Companies regularly engage in activities that go beyond regulations that are set out by law when they build social relations in environments where they operate. This is referred to as corporate social responsibility (CSR). It involves all the programs and initiatives by a company in order to improve the social welfare of its employees, the surrounding community and the environment. It can also be referred to as corporate citizenship. CSR has evolved over time and can be traced to its beginnings in the 1920’s. The latest theory that is associated with CRS is that of doing business sustainably. There are varied arguments for and against CSR, with some stating that it does not add value to a company while the contrary opinion negating that assumption.
The argument for corporate social responsibility will be based on the stakeholder theory which is more holistic and covers more issues when analyzing this topic. Phillips (2007), states that the stakeholder theory interrogates business relationships within the context of their environment. Its underlying assumption is that obligations and rights are set by certain considerations. People who lives are impacted by the operations of a business entity have the obligation and right to participate in directing its affairs. It is based on stakeholder ethics and provides a road map that links corporate decisions to that of the individual affected by it. The theory lists the people and groups that will be affected by the operations and include the following.
The company owners form part of what is known as the stakeholders holding the cardinal position. The company shareholders are tasked with the economic responsibility to ensure that profits are maximized within the context of the collective bottom line. This refers to the profit that is quantified in terms of human welfare and not limited to money alone. This broad definition of profit distinguishes companies that do business purely for monetary reasons and those that do not. This inclusive definition of profit incorporates the surrounding community and ensures that they also gain from the operations of the company. This may be in the form of employment opportunities, schools and hospitals built or scholarships given.
This includes the line workers together with the management of a company in a particular area. They are charged with duty that is dual within the context of the theory: to represent the interest of the shareholders while at the same time balancing them with those of the local community (Whelan & Fink 2016). They thus ensure that the interests of all stakeholders are taken into consideration, minimizing conflict and maximizing profit for all in the short and long-term. They are required to engage with the local community and ask for their input regarding damage to the environment, usage of resources like water and pollution. The interest of the local community ensures that there is less conflict and that harmony is maintained which is good in minimizing disruptions for operations.
The customer is also treated as stakeholders who are expected to establish the identification and reputation of the company (Eccles, Newquist & Schatz 2007). The relationship established between a customer and the firm is that of expectations that are mutual. The customer expects to purchase goods and services that have been produced ethically and sustainably. In the course of production, the interests of the local community have also been considered and met. The customer therefore makes the purchase with a clear conscience and can be a goodwill ambassador to promote the products of such a firm. This kind of goodwill that can be translated in to word of mouth marketing is preferable to the firm than traditional and standard means of marketing (Epstein-Reeves 2012). Therefore CSR within the context of stakeholder theory is beneficial and desirable for a company.
The suppliers as stakeholders are important as they form part of the shared vision and strategy of the company. There is a solid relationship that is formed with suppliers who should show that the products they supply have been produced ethically and sustainably. This is important as a supplier engaged in unethical production will tarnish the reputation of the company as whole together with the other stakeholder (Freeman 2010). Insisting on dealing with suppliers who can be audited in their production road map helps create an audit trail that can be verified. This ensures that the environment is protected by sustainable production and that the welfare of the supplier’s employee is properly met. This creates value in the chain of manufacturing and production, benefiting stakeholders and protecting the environment.
One company that is engaged in responsible CSR with suppliers is Starbucks. The company has a program that ensures its suppliers of coffee are able to do so sustainably. Under its CAFÉ practices, it seeks to provide environmental leadership with accountability to the environmental use of resources (Craves 2015). The coffee is ethically produced within the context of protecting the soil and water resources, conserve the bio diversity and manage the environment. Customers who patronize the company indirectly ensure that the livelihoods of the farmers are also positively impacted. Partnering with RED, the company donates a portion of its profits to support the fight against HIV (Starbucks 2011). This CSR therefore creates a chain that involves different stakeholders, all of who benefit through the collective bottom line.
There are many divergent opinions that argue against CSR. Some of the arguments state that it has no tangible value to the business and is simply a marketing fad (Lamb, Hair & McDaniel 2012). Other opinions state that the donation made to the community is simply done as philanthropy with no positive benefit accruing back to the company. The other common argument is that it is could be the pet project of the shareholder or CEO and is therefore done haphazardly and without structure (Seitanidi 2010). This discourse will focus on the following three arguments against the practice of CSR: the fundamentals of business, quantification of its benefits and transfer of social costs.
