Question:
Discuss About The Involved Environment The Natural Resources?
Corporate social responsibility entails the all the activities that companies engage in outside their primary purpose at the time of formation. It involves the organization’s participation in activities such as assisting in waste management within their geographical areas of operation, provision of non-monetary benefits to the workers, engaging in programs that are aimed at helping the less fortunate in society among others. All these activities have a direct impact on the well being of the company (Muthu, 2014). This paper will elaborate the financial implications that enterprises that have CSR initiatives go through. Companies should consider a range of factors before they tend to engage in the CSR initiatives.
Many corporations, especially in the private sector, carry out businesses with the sole purpose of marketing the profit. The shareholders can only accept to invest in corporate responsibilities if it will have a positive impact on their portfolio and hence increase shareholder investment (Kallio, 2007). Most organizational heads hold the view that when their entities engage in social responsibilities, it leads to them commanding respect among the peers in the industry they are operating in. Therefore, the CSR activities give the organization a competitive advantage over other players.
Also, the CSR will, in the long run, lead to an increase in the volume of the sales as more clients will be aware of the products being offered. This is simply due to the closeness that the final consumers will feel with the company that has participated in social responsibilities. It should be noted that impact of the increase in profits will not be a one-time affair. The realization of the invested capital will be realized gradually. This paper will discuss on how firms that engage in Social Corporate Responsibility (C.S.R) will not automatically lead to improved corporate financial performance.
The CSR enhances employee loyalty and attracts a better workforce. Workers are naturally drawn to entities that are inclined to improving the standards of the individuals and the surrounding in which they reside (Osterwalder & Pigneur, 2010). When the employees are satisfied with both the internal and external environment, then they drastically improve their productivity leading to a maximization of shareholder wealth. An organization can participate in corporate responsibility to the workers through giving out of non-monetary benefits. They include medical insurance, retirement packages, and other fringe benefits. All these expenses incurred by a company are costly to sustain, and they will significantly reduce the profitability of a company (Sasse & Trahan, 2007). This will lead to the company gaining a competitive disadvantage over other players in the industry.
The heads of the various organizations should ensure that it balances the desires of stakeholders. These aspects are outlined in by the stakeholder theory. Freeman advanced this theory. He argues that the management should ensure all stakeholders interests are taken care of and a balance apparently struck out. In case of dissatisfaction of any group will easily result to affecting the economic output of the business and in so doing affect the future performance of the entity. The theory emphasizes that the managers should take into consideration all the groups that have a stake in the company. If one group of the primary stakeholders feel left out, then it may try as much as possible to reduce the benefit enjoyed by the other entity. Organizations today are forced to show that their business stands for something more than just profits. The need to prove that the activities which the company engage in are adding some value, or even at least do not negatively affect the community around them.
Engaging in CSR changes the focus of the company from its core purpose at inception. The sole purpose of starting entities is to make the profit. Hence, CSR results to the diversion of funds from the sole objective of increasing returns and hence affecting financial growth as resources are utilized in improving the image of the company. The gains from this exercise that is difficult to determine. Usually, firms engage in improving the welfare of the local community at the expense of the profit making goal. These activities may include among others a reduction of the pollution effect to the immediate environment.
In as much as CSR is a good activity for adoption by the business organizations, it is also associated with various drawbacks. Corporate social responsibility may also lead to the disrepute of the company. CSR requires the businesses to disclose the side effects of the products and services they supply to the market (Henderson, 2007). For instance, the Samsung Company had to withdrawal some of the phones from the market since their batteries in the market started to explode. This act affected the reputation of the company as one of the leading entities in the mobile phone industry. Their withdrawal greatly reduced their volume of sales and hence the profitability levels (Perkmann & Spicer, 2010).
Additionally, the CSR activities of Samsung regarding the situation creates inconvenience to the final consumers of the company products and a reduction of trust with the respective manufacturer of the defective products (Atakan & Eker, 2007). Also, Coca -Cola Company released information on the chemicals found in their soft drinks the corporate responsibility, but this ended up in lowering their reputation and hence a reduction in the revenue.
CSR activities may increase the cost of production. Programs of CSR requires intensive expenditure to implement.Hence, this stretches the profits of a company. It’s worth noting that the additional expenses incurred by an entity will automatically be shifted to the final consumer leading to an increase in price that the consumers will pay for it. However, it’s essential to note that the increase in expenditure in most cases affects the small and medium enterprises. Large corporations may not necessarily increase their prices since they cushioned as the large produce volume of output (Horrigan, 2010).
CSR results to customer cynic. For the start businesses that engage in these activities leads to a positive effect on their customer’s opinions regarding the company’s’ products. The consumers like the fact that the programs are for a good cause (Roberts, 2007). However, if they fail to see immediate results of these activities, they become wary of these actions, and in the long run, it will be difficult to convince them that the company had good intentions since the results are not felt as quickly as they are expected. Most customers at this stage start to have a negative attitude towards the company offering CSR and hence will automatically lead to a reduction in sales volume and furthermore the profit levels.
