Corporate Social Responsibility (CSR) focuses around voluntary actions of businesses to act morally towards stakeholders (e.g. employees, investors, customers, the local community, etc.).
These obligations to act morally correct are taken above compliance with minimum legal requirements – just following the laws and regulations in a country is not enough to call the business being socially responsible.
Socially responsible companies are ethical towards both its own interests and the interest of the whole society they operate in. But, it may not be constant as the attitudes towards Corporate Social Responsibilities (CSR) usually changing over a long period of time despite the driving forces for setting ethical objectives. Also, it is difficult to measure the extent to which a business is socially responsible due to the subjective nature of what ethical is and what is not.
Whatever the arguments, there is no doubt that society’s view of business seems to expand each year. We are expecting companies to take a much wider view of their roles than they once did in the past.
Factors impacting Corporate Social Responsibility (CSR)
Whether a business acts in a socially responsible way depends on several factors:
– Type of industry. Some industries are more ‘society-friendly’ by nature such as waste management companies, or businesses in the education or healthcare industries.
– Location. If the business enters into a country with high social responsibility awareness among the citizens, it will naturally adjust into the local environment to also act morally correct.
– Stakeholder groups. The involvement, influence and power of various stakeholders such as pressure groups will determine how socially responsible the company becomes.
– Corporate culture. Aggressive investment banking industry may have low attitudes towards Corporate Social Responsibility (CSR) among its employees who are mainly focused on maximizing earnings for its customers while neglecting work-life balance of its workers
– Media exposure and pressure from the media. If the bad behavior of businesses is never exposed in the mainstream societies, the companies may get away with immoral or even illegal actions.
– Compliance costs. The human and financial resources needed to implement Corporate Social Responsibility (CSR) policies. In countries with high compliance costs, many companies may give up on CSR as the company may not be able to generate any profit, and will eventually go bankrupt.
– Resources available both financial and human.
– Societal expectations. The higher the general public awareness of concerns for Corporate Social Responsibility (CSR) issues, the more pressure on businesses to act morally correct.
– Experiences. It often takes a crisis or a very bad experience to precipitate more attention to Corporate Social Responsibility (CSR).
– Laws and regulations. Legislation that govern how firms conduct themselves responsibly will put pressure on managers to act in that way on daily basis.
How can companies adapt to new social responsibilities?
There are many different ways in which companies may adapt their social responsibilities. Here are examples of changes toward CSR that companies can implement.
1. Providing accurate information on packaging. Correct and explicit labeling can help consumers to make more-informed decisions about the products that they buy such as nutritional information about food content or the list of ingredients used to produce various soft drinks.
2. Offering fair employment practices. Businesses can fulfil their social responsibilities to their employees by providing decent and fair working conditions. Otherwise, they may be heavily criticized.
a.) Paying minimum wage. It has been imposed by law in more and more countries to pay a national minimum wage. So, these days most businesses are legally prevented from paying unethically low wages to workers.
b.) Offering fair remuneration. More companies these days have implemented salary scales. Workers are paid based on specific and predetermined criteria such as education level, skills and years of work experience.
c.) Hiring and promoting female workers. This change is happening in more traditional countries such as Japan or in the Middle Eastern countries as there are changes in societal norms.
d.) Avoiding child labor. To prevent exploitation of under-aged workers in less economically developed countries, health and safety at work legislation is becoming a common practice. Also, to avoid child labor as investors may not be willing to invest their money with unethical firms.
e.) Tolerating multiculturalism. More countries are becoming immigration friendly that results in greater tolerance and acceptance of multiculturalism.
3. Providing training opportunities for all workers. This can not only showcase the company as a socially friendly place to work, but can have a direct impact on workers’ motivation levels, hence improving productivity and lowering staff turnover. In the long-term, marketing, Public Relations (PR) and increased employee motivation pay for themselves and can even generate higher profits.
4. Protecting the environment. More firms use recycled materials in the production process, recycle their waste materials both to reduce any pollution and get access to recovered raw materials for much cheaper price. Businesses that continue to pollute and damage the environment are having poor corporate image resulting in loss of customers and lower sales. In many countries such as Sweden or Canada, companies are being judged based on environmental protection attitudes. Socially friendly companies try to change their objectives to contribute to the preservation of the planet and to eliminate any negative impact on drastic climate change.
5. Eliminating tobacco advertising. The advertising of tobacco products is becoming immoral and illegal in more countries around the world. However, it will still depend on the consumption level of tobacco and the power of tobacco companies in generating TAX revenues.
6. Actively working to improve the local community. Businesses donate to charities, helping to give back something to the society, as it often results in a good reputation (how others perceive the business). Many owners of companies have their own desire to act in a socially responsible way because they want to, not because they have to. In some countries, the large multinational companies are expected to donate part of their profits to charity to share with the poor. Some other companies are acting responsibly to avoid any negative media exposure because having positive brand image can give a company competitive advantage over its rival. These days many customers are very careful about spending money on goods and services from socially responsible firms only.
Who should make decisions about being socially responsible?
Some people argue that it is not the role of managers to decide what is right or wrong because managers are employed to run a business on behalf of the owners who seek profit maximization. Also, managers do not risk their own money (unless they are also shareholders in the business) when making decisions.
However, managers have a role in promoting and encouraging CSR in the workplace because there are potential long-term benefits to the business from being socially responsible.
Also, it is in fact managers who make decisions about budgets, for examples, using money in socially responsible ways such as donating money to charity or changing into more environmentally friendly production methods.
Disadvantages of Corporate Social Responsibility (CSR)
1. Increase in costs. Spending on social responsibilities can result in additional costs that will reduce net profit in the short-term, e.g. better working conditions, paying for training and development, donating to charities, purchasing higher-quality raw materials from ethical suppliers, etc.
2. Wasting scarce resources. Using limited economic resources as efficiently as possible in order to make profits for the owners is supposed to be a main task for large for-profit commercial business organizations in the private sector. After spending money on CSR projects, the businesses will have less capital to invest for business expansion and less dividend to pay out to business owners.
3. Perceived only as a Public Relations (PR) activity. Corporate Social Responsibility (CSR) projects done by a business may be seen by the society as a public stunt – faking being a good citizen in public only to appear society-friendly while in fact, the company is damaging the interests of the society by profit-maximizing actions of greedy-for-money shareholders.
4. A smart cover-up for less regulations. Some people say that large and powerful multi-national businesses use Corporate Social Responsibility (CSR) to appear good just to shift attention of the governments that may want to impose more restrictions and industry regulations for stricter control.
