In addition to the sales and profit growth, engaging in CSR sometimes can provide cost saving, enhance brand image and reputation, and increase customer loyalty. Milton Friedman (1970) claims that “It is the managers’ responsibility to act solely in the interests of shareholders”. He states three key points such as: cost savings versus differentiation, green consumerism, and the bottom of the pyramid. First, he argued that managers should maximize their companies’ profitability. This is economic responsibility, the bottom of the pyramid. Second, companies should promote cost savings and differentiation. By reducing energy consumption which benefits the environment, companies can also reduce overall cost structures and increase productivity. For example, Catalyst Paper Corporation, a Canadian pulp and paper company, practices CSR by applying its energy recycling system. This lowered the company’s GHG emissions by 70% while reducing its energy use by 21% since 1990, thus reducing cost (Pohle & Hittner-IBM). Moreover, CSR is one of the unique selling points (USP) for a company. For a company that provides indistinguishable business and products, this attractive USP can help the company gain market share. For instance, Starbucks sells Fairtrade coffee as a differentiation from its competitors (Andrew, C. & Matten, D., 2010). By practicing CSR, the company builds a unique differentiation in its product and it also helps to enhance customer loyalty. Lastly, companies should apply green consumerism. As the rise of consumerism is accelerating, consumers consider morally correct operations as one of the factors in purchasing goods and services from organizations. A survey conducted by the PR firm, Hill & Knowlton, supports the view of Milton Friedman (1970). The survey finds that 79% of Americans take corporate citizenship into account when making purchase decisions (Briggs & Verma, 2006).
Nowadays, reputation is a vital asset for a company. Corporations ultimately succeed or fail on the basis of public trust and support. Briggs & Verma (2006) remarks that by not engaging in CSR, companies are not only under-managing their impact on society and the environment, but they are also under-managing their own economic self-interest. They argued that CSR is becoming an important benchmark to evaluate whether a company is well managed and reputable or not. The success story of Co-operative Bank and Mitsubishi are good examples. An ethical marketing strategy can rescue the business image of a company. US fast food giant McDonald’s has faced ethical criticisms over the past three decades. The accusations included ‘exploitations of children’ with its advertising, ‘culpably responsible’ for cruelty to animals, ‘strongly antipathetic’ to unions, paying its workers lower wages, falsely advertising its food as nutritious, and risked the health of people plunged the firm into crisis. It seems that McDonald’s broke all of the social responsibility rules. As of the early 2000’s, the firm changed its marketing strategy to a more ethical one, such as devotes the resource to promote the advertising campaign to build up a fresh and healthy image. Accompanying these campaigns was a range of new healthy options on a new menu. They also launched exercise and sports initiatives especially targeted at young people. After the new menu and promotions launched, McDonald’s sales rebounded in the late 2000’s from the slump they suffered in the early to mid-2000’s. The firm’s commitment to good values had won back the customers successfully. (Andrew, C. & Matten, D., 2010)
Furthermore, a company which engages in CSR probably can recruit better qualified and motivated staff. Andrew, C. & Matten, D., (2010) used Body Shop as an example. It is a well know company which adopted ethical practices. A survey revealed that 75% of its UK employees were proud to work for the company, which means these employees will be less likely to resign from their job because of dissatisfaction with their company. It shows that an ethical culture can help to build up the morale of its employees, improve employee motivation, and also increase employee retention. Based on these benefits, it seems that CSR will become a sustainable growth strategy for a company.
