The 21st century is being insulated by a concept that originated in the 20th century called corporate social responsibility. Today, due to globalization and internationalization of businesses, most MNCs are under great pressure to embrace socially responsible behavior in their global operation. As this need arises, one is left to ask how well are MNCs able to develop and implement CSR policies in cultures that are diverse and largely heterogeneous from theirs.
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Other questions may include: Why is there much greater emphasis for CSR policies than earlier and why are most businesses voluntarily embracing the concepts of CSR? With wide adoption of CSR and companies jostling to design them, what are the overall effects of the policies on the performance of the business? How well can the CSR policies get integrated into the company’s strategy?
Which are some of the dominant themes that guide the CSR policies today? These questions may seem to be ordinary but their relevance and implication to the business world cannot be bypassed or assumed. Therefore, this paper tries to generate detailed information through investigation and analysis of these concepts and largely give precise insights into the concept of CSR specifically in modern economy.
Use of scientific data and information is what guided the research since it is only from such data objective information can be generated. What became true after the research is the fact that CSR as field still need more research work especially due to dynamism being experienced in the business arena. On overall, it was evident that CSR has become an integral necessity in most business and that success and growth of a business today depends on implementing a workable and sustainable CSR.
Corporate Social Responsibility
The history of corporate social responsibility (CSR) dates back to almost one and half centuries where organizations discovered that, their role was not only obliged to profit making but also to the development of the wider society. Generally, CSR can be classified into four eras that defined the breadth and growth of the field. Murphy establishes that the period preceding 1950 was largely characterized as, ‘philanthropic’ era whereby most companies got involved in donating to charities.
Prior to the period 1953-67 classified as ‘awareness’ era, there was greater recognition of the larger responsibility of the business and subsequent involvement in various community affairs. During the period 1968-73 termed as ‘issue’ era, most businesses started to pay a lot of attention to the specific issues such as urban decay, racial discrimination, and pollution problems.
Lastly, there was ‘responsiveness’ era which took place between 1974-78 and beyond, in which business entities began to view management and organizational actions more seriously with aim of addressing the issues to with CSR.
In 1953, Bowen published his book, ‘Social Responsibilities of the Business’, setting ground for the beginning of modern literature on corporate social responsibility.
At that time, the author observed that numerous, larger business entities acted, and operated as critical centers of power and decision making where at the same time, actions implemented by the businesses in many ways touched the lives of people involved. In the Book, Bowen raised many questions, for instance, he asked, “what responsibilities to society may businessmen reasonably be expected to assume?”
In exploring the concept of social responsibility (SR) what exactly did Bowen mean? Defining the concept, the author noted that it refers to, “the obligations of businesspeople to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society.
Therefore, the concept of corporate social responsibility can be seen to have a relatively long history prior to its current usage and understanding. As a result, the aim of this research will be to explore the concept of corporate social responsibility with much emphasis on topical issues.
These include, why modern businesses are increasingly engaging in corporate social responsibility issues; what constitute socially responsible behavior for the business as opposed to the management of corporate image management; and what are the predominant themes arising from the definition of corporate social responsibility and their conceptual value added.
Other issues include how viable can CSR framework be linked to the business strategy and which approach highlights can be considered for CSR across the six dimensions of a firm strategy; how can a model that bridges the gap between CSR definitions and strategy be developed; and lastly what is the impact of CSR on profitability, the benefits and criticisms against CSR. Relevant data and information will be generated from relevant scientific literature.
National culture and social corporate responsibility
GeertHofstede asserted that, “culture is more often a source of conflict than of synergy; cultural differences are nuisance at best and often a disaster”. The author of the famous five cultural dimensions notes that people working in the international business are confronted with dilemmas on how people in those specific countries behave. Although humans generally assume that almost all people are the same, it generally becomes disastrous when certain ideas and styles are implemented in a particular country, leading to clash of cultures.