This argument asserts that the basic aim of a business entity is to make profits and ensure that the business is economically viable. It is done with the aim of maximizing returns to the investors and shareholders who should not bear any extra burden towards the surrounding community (Gomez, Vargas-Preciado & Crowther 2017).The assumption accompanying this position is that the government’s responsibility to take care of the societal needs. The taxes they pay in the course of doing business should be directed towards meeting these needs. For the company to engage in CRS, this would be tantamount to double taxation and this will negatively impact its profitability.
The second argument against CSR is that there is no universally accepted and defined metric that can measure what constitutes the minimum expectations of CSR. What amount of resources should be committed towards social initiatives in order to qualify as CSR? The other consideration is whose interests should be given preference when making the decisions on CSR. Company A makes a profit of $10 million per year and commits $100,000 on CSR programs. Company B makes $5 million and commits $ 200,000 to its CSR. The question that arises is which of the two firms can be considered as being engaged in CSR and what are the metrics used in reaching such a decision.
The last argument is that firms engaged in CSR ultimately transfer back the costs to several stakeholders. The resources allocated are recovered through higher prices which are passed to the consumer (Mitra 2007). This is evident bin green products and organically produced food which fetch higher prices. The other mode of recovering costs is through lower wages paid to the employees. Lower wages may negatively affect productivity in the long-term coupled with high turnover of employees. The costs are also recovered as reduced profits which are announced. The reduced profits can form the basis of accounting manipulation with regards to paying taxes. This therefore may encourage corporate irresponsibility through tax evasion which will impact the society negatively.
A good example of why companies should not engaged in CSR is Volkswagen. The company was charged with falsifying the true levels of emissions from their cars. This gave it unfair advantage over its competitors by claiming that their vehicles were environmentally friendly (Dans 2015). This was done with the collusion of the CSR department. This case points to the fact that the CSR is just a department created to sanitize the image of most companies with no real benefits accruing back. It should also serve an internal self regulating checker and in this case it failed. CSR is therefore a marketing exercise and strengthens the argument against CSR.
Companies often engage in activities that go beyond the expectations that are set out by law when they build social relations in environments where they operate. This can fit within an broad definition of what is known as CSR. Proponents of CSR point that it avails several benefits such as inclusivity of stakeholders. This creates value for the stakeholders including shareholders, customers and suppliers. The contrary arguments state that businesses are established for the sole purpose to make profit. Additional arguments point out that it is difficult to quantify and that the costs associated with it are ultimately recovered by the firm. The ultimate decision to engage in CSR calls for consultations with all stakeholders involved.
References
Craves, J, 2015, Starbucks claims 99% “Ethically Sourced” Coffee, but what does that even mean, viewed 21 September, < https://dailycoffeenews.com/2015/05/15/starbucks-claims-99-ethically-sourced-coffee-but-what-does-that-even-mean/>
Dans, E, 2015, Volkswagen and the failure of Corporate Social Responsibility, viewed 21 September, < https://www.forbes.com/sites/enriquedans/2015/09/27/volkswagen-and-the-failure-of-corporate-social-responsibility/#6a3c4d0c4405>
Eccles, R., Newquist., S & Schatz, R, 2007, Reputation and its risks, viewed 21 September, < https://hbr.org/2007/02/reputation-and-its-risks>
Epstein-Reeves, J, 2012, Six reasons companies should embrace CSR, viewed 21 September, < https://www.forbes.com/sites/csr/2012/02/21/six-reasons-companies-should-embrace-csr/#239bf5533495>
Freeman, R. E, 2010, Strategic management: a stakeholder approach, Cambridge.
Gomez, L. M., Vargas-Preciado, L., & Crowther, D, 2017, Corporate social responsibility and corporate governance: concepts, perspectives and emerging trends in Ibero-America, Bingley, Emerald Publishing.
Lamb, C. W., Hair, J. F., & McDaniel, C. D, 2012, Essentials of marketing, Mason, Ohio, South-Western Cengage Learning.
Mitra, M, 2007, It’s only business! India’s corporate social responsiveness in a globalized world, New Delhi, Oxford Univ. Press.
Phillips, R. A, 2007, Stakeholder Theory: Impacts and Prospects, Cheltenham, Edward Elgar Pub. https://public.eblib.com/choice/publicfullrecord.aspx?p=730829>
Seitanidi, M. M, 2010, The politics of partnerships: a critical examination of nonprofit-business partnerships, Dordrecht, Springer.
Starbucks, 2011, Make a difference this world AIDS day with your beverage purchase at Starbucks, viewed 21 September, < https://news.starbucks.com/news/make-a-difference-this-world-aids-day-with-your-beverage-purchase-at-starbu>
Whelan, T & Fink, C, 2016, The comprehensive business case for sustainability, viewed 21 September, < https://hbr.org/2016/10/the-comprehensive-business-case-for-sustainability>
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