Corporate Social Responsibility: Definition And Components

Corporate social responsibility

It is all about giving back to the society that is allowing the individuals and companies to prosper and flourish in this competitive world. They are taken it from the surrounding environment and needs to give it back so that it can be restored. It is important for the business organization to have an effective and efficient corporate social responsibility that aims towards conduct the business ethically. This means the business organizations have to consider the social, environmental and economic factors along with the human rights while conducting business. Corporate social responsibility needs to be a management concept that helps the business organizations to integrate environmental and social concerns in their business interactions and operations with their stakeholders.

This report defines corporate social responsibility thereby, giving a deep insight about the concept of it followed by the major four components of corporate social responsibility. In addition to, the importance of corporate social responsibility in today’s world for the business organizations are discussed by citing practical examples. Also, this report sheds light on the potential challenges encountered while fulfilling corporate social responsibility as well as the disadvantages associated with it.  

Corporate social responsibility is defined differently but the purpose of it is conserved similarly in each definition. As commented by Grayson and Hodges (2017), corporate social responsibility is the activity undertaken by the business organizations for managing business processes with the aim of having a positive impact on the society. However, as argued by Saeidi et al. (2015), corporate social responsibility is defined as the continuous commitment by the business organizations for contributing towards economic development of the society ethically. In this way, corporate social responsibility can help in improving the quality life of the families, local communities, society and the general workforce.  

Corporate social responsibility is also defined as the obligation of the business organizations for benefitting the society in ways that support the primary objective of maximizing profit for the business organizations. However, on the contrary, corporate social responsibility is defined as the obligation of the business organizations with the aim of protecting and enhancing the welfare of the society along with fulfilling own interests (Deng, Kang and Low 2013). On the other hand, corporate social responsibility is defined as the ability of establishing sustainable livelihoods by taking into account the existing cultural differences and yet finding opportunities for business in establishing skills for employees, community and the government.

The four components that form the corporate social responsibility are economic social responsibility, ethical social responsibility, legal social responsibility and philanthropic social responsibility.

Figure 1: Components of Corporate Social Responsibility

The ability to earn profit highlights the concept of economic social responsibility. As mentioned by Schwartz (2017), the business can only give back when it is sustainable. Being sustainable highlights the ability of the business organizations to incur profit for the stakeholders, paying wage to the employees appropriately, meeting the financial obligations and paying business taxes. In addition to, the business organizations can maintain economic social responsibility by maintaining transparency with the stakeholders in terms of the financial status of the company. As mentioned by Singh and Kaur (2016), being profitable, sales maximizations and minimization of unnecessary costs can help in maintaining economic social responsibility. As a result of effective economic social responsibility, the business organizations can maintain a competitive position and higher level of operating efficiency.

Components of corporate social responsibility

The ethical social responsibility can be defined once the business organizations have developed or are aware of the economic and legal social responsibility. As mentioned by Nikolaou, Evangelinos and Allan (2013), ethical social responsibility is defined as the ability of the business organizations to do things correctly at each level of the business. For example, successful ethical social responsibility highlights paying the employees a living wage as well as making sure that business organization abides by the labor laws specific to the operating country. However, as argued by Singh and Kaur (2016), ethical social responsibility is defined the significance of the business organizations to perform consistently abiding by the societal and ethical norms. In order to do so, the business organizations need to respect any new ethical norms the society is adopting as well as not compromising with the ethics for achieving the set corporate goals.

According to the legal social responsibility, it is important for the business organizations to abide by the laws in the country they are operating their business. Legal social responsibility highlights paying taxes on time, sticking by the labor laws as well as allowing inspection by the legal authorities (Singh and Kaur 2016). Legal social responsibility also signifies abiding by the various state, federal and local regulations of the operating country or state. In addition to, the ability of the business organizations to fulfill their legal obligations signifies successful legal social responsibility.

Philanthropic social responsibility is also known as discretionary social responsibility that aims towards using the name of the business organizations and contributing to the community at largely in meaningful ways. As mentioned by Petrenko et al. (2016), philanthropic social responsibility includes allowing the employees with suitable opportunities for volunteering, donating money, doing charities and giving to the needy ones. In addition to, philanthropic social responsibility also allows and supports the business organizations to initiate or establish own charitable organizations in accordance with the mission and goals of the companies. However, as argued by Singh and Kaur (2016), the business organizations can achieve philanthropic social responsibility by supporting other organizations or emphasizing on own effort to make things better towards the society. For example, the business organizations can offer support and assistance to private and public educational institutions and encouraging the managers and the employees to participate in charitable or voluntary activities within their locality.

As known, corporate social responsibility is a continuous commitment of the business organizations for behaving ethically, communicating and contributing towards the economic development by enhancing the quality of life, families, communities and societies. As commented by Singh and Kaur (2016), corporate social responsibility helps people to understand in a better perspective. As a result, the business organizations are able to propose an improved brand image in the eye of the customers. For example, Google’s initiative of supporting renewable energy resources has impacted the power consumptions of big business organizations. The big companies have understood the better perspective of using renewable energy and are consuming less power.

However, as argued by Schultz, Castello and Morsing (2013), corporate social responsibility is important as this allows the business organization to do charities and use funds for the welfare of the local community, its people and the society in a larger perspective. The different multi-national companies have invested huge funds for doing charitable activities with the aim of welfare and improving the life of the surrounding people and environment. For example, more than 80% employees of Deloitte are associated with pro bono work that has helped them to develop job-relevant skills. In addition to, IBM supports wide range of efforts towards global health development, education and research and development. IBM is known for its impeccable support towards cancer research projects. Also, Zappos work with various charitable organizations for donating school supplies, shoes and books to the needful ones. Even Walt Disney Company has donated $400 million to the non-profit organizations in 2016 for providing hope, comfort and happiness to the needful kids and families (Thewaltdisneycompany.com 2018). Such charitable activities by the reputed business organizations help in providing better life to the society and make the surrounding a better place.

