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Corporate social responsibility (CSR) refers to “the integration of stakeholders’ social, environmental and other concerns into a company’s business operations”. CSR initiatives help companies to ensure sustainable growth through practices that promote fairness among their stakeholders.
In this context, CSR can be conceptualized as a self-regulating mechanism that enables firms to ensure compliance with the law, ethical standards, as well as, international norms. Empirical studies reveal that companies that have effective CSR policies tend to be more competitive than those without CSR policies. Consequently, CSR is increasingly becoming an integral aspect of every business.
Most companies, especially, the multinationals are incorporating CSR policy functions in their strategies. However, the importance of CSR to a business has always been questioned. In particular, critiques of CSR assert that the benefits of CSR can not be easily quantified. Thus, investing in CSR initiatives can not be justified.
This paper will analyze CSR from an international human resources perspective. It will argue for the premise that CSR is and will continue to be the most important element of international human resource strategy. The role of CSR in international human resource management will be used to support this premise.
Drivers of CSR
According to the Economist Intelligence Unit, CSR has become an important concept in the international business community. Additionally, businesses are gradually adopting CSR policies as a mainstream activity. This means that the application of CSR in the global business environment is likely to increase in the future. This increase is likely to be driven by the following factors.
First, there has been significant lose of trust in corporate management. The public has lost trust in most corporations due to financial scandals and production practices that pollute the environment.
Consequently, multinational corporations have to invest in CSR initiatives in order to improve their image in the society. Second, businesses that pursue global strategies have always encountered resistance from anti-globalization activists (Jones, Comfort and Hillier, 2007, pp. 23-35). Consequently, they use CSR initiatives to pacify interest groups.
Third, the application of CSR policies is driven by competitive pressures in various industries. As companies adopt CSR practices, their counterparts who fail to adopt such policies are increasingly put under pressure to adopt CSR policies. For example, companies that engage in mining activities are often expected to engage in CSR practices that promote environmental sustainability (Josep and Emmanuelle, 2011, pp. 955-967).
In this context, the public is likely to accept the mining company if it implements programs that promote environmental sustainability. Finally, firms in various industries are beginning to conceptualize CSR as a means of ensuring competitive advantage. A company that incorporates CSR polices in its strategy is likely to have a strong brand image.
The strong brand image in turn enables the company to achieve a competitive advantage over its rivals. Research on the outlook of the international business environment indicates that competition is likely to intensify in most industries (Arthur, Cato and Kanoy, 2007, pp. 32-38).
Additionally, emphasis on ethical practices is likely to increase. These trends coupled with the aforementioned drivers of CSR, will catalyze the use of CSR policies in future, especially, in human resource management.
Role of CSR in Human Resource Management
Multinational corporations can not afford to ignore CSR in developing their human resource management polices due to the following reasons. First, the competition for talent at the global level is likely to intensify in the future. Empirical studies on human resource management reveal that CSR policies enhance attraction as well as, retention of highly qualified employees (Kiran and Sharma, 2011, pp. 10-15).
In the global labor market, a firm is considered a strong employer brand if it is able to align its values and concerns with those of its employees. Employees tend to identify with companies that are highly regarded. Employer differentiation has become a formidable weapon in the structural ‘battle for talent’. Individuals are more willing to work for firms that have ‘conscience’.
Individuals prefer working for organizations that are ready to make a difference in the lives of their stakeholders. A company can only build conscience by infusing its corporate values with CSR policies (Schoemaker and Nijhof, 2006, pp. 448-465).
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Consequently, firms have to align their values with their mission, as well as, vision. This enables firms to demonstrate corporate social responsibility in everything they do, thereby attracting the best talent and winning the support of the community.
Second, CSR reduces employee turnover and recruitment costs. A recent study on corporate citizenship conducted in US revealed that 77% of employees consider a firm’s commitment to social issues when they (employees) decide on where to work (Garcia, Tabales and Herradon, 2008, pp. 27-44).
Most employees consider the firm’s environmental, as well as, social reputation to be more important than salaries in their job search. The study also revealed that 70% of employees will resign if their employer does not engage in socially responsible behavior.
Given the high costs of replacing workers, it pays for firms to reduce turnover by incorporating CSR in their human resources policies. Turnover can be reduced significantly if the performance and talent management strategy incorporates CSR policies. For instance, Sears reduced its turnover rate by 20% after implementing its CSR program (Garcia, Tabales and Herradon, 2008, pp. 27-44).
Third, emerging evidence reveal that integrating CSR polices with human resources management strategy can significantly improve employees’ motivation. Naturally, employees desire to achieve a sense of purpose from their jobs. Employees are likely to achieve a sense of purpose and high job satisfaction if they identify with the values and practices of their employer.
Job satisfaction can increase if corporate citizenship is included in the performance evaluation process. In this context, employees who promote corporate social responsibility initiatives should be rewarded for their efforts. Shareholders across the globe are interested in the long-term sustainability of their enterprises.
