Corporate Social Responsibility (CSR) – Importance And Benefits

Introduction to Corporate Social Responsibility (CSR)

Discuss about the Corporate Social Responsibility for Chemical Manufacturing.
 

Corporate social responsibility (CSR) is an important concept in the modern business to allow firms balance the three dimensions of business, that is economic, environment and social dimensions. CSR refers to the firm’s initiatives to assess and take responsibility of organization’s effect on the environment and social wellbeing (Du et al., 2010). The CSR is a firm policy that institute efforts beyond legal requirement to promote positive changes in the society and environment. It is important to recognize that CSR activities involves incurring cost for the firm which may in turn affect profitability. McWilliams and Siegel (2000) suggested that there is need to balance CSR with the profitability of the company to create mutual benefit for the society and shareholders. The large multinational companies have intense activities that may have detrimental effects on the environment due to oil spills, chemical manufacturing, agriculture, mining and fishing that can damage the ecosystem (Islam and Tanaka, 2004).

The major issue facing the world is climate change that is largely attributed to corporations. Climate change is causing change in weather patterns, drought, rise in sea level and decrease in the biodiversity (Malla, 2009). Graci and Dodds (2008) argued that some businesses have benefited a lot from the expense of deterioration of environment. In many instances, harm to the environment and vulnerable communities may occur concurrently due to irresponsible business practices like cattle ranching, oil and gas drilling, logging, mining, transportation and generation of hydroelectric power. In light of this, several companies have recognized the need of CSR to embrace balance between the pursuit of profit and ethical conduct. As a result, corporations can invest in the local communities and environment in markets they are operating to help offset some of the negative impacts attributed to their operations. CSR activities such as provision of medical services, water, sanitation and educational facilities to poor communities are at times deemed necessary even though such projects might not lead to immediate increased profitability as suggested by Chapple and Moon (2005). 

 Due to globalization, there is a shift in the way business conceptualize CSR. In the past decades, corporate business models mainly focused on strategies that increase company’s performance without necessarily taking into considerations harmful effects to communities and natural resources. Desrochers (2010) reported that most firms in early 18^th century saw CSR as distraction from sole responsibility of pursuit of generating maximum returns to shareholders. Today, multinational companies are concerned about saving the world to increase brand loyalty that may increase profitability in the long run due to increased acceptance of ethical consumer culture. Due to huge debate for a long time about CSR, several theories have been developed to explain the shift in emphasis on the business society-relations. These theories particularly show contribution of firms in solving social problems. Presently, the companies are considering the interests of society by considering impacts of their activities on suppliers, shareholders, environment, customers and employees. The theories explain how the voluntary CSR initiatives can improve the wellbeing of employees, customers, local community and the society at large

Importance of Corporate Social Responsibility (CSR)

The utilitarian theory serves to emphasize the need for economics of responsibility. According to this theory, the corporation is seen as an instrument for mainly creating wealth while the social activities are meant to achieve economic results (Frederiksen, 2010). This theory can be taken synonymously with the instrumental theories that are based on the idea that investment in the long run will provide resources and social amenities that improves livelihood of the local communities (Schwartz and Saiia, 2012). The utilitarian theory therefore suggest that companies needs to accept social duties in order to participate in social cooperation. The firm is seen as an investment thus should be profitable for both investors and shareholders. The theory serves to advocate for using firm’s wealth to enhance human happiness and social welfare through creation of long-lasting values. 

This theory is based on corporate social performance (CSP), social accountability, auditing and reporting (SAAR) and social responsibility for the multinationals. With regard to CSP, the firms need to ascertain the contribution of social variables such as CSR activities to the economic performance (Russo and Perrini, 2010). The CSP is based on the assumption that growth of business depends solely on the society thus there is need make positive impacts on society that can in return contribute to the success of business. CSP therefore links CSR to business strategy and gauges benefits accrued to corporation as a result of engaging in CSR activities. On the other hand, SAAR relates to contribution of auditing, reporting and accounting to the social performance (Kemper and Martin, 2010). SAAR ensures that firm’s actions adheres to core functions of business while being responsible to the community. CSP and SAAR are managerial activities that contribute to responsible social behavior of the firm. Due to intense competition attributed to globalization, the managerial theory advocates for managers to define useful CSR activities to enable MNC to thrive well in foreign countries.

The relation theory is as a result of complex firm-environment interactions thus it is grouped into 4 sub-groups including shareholder approach, social contract, business and society and corporate citizenship theories. With regard to business and society, the CRR emerge at the point of interaction between the two. The shareholder approach recognizes importance of attaining socially responsible behavior of the firm by considering the interconnectedness of company and community. As such, the stakeholder approach emphasizes on balancing interests of stakeholders while integrating social demands and doing the right thing in order to achieve good society (Sen and Cowley, 2013). Similarly, corporate citizenship fundamentally focuses on relationship between corporation and stakeholders.  Lastly, the social contract theory justifies morality of firm’s economic activities in order to achieve good social relations between organization and the society. According to relation theory, the CSR activities are initiated to legitimize social behavior of the firm.

Benefits of Corporate Social Responsibility (CSR)

There are a number of ways through which firm can engage in CSR activities as discussed below.