Economic social responsibility

Successful corporate social responsibility is significant in conserving the surrounding environment. As mentioned by Singh and Kaur (2016), the business organizations are associated with projects that aim towards protecting the environment, as it is replenishing at a faster rate. Protection of environment is necessary, as the business organization need to conserve the place where they are conducting the business and earning profit. For example, Apple is termed as the “greenest tech company in the world” for three consecutive years by Greenpeace, as Apple encourages the partners to use renewable energy. Also, 99% of packaging by Apple is manufactured from recycled products that are considered as a great environmental initiative by the company for protecting the environment.

However, as criticized by Korschun and Du (2013), effective corporate social responsibility helps in establishing a positive working environment for the employees within the business organizations. This helps the business organizations to abide the labor laws of the operating company, paying them according to the wage, maintaining respect for fellow employees and offering them scope of innovation that allows them to work freely and independently.

The successful execution of corporate social responsibility by the eminent multinational companies acts as a role model for the small and medium sized business organizations and show them the path that business can be conducted successfully and profitably by abiding by the corporate social responsibilities.

In spite of the importance of the corporate social responsibility, corporate social responsibility imposes potential challenges and disadvantages on the business organizations. As commented by Singh and Kaur (2016), increased focus on corporate social responsibility shifts the profit-making objective of the business organizations. As a result, the business organizations forget their obligations towards the stakeholders that they need to ensure profit. In this case, the business organizations use the profits or funds for community welfare instead of sharing it among the stakeholders. However, as argued by Homburg, Stierl and Bornemann (2013), the reputation of the business organizations are also at stake due to corporate social responsibility. This is because the business organizations have to disclose the short comings of their own products and service if they are encountered violating the corporate social responsibility programs. This creates inconvenience among the target customers, as the customers lose their trust on the company.

Another challenge due to corporate social responsibility is due to the inefficiency of the Government. Failed initiatives have been encountered as the Governments have relied on the regulation and legislation for delivering environmental and social objectives in the business sector. Such challenges have found that more than 200 companies are not abiding by the corporate social responsibility under the law of the company. As a result, prosecution has been filed against the companies that are failing to abide by the CSR laws. In addition to, change in the behavior of the employees is a major challenge in achieving corporate social responsibility successfully. This is because the employees are increasingly drawn towards benefits and paychecks and in order to retain the qualified employees, the business organizations are forced to spend more financial resources on them that restrict the companies from taking part in the charitable activities.

Conclusion

Thus, in this report, it can be concluded that corporate social responsibility plays a significant role in today’s world by enforcing the business organizations to conduct business ethically and give it back to society. Thus, social corporate responsibility is the obligation that business organizations have towards their stakeholders as well as towards the society and the surrounding environment in order to ensure improvement. Economic, legal, ethical and philanthropic social responsibilities are the four components that form the corporate social responsibility. All the components of the corporate social responsibility highlights success and improvement with the ones associated with the business organization. Different multi-national companies such as Deloitte, IBM, Zappos, Cisco, Apple, LinkedIn, Walt Disney, Google, BMW, Dell, Starbucks and Bosch ensure fulfillment of corporate social responsibility strictly and efficiently. Successful implementation and execution of corporate social responsibility by the MNC’s act as a role model for the SME’s for conducting business in accordance with the corporate social responsibility. However, certain challenges are faced by the business organizations while fulfilling corporate social responsibility. The potential challenges and disadvantages includes shifting the focus from profit making, hampering the reputation of the company, failed initiatives due to inefficiency of the Government and behavioral changes in the employees.

References

Deng, X., Kang, J.K. and Low, B.S., 2013. Corporate social responsibility and stakeholder value maximization: Evidence from mergers. Journal of financial Economics, 110(1), pp.87-109.

Homburg, C., Stierl, M. and Bornemann, T., 2013. Corporate social responsibility in business-to-business markets: How organizational customers account for supplier corporate social responsibility engagement. Journal of Marketing, 77(6), pp.54-72.

Korschun, D. and Du, S., 2013. How virtual corporate social responsibility dialogs generate value: A framework and propositions. Journal of Business Research, 66(9), pp.1494-1504.

Nikolaou, I.E., Evangelinos, K.I. and Allan, S., 2013. A reverse logistics social responsibility evaluation framework based on the triple bottom line approach. Journal of Cleaner Production, 56, pp.173-184.

Petrenko, O.V., Aime, F., Ridge, J. and Hill, A., 2016. Corporate social responsibility or CEO narcissism? CSR motivations and organizational performance. Strategic Management Journal, 37(2), pp.262-279.

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.

Schultz, F., Castelló, I. and Morsing, M., 2013. The construction of corporate social responsibility in network societies: A communication view. Journal of business ethics, 115(4), pp.681-692.

Schwartz, M.S., 2017. Corporate social responsibility. Routledge.

Singh, B.J.R. and Kaur, M.P., 2016. Corporate social responsibility in India. International Journal of Higher Education Research & Development, 1(1).

Thewaltdisneycompany.com. 2018. [online] Available at: https://www.thewaltdisneycompany.com/wp-content/uploads/2017disneycsrupdate.pdf [Accessed 12 Dec. 2018].