Shareholders believe that remuneration packages that are based mainly on achievement of short-term financial objectives or targets can deny a firm the chance to focus on long-term sustainability. Consequently, shareholders are pressuring firms to link executive remuneration packages to the firm’s sustainability performance.
Finally, incorporating CSR policies in human resource management helps in improving the productivity of employees and the profitability of firms. Empirical studies reveal that employees tend to be motivated, loyal and committed to their jobs if their employers engage in socially responsible practices. Employees who are motivated and committed to their jobs as a result of CSR are highly productive.
With high job satisfaction, employees can promote innovation in a company. Such innovations not only help in reducing costs, but also lead to the development of products that meet customers’ expectations. Additionally, high employee satisfaction coupled with high performance results into high customer satisfaction.
Research on customer behavior reveals that over 50% of customers are normally turned away from a company’s product due to employees’ indifferent attitude. Every unsatisfied customer always discusses his unpleasant experience with other customers, thereby turning away more customers.
Hence, it is apparent that ensuring customer satisfaction must begin with enhancing employees’ satisfaction by implementing effective CSR policies.
Critique of CSR
Opponents of CSR initiatives defend their positions with the following arguments. To begin with, CSR’s ability to improve the profits of a firm has always been questioned. Some managers argue that investing in CSR can not be justified since its return on investment is difficult to measure. Such managers consider CSR to be a cost rather than an investment.
The oppositions to CSR on the ground of returns-to-investments are unfounded. As stated earlier, CSR leads to low employee turnover, and high customer satisfaction which in turn leads to high profits. Additionally, a firm can improve its profits by investing in technologies that protect the environment.
For instance, a firm that chooses to reduce global warming by substituting diesel with solar energy can significantly reduce its production costs. The difficulty in measuring the intangible benefits of CSR such as sustainable governance has since been addressed. Alternative accounting concepts such as “intangible valuable asset” have been developed to measure intangible assets such as human capital.
Managers opposed to CSR also point out the high costs of implementing CSR programs. For example, providing sponsorships to students from poor backgrounds can be very expensive. Managers who focus on the costs of implementing CSR fail to approach CSR in a holistic manner. CSR is not just about corporate philanthropy (Lantos G, 2002, pp. 205-232).
Companies with effective CSR programs focus on the internal aspects of CSR. This involves promoting strong labor relations, ethical behavior, good corporate governance and transparency. Investing in these initiatives is more beneficial than corporate philanthropy since they benefit all stakeholders.
However, firms must continue to financially support the communities they operate in (Lantos G, 2002, pp. 205-232). Thus, the bottom line is to have a balance between the external and internal aspects of CSR.
The objective of the firm has traditionally been associated solely with the profit motive. Managers who hold this view believe that firms are responsible only to the stakeholders and not the employees or the society (Lantos G, 2002, pp. 205-232). Such managers normally emphasize economic aspects of a strategy such as profits and cost reduction. They hardly consider the effect of strategies on employees, customers and the community.
Research on leadership reveals that managers who emphasize values that all stakeholders identify with are seen by employees as being inspirational and visionary (Waldman, Kenett and Tami, 2006, pp. 2-4). Managers who emphasize economic values are seen as being authoritarian and less visionary. Unlike authoritarian leadership, inspirational leadership leads to higher firm performance, as well as, employee commitment.
Finally, managers opposed to CSR argue that they do not have to invest in CSR in order to enhance workplace safety, transparency, and brand image. Managers who hold this opinion ignore the fact that failure to invest in CSR, especially, in human resource management does not necessarily lead to low costs or high profits.
This means that measuring the benefits of not investing in CSR is just as hard as measuring the benefits of investing in it. Failure to invest in CSR is often an indication of inefficiency within a firm. For example, a company that deliberately underpays its workers is likely to experience high cases of corruption among its workers.
In this context, the firm can realize short-term financial gains by failing to incorporate CSR in its human resource management strategy. In the long-term, failure to invest in CSR leads to poor labor relations and low productivity, which in turn erodes the short-term benefits.
This leads to the conclusion that failure to incorporate CSR in human resource management is not beneficial as perceived by managers opposed to corporate social responsibility.
The purpose of this paper was to defend the premise that CSR is and will continue to be the most important element of international human resource management strategy. As stated earlier, CSR is a management concept through which businesses incorporate the values and concerns of their stakeholders into their strategies.
The importance of CSR in international human resource management include attracting and retaining the best talent; boosting employee job satisfaction, and promoting ethical behavior (Garcia, Tabales and Herradon, 2008, pp. 27-44).
These benefits lead to high productivity, customer satisfaction, good corporate governance and higher returns for shareholders. In a nutshell, incorporating CSR in human resource management is beneficial to the firm and all its stakeholders.
Consequently, multinationals can not afford to ignore CSR in their international human resource strategies. Even though investing in CSR is costly, failing to invest in it does not guarantee any financial benefits. Thus, we can conclude that CSR is and will continue to be an important element in international human resources management.
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