Stakeholders have different expectations of or regarding CSR. It affects the CSR strategy of a company. Eventually, it will guide a company’s steps toward success or failure dependent on the support of stakeholders. Boddy, D (2005) says that “managers have a responsibility to act in ways that benefit society as well as the organization” and that “people have different views of what actions most benefit society”. That means there are different expectations of social responsibility from internal and external stakeholder including shareholders, customers, employees, and the community. Carroll’s pyramid (1979) indicates that “The social responsibility of business encompasses the economic, legal, ethical and discretionary expectation that society has of at a given point in time.” From the bottom to the top, there are four responsibility expectations. The first expectation is economic responsibility which is also the foundational responsibility. Here, the company only focuses on meeting the best economic interests of the company and its shareholders, which means it must be profitable. The next one up on the pyramid is legal responsibility, as the company targets to pass the laws and regulations. Moving upward is ethical responsibility, in which as expected by society, a company tries to avoid harm such as discouraging tobacco consumption, protecting the natural environment, or supporting the needs of those less fortunate. At the top of the pyramid is discretionary responsibility; the company should be philanthropic and contribute to the community without economic, legal or ethical consideration. Stakeholders generally require the corporate to attain the economical and legal responsibility. However, the arguments for CSR also include the top half of the pyramid, which is ethical and discretionary responsibility. Briggs & Verma (2006) gave an example to illustrate how companies attempted to please the stakeholders by engaging CSR. In this instance, Wal-Mart, Office Depot and General Electric donated huge amounts to charities for the natural disaster ‘Hurricane Katrina’ but not for the tsunami in Southeast Asia. The companies pointed out that the decision making is simply a geographical consideration. The predominantly U.S. based companies focused on issues near and dear to their stakeholders. Shareholders are assumed to mainly focus on maximizing their wealth instead of social responsibility. However, long term investors will likely also place importance in socially responsible management in order to increase long term profits.
Moreover, changes in customer expectation also force the corporation to act more ethically. Customers not only demand products and services that do not pollute, exploit, harm, or waste; they also want to be better informed and better educated about products and processes of their companies. In Peattie (1995)’s view, ‘Consumer sovereignty’ depends on whether a consumer has a degree of freedom, information, and eventually choices. For example, having experienced a series of food scandals in the early 1990’s, Marks & Spencer analyzed different groups of consumers and discovered 75% of the customers were interested in green or social issues. In response to customers’ concerns over sustainability and traceability, the company launched the “Behind the label” campaign which delivered the message to the customers that the company was doing around environmental and social issues (Pohle & Hittner-IBM). Overall, interaction with customers can help a company to better understand customers’ interests and expectations. It can also help the company to increase its productivity and quality.
CSR is a relatively new field of study, the interpretation of concepts is susceptible. Thus, measurement of the impact of CSR activities is becoming increasingly important. William Briggs & Archana Verma (2006) concludes that the difficulties of CSR measurement are due to a lack of globally accepted standards, performance indicators, and auditing and monitoring system for the measurement of CSR activities. To measure the effectiveness of CSR programs, factors including the alignment between corporate actions and mission statements, publicity received for CSR activities, stakeholder perceptions, the link between CSR and profitability have to be evaluated. Due to the intangible impact of CSR and the developing benchmark of CSR, a consolidation of codes, standards and guidelines is required for its measurement. Moreover, when challenges such as economy recession appear, they can cause the beneficial effects to diminish and increase the difficulties of measurement. Due to the positive financial impact of strategic philanthropy are often indirect, companies practicing CSR should be a sustainable strategy. Although there is considerable number of uncertainty on measurement of CSR, It is still worthwhile for a company to engage in CSR. A sustainable CSR strategy is probably beneficial for the long term positioning of a company’s brand name.
In conclusion, engaging in CSR contributes a positive impact for a company based on the many reasons given above. In the beginning, the building up of a company’s ethical behavior and CSR practices probably will cause increased cost consumption and result in lower profitability in the short term. However, in the long term, it can improve relationships with all of its key constituents, gain more loyal customers, enjoy lower costs and higher revenues, and achieve overall improvement of the business’ standing in society. Although the measurement of CSR performance is pending to attain a common consensus, engaging in CSR likely will be one of the main drivers to greater profitability for a company.
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Reference List
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Andrew, C. & Matten, D., (2010) Business Ethics, Oxford University Press, 3rd edition
- Boddy, D. (2005) Management: an introduction. Harlow; Pearson
- Carroll, A.B. (1979) ‘A Three-Dimensional Conceptual Model of Corporate Performance.’ The Academy of Management Review, 4 (4): 497-505
- George Pohle & Jeff Hittner, IBM Institute for Business Value ‘Attaining sustainable growth through corporate social responsibility’
- Holme, L.& Watts, R. (2000) Corporate Social Responsibility: Making Good Business Sense. Geneva: World Business Council for Sustainable Development
- Peattie, K. (1995) Environmental marketing management, London: Pitman Publishing
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William Briggs, Ed.D., & Archana Verma (2006) Communication World, ‘Sharing the Wealth’,
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