It affects staff morale. For a company to engage and offer quality CSR services, then it has to increase the workload of its workers. Employees will be required to work long hours with no increase in remuneration (Parmar, 2014). Usually, workers need motivation for them to offer extra services and if they are not provided with the same, then they have no alternative but quit and look for better avenues. The given company will have to incur more costs in recruitment and training of new staff. Hence, this will affect to a great deal the profitability levels of the enterprise and a stagnation of the shareholder wealth.
The corporate social responsibility affects the interests of the shareholders. Proper implementation of this process requires that the entities implementing it undergo through a range of changes in the way operations are run. The company will be required to hire an additional workforce to manage the CSR initiatives (Maak, 2007). It will also entail an increased level of reporting more especially on the financial implication of the CSR activities. All these changes require intensive capital for them to be successful. Individuals who are against this initiative hold the opinion that all these funds to implement the CSR policy come directly from the pockets of the shareholders. Opponents of this initiative argue that CSR activities incur an immense greater cost in comparison to the little measurable return from them.
The exercise involves incurring of many expenses. Many companies are not willing to fully engage in CSR activities due to the associated costs that come a long with it. While implanting CSR initiatives firms have to heavily pay for environmental programs in the local areas they operate in, pay for the employee’s welfare through the medical insurances schemes and also staff training. Moreover, they have to engage in activities that ensure effective waste management programs. All these activities require intensive financing (Pickett & Wilkinson, 2009).
CSR activities may antagonize the expectations of shareholders, and this will make them have a negative perception of the investors’. Organizations from time immemorial have a primary objective of ensuring the value of shareholders is maximized, therefore; the company managers must make sure they strike a balance between the main goal of the company and the CSR initiatives to benefit other stakeholders (Aver & Cadez, 2009). The willingness of the investors to commit their finances may differ. Investors may shy away from investing in entities that engage in CSR activities because it is a costly activity (Artiach, Lee, Nelson, & Walker, 2010).
It leads to a company experiencing competitive disadvantages. For a company to effectively implement the CSR initiatives, it has to reorganize the way it operates regarding the working model logistics. Working with a completely new paradigm may turn out to be an obstacle in the way the business works. For instance, a company that implements the CSR initiative will be incurring additional costs to implement strict regulations on its products to meet the CSR requirements thereby becoming disadvantaged in comparison to another company in the same sector but pays no attention to CSR initiatives (Balmer, Fukukawa & Gray, 2007).
The primary function of the private organizations is to maximize the profit of the shareholders. Given that this is the primary objective, it makes it difficult for them to incorporate and implement the social responsibility accounting system aspect. This is simply because application of the policy requires a substantive amount of resources (Innovation in India, 2007). This entails both the reorganization of the entity and revamping the new sector to engage in CSR activities which are very expensive in the long run. Firms will be going against this principle of profit maximization. The main stakeholders will at all costs ensure that the business remains steadfast in the provision of services and quality products without forgetting that it should be driven by the profit levels appetite.
Several entities often report on the CSR policies and activities. This is to lure more customers to embrace their products as the implied to be closer and beneficial to the final consumer.They need to go a step further and compare the resources that they had initially put in these CSR projects to make a worthy finding of if they are real beneficial and should be encouraged. It’s important to note however that it’s not that easy to measure the gains from these activities. CSR performance can be assessed by entities through benchmarking with other organizations in the same sector and also other sets of organizations.
Initial expenditure the firms engaged in carrying out the CSR initiative measured against the final profits realized in a given financial period to establish if the firm has gained. The first one is by establishing the degree of executive engagement.The organization should not overlook the human capital that it deploys to implement the organization CSR initiatives. This is essential because the said staff could have been involved in running the day today activities of the organization hence contributing to the direct benefit of the company (Aras, Aybars, & Kutlu, 2010). The rank of the staff should also be considered as these activities majorly involve the management cadre to drive the CSR initiative.
Finally, the organizations should do a comparison of CSR objectives against the outcomes. This will be a clear indicator of knowing whether the company’s resources yielded the outcomes intended and if not, the entity should be able to pinpoint the reasons as to why.
Other organizations in most cases abuse the CSR initiative. These firms engage in activities of hoodwinking the public that they are carrying out beneficial activities and in the real sense they are not. This is through practicing of weak CSR initiatives a phenomenon called ‘green washing.’ This entails organizations utilizing more of their resources in advertising the activities they have engaged in being environmentally friendly than those resources they have put in CSR initiatives.
Conclusion
In conclusion, it’s evident to note that from the preceding discussion managers of organizations have to ensure that tread very carefully before engaging in the CSR initiatives. The influence of it on the financial performance has been a point of concern to the top level management. It’s worthy noting that the benefit that organization gets from engaging in CSR initiatives cannot be empirically measured. Hence, managers should first prioritize profit maximization as opposed to CSR initiatives as its benefits are a gradual benefit.
References
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