of British consumers purchase products at major supermarkets.

See Table below for Survey:

Table: Oxfam’s Survey

Ethical concerns and CSR are factors that have fuelled the reluctance of consumers to shop as large Supermarkets. Consumers suggest that not enough are being done to tackle increasing ethical and environmental issues.

Ethical Concerns and Fair Trade

Ethical Conduct and CSR influences the firms by indirectly affecting the purchasing patterns of consumers

Purchasing habits of UK customers are influenced by the ethical conduct, like Fair trade and can increase or decrease the demand for products.

A survey have suggested that 78% of UK consumers purchases Fair trade products and 68% refuses to purchase products if producer is associated with unethical practices.

Ethical practices can positively influence UK firms like Sainsbury and Waitrose as they stock only Fair Trade bananas. This can influence and encourage benefits and increase performance in the Wind ward isles.

Ethical concerns and Supply Management influence on UK firms

Supply Chain Management is an issue for companies as consumers are more aware of environmental, social and ethical practices of the firms that they associate products and services with.

Businesses in the UK are influenced by ethical values as non-governmental organisations and media are putting pressure on Coffee companies over Fair Trade, Fast Food Industry over nutritional value of products, Alcohol firms over social issues like ‘binge drinking’ by young individuals .

Ethical concerns and CSR can influence a Company’s power to make changes, for example; Nestle used its’ power to oppose government policies to bring the stability of the Coffee farmers on par level. The prices of coffee were regulated and this resulted in a fair and profitable income for the farmers.

Ethical and CSR concerns; the Boycott List.

Boycotts are activities by an organisation and groups of individuals asking customers not to buy a specific product in order to exert commercial pressure. It is usually conducted to influence a business to change or cease any unethical practices.

Unethical Practices and ir responsible conduct can lead to boycott of the company and this can lead to severe financial implications .This can be seen through the boycott of Barclay’s Bank for its’ involvement in South Africa during the time of Apartheid; Barclay’s market share dropped from 27 to 15% by the time they had pulled out.

The Body Shop

L’Oreal has captured Boycotts campaign attention as Nature Watch is investigating and has a long awaiting Boycott as follows:

Animal testing
Relations with the Global World
Human Rights
Discrimination
Using ingredients that have been tested on animals
Lobbying against the E.U. Ban on animal Testing

Adidas was also on the Boycotts list for using kangaroo skin to make some types of football boots. These boycotts can negatively affect the Corporate image and also impact on the sales and profit margins of companies.

Royal Mail, WH Smith unethical decision to transfer seventy branches came with a Boycott from Communication Workers Union [C.W.U] and the threat of Industrial Action as its devastating blow for employees and consumers as the sole reason for decision was for profit purposes.

Ethical concerns and CSR conducted by Marks and Spencer

Marks & Spencer [M&S] existent since 1884 is one of the largest well known multi product firm in the UK. They have over 450 stores located throughout the UK.Additionally, 150 stores worldwide, including 130 franchises, operating in 30 countries. Their products and services ranges from clothing, shoes and accessories targeted to men, women and children Additionally products include technological, entertainment, furniture, food & wine and Insurance and miscellaneous flowers and gifts.

M & S is one of the UK’s leading retailers where annual sales are in excess of £8 billion. They employ over 600,000 persons worldwide and their weekly customer clientele is millions.

M & S Criticisms

In 2001 M & S cut 4390 jobs in relation to re-structure of the business. This lead to cons distrust in the Organisation; as they had retrenched employees without any consideration.

Overhauled its wine range where younger wine buyers were encouraged to take risks; prices started to come back into line with the market. M & S used to be known for their hefty mark ups and safety first policy. This was both neglected and the stakeholders had different views of the company as they had a negative corporate image.

Ethical concerns and CSR conducted by Marks and Spencer

M & S sees how CSR and ethical concerns can either make or break a company as they have implemented a Plan A in January 2007 where they would launch factors that can build a strong heritage as a responsible retailer.

The Plan A incorporates a 100- point plan to tackle some of the biggest challenges that business has faced over a time. Plan A [see table below1.1] Include positive relations with suppliers, reduce wastage, safeguard natural resources and Ethical Trade practices.

M& S -Corporate Responsibility and the Environment

In 2003 Field to work had implemented standards to cover management of suppliers of M & S fruit, vegetables and salads. M & S have recommended to their suppliers that they use the practices scheme of LEAF [Linking Environment And Farming] As LEAF provides independent certification that standards have been met.

M& S -Corporate Responsibility and the Community

M & S commits and invests 1% of pre–tax profits in community projects each year; as they support the Percent Standard.

M&S Contributions:

Direct charitable Donations locally [Breakthrough Breast Cancer]
Date expired / unsold food donated to Fare Share [community food re distribution network]
Donate returned Clothing and business surplus stock to Birth Defects Foundation[BDF]

Ethical concerns and CSR conducted by Marks and Spencer

Table 1.1showing M&S Plan A Activities

Ethical concerns and CSR conducted by Marks and Spencer

Table 1.1showing M&S Plan A Activities

M&S organisation once they implement efficient measures in relation CSR and maintain Ethical attributes can have substantial success as they can have a clean corporate image and can attract more investors and consumers that can give rise to their improved performance and profitability. The implementation of Plan A can be an insight to their negative corporate image that was in the past and give rise to continuity of being the well endowed UK retailer.

Conclusion

It is often suggested that firms that incorporate Ethical and CSR concerns must do so at the expense of Company’s profits. One can say that costs on ethics and CSR are not necessarily an expense at profits but an investment.

No longer can companies operate their businesses however they want as this can result detrimental consequences that can reduce profits and even incur more costs.

Ethical and CSR concerns are good corporate governance and are the hallmarks of a well-run business as they provide advantages for firms such as:

Reassures and satisfies stakeholders about company’s approach to non-financial risks
Aids in protection and enhancement of Corporate Image
Avoids Boycotts and Industrial Action
Increases loyal customers both existing and attracts prospect customers
Increases sales and profitability
Improves financial performance and efficiency
Increase ability to attract, retain and motivate employees

Conclusion

The world is so interconnected and stakeholders are more informed of business conduct that it is expected for firms especially in the UK to implement Ethics and CSR as it is the culture of the country. Shortland (1998) quotes, “Companies cannot simply take a reactive approach to issues as they arise but the principles must be already embedded in the Corporate Culture and Business Strategy.”

According to Shortland (1998), “Companies that embrace the principles’ of Social Responsibility and pro-active ethical conduct are the companies of the future-the firms that will survive and prosper.”

Ethics and CSR refers to what is acceptable to society, however it is so globalised and due to cultural differences it is yet to distinguish what is ethical and unethical.[For example gift giving and using relationships to generate results is perfectly acceptable but in the world’s developed countries it is regarded as unethical.