Corporate Social Responsibility: Advantages And Disadvantages

Definition of Corporate Social Responsibility

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Corporate Social Responsibility (CSR) defines the business approaches, which contribute in the sustainable business development through delivering economic, social and environmental benefits to all types of stakeholders (Korschun, Bhattacharya and Swain 2014). CSR programs actually enhance the corporate image of organization to the stakeholders. However, CSR programs can enhance the overall cost of production of the organizations. Moreover, CSR programs have both advantage and disadvantage, which can have huge impact on the organizations. This essay will present arguments for and against Corporate Social Responsibility, using research from the academic literature and highlighting real company examples.

Corporate Social Responsibility (CSR) is defined as the form of corporate self-regulation integrated into the business model. Moreover, in the concept of CSR, organizations integrate social, economical and environmental concern in their business operation and positively interact with the stakeholders. CSR practices encourage the organizations to be much more aware of the impact of their business on the society, stakeholders and community. As per Saeidi et al. (2015), CSR goes beyond charity and requires the organizations to act beyond legal obligations and integrated social, economic and environmental concern. Moreover, CSR activities of organizations care for the benefits of customers, employees, community and environment.

According to Walker and Dyck (2014), CSR enhances the responsible business reputation and corporate image of an organization to their stakeholders. In CSR policies, organizations are more likely to maintain warm relationship with the customers and other stakeholders by fulfilling their interests. Therefore, they can gain trust of the stakeholders and make them well established in the market. While looking at the evidence of Coca Cola Amatil, it has been found that the organization constantly maintains the standards in all their product categories. Furthermore, the organization highly values their customers and other stakeholders through meeting all their standards. In this way, Coca Cola Amatil has well established its corporate image in the market (Ccamatil.com 2017).

On the other hand, Chernev and Blair (2015) opined that CRS activities can face the issues of customer or community conviction. In such issue, customers and community like to see the organizations that they trust are highly engaged in social welfare programs. They highly believe that CSR programs are for good causes and like to see instant results from those programs. It is very difficult for the organizations towards convincing the customers and community about the good intension of CSR, if it does not show any instant result. While taking the example of Tom Shoes, it has been found that the organization gives one pair of shoes to a poor child for every one pair of shoes it sells to its customers. However, the customer and community claimed that Tom Shoes should try to develop the life of poor children rather than merely giving one pair of shoes. Moreover, the customers and community are less likely to believe on the charity Tom Shoes, which is making customer and community conviction issues (Anderson 2017).

Advantages of Corporate Social Responsibility

Servaes and Tamayo (2013) pointed out that CSR activities facilitate in maximizing the overall organizational profit of an organization. Organizations having CSR activities always provide adequate return on investment to the shareholders and investors. In this way, such organizations can gain high level of trust of the shareholders and attract more capital inflow from various sources including shareholders and investors. Therefore, increased investment can strengthen the financial capability of an organization. Furthermore, effective CSR activities facilitate in gaining high level of customer loyalty. Therefore, the customers are more likely to repeat their purchase, which can actually enhance the sales and profit volume of an organization. While looking at the CSR activities of Coles Group, it has been found that the organization ethically deals with its shareholders and provides them adequate return on investment. Therefore, the shareholders and investors are highly interested to invest in this organization by enhancing its overall profit level (Theage.com.au 2017).

As per Kim, Li and Li (2014), CSR programs actually increase the overall expenditure of an organization and its cost of production. Moreover, the organizations involved in CSR programs need to provide charity for communal development. It need huge among of monetary as well as non-monetary organizational resources, which add to the overall production of the organizations. Furthermore, organizations often have to compromise with some direct profit making activities for protecting the environment and stakeholders from the harmful effects of those activities. Apart from that, the organization also has to allow employee volunteering time to the employees, which can hamper the production capability of those employees and overall organizational production. In this way, CSR activities actually increase the cost of production of an organization. While looking at the example of Domino’s Australia, it has been found that the charity programs of the organization towards treating the life of cancer affected young people have actually increased its expenditure. Though the organization is gaining high level of corporate image through their charity programs, still the organization has to compromise with its profit making capability (Dhaliwal et al. 2014).

Most of the organizations utilize CSR initiatives for bolstering their public image. However, CSR initiatives necessitate an organization towards releasing certain genuine information, which could have some opposite impact on the organization than the expected outcome. Moreover, Hoi, Wu and Zhang (2013) opined that CSR programs require an organization to disclose all organizational information. As per CSR programs, the organizations need to be clear and transparent in communicating all their important information to their important stakeholders. In such situation, any organizational information, which is breaching the values of CSR programs, it can destroy the reputation of the organization to its stakeholders. While taking the evidence from Coca Cola, the organization released a report including the information regarding the chemical found in its products. This report has actually lowered the reputation of the organization (Mail Online 2017). The organization has actually suffered huge revenue loss from such information discloser.