The industrialization has resulted in pollution of environment as a result of release of toxic wastes, harmful byproducts and gases to the environment. As a result, the companies can be socially responsible by voluntarily eliminating procedures in their operations that are likely to cause harm to the public. Cerf et al. (2011) reported that the firm can institute hazard control programs regardless of whether it is required by law in order to protect public form exposure to various hazards. This can be achieved through education and raising awareness. Employees should also be trained on safety measures especially those engaged in handling potentially dangerous materials. Noise pollution is also a major concern for the manufacturing industries therefore excessive noise and vibrations can be minimized by developing sound proofing to lessen excessive noise pollution to local residents. 

It is undeniable that CSR activities huge positive implications on community in many ways. The company can work with various institution to create better environment for living and working. Some of the initiatives for empowering communities include setting up learning institutions, health facilities and playgrounds that serves as an asset for all communities served by the corporation. By doing so, the company is able to create closer ties with the community. The peaceful coexistence of corporations and community is one of the critical social capital that is essential for community development (Dale and Newman, 2008).

The businesses can further be involved in philanthropy to make financial contribution to various charitable organizations. Such monetary contribution helps bettering lives of under-served communities by charitable health and education-related nongovernmental organization. Parks (2008) argued that many NGOs are impacting lives positively in Africa and other developing countries especially war-torn countries in middle east by providing education, relief food and providing basic entrepreneurial and agricultural skills to reduce poverty. The Bill and Melinda Gates foundation is one of the famous NGO focusing on sharing revenues from Microsoft to fund global initiatives targeting agriculture, development of vaccines, education and complex health issues including HIV/AIDS and malaria.

 The CSR has many advantages to companies including better brand recognition, increased customer loyalty, operational cost saving, increased ability to attract talented staff, easy access to capital, positive business reputation, better financial performance and general organizational growth. These benefits among others are discussed below. 

The recent studies have indicated that employees are better engaged in organizations that treat community well. Furthermore, the employees that are provided better working environment and respected by the employer are more likely to bring authentic self to work thus increasing employees’ motivation and engagement. According to survey by Kim (2010), companies that engaged their employees in volunteering activities were found to be highly engaged to company’s objectives. Such employees feel energized to use their skillset for a good cause to the community.

Ways in which firms can engage in CSR activities

Recent studies have indicated that customers are increasingly being conscious about companies they buy from various products and services. In Ramasamy and Yeung (2009) survey, over 70% of research participants said they would prefer buying products from socially responsible corporations. This study indicates that customers are loyal to companies that align their values with those of community. Customer loyalty is important concept for maintaining good performance amidst intense competition.

Increased innovation

Large corporations are gaining interest in protecting the environment. Several innovative ideas and behaviors are being developed to protect and conserve environment. Through the lens of sustainability, companies are now producing new innovative products that use less power or water (Nidumolu, Prahalad and Rangaswami, 2009). The need for CSR is therefore pushing for research and development efforts to produce environment friendly products especially in agriculture.

The increased mobility of products is increasing competition necessitating firms to engage in brand differentiation. The companies are adopting CSR initiatives particularly on using sustainable packaging as well as raw materials. Coca-Cola company is reported to gain brand differentiation by using widening scope of drinks to incorporate production of soft drinks that are low in calorie (Choi and Curhan, 2008). This strategy is to help fight diabetes that is increasingly becoming major global health issue. Furthermore, corporations adopting business model that incorporates CSR is able to develop better brand image and positive organizational reputation (Weber, 2008). The image of company and its products is improved since the consumers are aware of quality processes and use of best materials that do not pose threat to environment by the company.

The concept of CSR has attracted huge criticism from various business leaders and authors. Some economists are opposing CSR on the basis that less money goes to major stakeholders including shareholders and employees since significant amount of profit is diverted to CSR activities. Fassin (2008) argued that not all charitable activities will create positive value to company thus competitive advantage may not be achieved due to strong marketing strategies of competing firms. Arguments have been made that CSR is too costly especially for small businesses (Karnani, 2010). This would constitute great disadvantage for small firms producing similar products with MNC that are able to engage in CSR.

Lorenzo-Molo (2009) is the biggest critic for CSR, he argued that CSR is more likely to shift the focus of the firm from its primary objective of making profit. In some instances, the corporation forgets its obligations towards shareholders that they have to make maximum profit for them and instead engage in various CSR programs that end up using much funds for the community welfare. Furthermore, the CSR increase cost of production since CSR programs involves financial expenditure of the firms. The increased expenditure may be passed to the consumer reflected by increased prices for which the customers will have to incur. In some instances, companies are reported using CSR to hide vicious activities (Otusanya, 2011).

Conclusion

There are numerous ways through which corporations can engage in CSR activities. CSR has advantages and limitations, however in most cases the benefits outweigh disadvantages. The main advantage accrued to corporations perceived to be ethically responsible to society and environment is reputational benefits. This in turn translates to customer loyalty that boost sales and profitability. CSR benefit society as a whole when resources are diverted for a good cause like producing less wastes and minimizing pollution. The major disadvantage of CSR is increased cost of production for company. Conclusively, it is important for the organizations to manage business processes to reap huge benefits from CSR. 

References

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Fassin, Y., 2008. SMEs and the fallacy of formalising CSR. Business Ethics: A European Review, 17(4), pp.364-378.

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