Real Company Examples of Advantages of CSR programs

According to Saeidi et al. (2015), CSR programs facilitate an organization towards saving overall organizational cost. The principle of good business is that any publicity is good publicity. Moreover, the product should be well known to the customers for increased sales volume. Effective CSR programs enhance the corporate image of a particular brand in the market. In this way, the CSR activities enhance the customer loyalty of an organization, which in turn enhance the word of mouth of any particular product. In this way, such CSR initiatives enhance advertisement effectiveness of the organization through increased word of mouth. Therefore, it actually reduces the advertising cost of the organizations. While looking at the evidence of community development programs of Cotton On Organizations, it has been found that the organization has highly popular for its favor towards community development. It has been found that high level of popularity of the organization has increased the word of mouth for the brands of the organization. Moreover, the customers are more likely to refer the brands of this organization to their relatives. In this way, CSR programs are actually enhancing the advertising effectiveness of the organization, which has minimized the advertising cost as well as overall organizational cost of the organization (Acrath.org.au 2017).

Most of the critics of CSR have identified that CSR programs can shift the focus of an organization from its core business objectives. Hoi, Wu and Zhang (2013) opined that the organizations often forget their obligations towards the shareholder in which they have to make adequate profit for provide accurate return on investment to the shareholders. Moreover, the organizations can engage in CSR programs and use up their funds for community welfare. In this way, instead of making an income, CSR programs often make outflow of cash and not fulfill the actual business objectives of the organizations. While taking the example of Woolworth Group, it has been found that the organization spend huge amount of money for charitable purpose and community development. In this way, such huge amount of spending on CSR programs affects the financial stability of the organization (Wecu 2017).

Conclusion

While concluding the study, it has been found that corporate social responsibility enhances corporate image of organizations in the market. It actually helps in fulfilling the interest level of all kinds of organizational stakeholders. On the other hand, CSR programs can create customer and community conviction, where customers and community have less trust on the CSR programs, if it does not have any instant positive effects. However, CSR program maximizes the profit level of the organizations. Moreover, CSR initiatives encourage the organization towards provide adequate return on investment to the shareholders. It actually gain the trust level of the shareholders, which encourages the shareholders towards huge investment. It actually enhances the financial stability of the organizations. On the other hand, CSR initiatives enhance the overall cost of production of the organizations through increased charitable investment. Furthermore, CSR programs reduce the advertising cost of the organizations through increased word of mouth.

Reference List

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Ccamatil.com. 2017. Coca-Cola Amatil – Australia, New Zealand & South Pacific. [online] Available at: https://www.ccamatil.com/ [Accessed 16 Sep. 2017].

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Dhaliwal, D., Li, O.Z., Tsang, A. and Yang, Y.G., 2014. Corporate social responsibility disclosure and the cost of equity capital: The roles of stakeholder orientation and financial transparency. Journal of Accounting and Public Policy, 33(4), pp.328-355.

Hoi, C.K., Wu, Q. and Zhang, H., 2013. Is corporate social responsibility (CSR) associated with tax avoidance? Evidence from irresponsible CSR activities. The Accounting Review, 88(6), pp.2025-2059.

Kim, Y., Li, H. and Li, S., 2014. Corporate social responsibility and stock price crash risk. Journal of Banking & Finance, 43, pp.1-13.

Korschun, D., Bhattacharya, C.B. and Swain, S.D., 2014. Corporate social responsibility, customer orientation, and the job performance of frontline employees. Journal of Marketing, 78(3), pp.20-37.

Mail Online. 2017. As a cancer scare erupts over a chemical in the fizzy drink … just how safe is a can of Coke?. [online] Available at: https://www.dailymail.co.uk/health/article-2166193/Coca-Cola-cancer-chemical-scare-How-safe-Coke.html [Accessed 16 Sep. 2017].

Saeidi, S.P., Sofian, S., Saeidi, P., Saeidi, S.P. and Saaeidi, S.A., 2015. How does corporate social responsibility contribute to firm financial performance? The mediating role of competitive advantage, reputation, and customer satisfaction. Journal of Business Research, 68(2), pp.341-350.

Servaes, H. and Tamayo, A., 2013. The impact of corporate social responsibility on firm value: The role of customer awareness. Management Science, 59(5), pp.1045-1061.

Theage.com.au. 2017. A touchy, feely Coles takes on responsibility – Business – Business. [online] Available at: https://www.theage.com.au/news/business/a-touchy-feely-coles-takes-on-responsibility/2005/07/06/1120329501370.html [Accessed 16 Sep. 2017].

Walker, K. and Dyck, B., 2014. The primary importance of corporate social responsibility and ethicality in corporate reputation: an empirical study. Business and Society Review, 119(1), pp.147-174.

Wecu. 2017. Corporate Social Responsibility Strategy | Woolworths Employees Credit Union. [online] Available at: https://www.wecu.com.au/about-us/csr-strategy/ [Accessed 16 Sep. 2017].