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In developing the five-cultural dimension model, Hofstede studied each country and produced a score for the country based on power distance index (PDI), individualism (IDV), masculinity (MAS), uncertainty (UAI) and lastly, long term orientation (LTO) where every country appeared to be culturally different from the others based on these factors.
According to Ibrahim Nabir and Parsa Faramarz, concentration on the aspect of social responsibility by organizations is an issue that continues to confront many businesses. For instance, they view social responsibility as, “a process in which managers take responsibility for identifying and accommodating the interests of those affected by the organization’s actions”.
The authors note that there have been many actions and debates among many researchers which in turn have spurred the need for more diverse literature in the field of corporate social responsibility.
Unfortunately, the diverse literatures touch little on the concept of national culture and the way it affects or influences corporate social responsibility (CSR). The observation made by the authors is that numerous existing literature and field data indicate that there is a significant impact of national culture on, managerial values, attitudes, styles, and perceptions depending on the operational environment.
In a detailed study carried out on national cultures of USA and France, the two authors categorize the work done by Bedeian where it was found out that, “it is a well-established fact that different cultures possess different organizational norms and behavior standards and that they recognize these as legitimate forms of influence”.
In another study of American and Australian students undertaking business courses, Dowling and Nagel found out that there existed certain differences between these two groups specifically in their work-related attitudes, a situation that made them to conclude that,” national culture has an impact upon the ethical beliefs and conduct of managers”.
Why modern business are getting involved in corporate social responsibility
Carly Fiorina in 2003 noted that,
” for many years community development goals were philanthropic activities that were seen as separate from business objectives, not fundamental to them; doing well and doing good were seen as separate pursuits; but I think that is changing……………..cutting-edge innovation and competitive advantage can result from weaving social and environmental considerations into business strategy from the beginning”.
The above observation just indicates how social cause has become an issue in almost all quarters of life. In addition, key actors in society are more aggressive in promoting sustainable social welfare.
The dynamics taking place in the business sphere where many business players are yearning and struggling to create a more competitive, productive and knowledge-based economy is in turn forcing business entities to realize that ethics and social responsibility are vital and therefore should be given the necessary attention by businesses. The same businesses are operating the conviction that success in the market place has shifted and in future, it is greatly going to depend on the confidence and respect the people have in the specific business.
Presenting as evidence is the fact that many actors in the field of business are being held morally responsible for the actions and that on increase is the fact that more individuals, firms and companies are in continuous process to improve their business practices. In this case, they are putting more emphasis on both legal and ethical behavior while at the same time accountability increasing at a faster speed.
Consumers are the key stakeholders for any business entity to survive or grow. Earlier, it was considered that only employees were the vital aspects to the company but as reality continued to dawn, many of these businesses realized that consumers could not be sidelined and therefore most businesses have made it a duty to fulfill and to be careful with their social responsibility towards their customers.
With regard to environment, humans beings together with other organisms depend on the resources present in the environment for their survival and as such, humans have an almost natural moral duty to take care of the environment and have respect to the natural order of things.
When compared to other organisms, humans appear to have the role or responsibility of taking care of everything in the universe on behalf of the others. As a result, from the period of creation, although human was given insurmountable authority, the same is expected from him to protect the environment and not at all to disrupt the forces of nature.
In modern world, businesses have appeared to be benefiting immensely by utilizing environment to produce goods and services to meet the needs of the business to prosper; and as a gesture to show appreciation to the environment, businesses are obliged to design and establish corporate social responsibility policies with aim to preserve and maintain the balance of nature.
Further, Roa observes that modern businesses need to establish and implement corporate social responsibility policies emanate from the fact that most of these businesses are discovering that they need to establish good conducts and form positive images among the various people of the community. Because of such established association, there is likelihood that competitive advantage will be accrued on the part of the business.
From this recognition many businesses worldwide are being motivated to respond favorably since such responses of being responsible has resulted into business improving in terms of financial performance and profitability, improved accountability and assessments from the investment community, enhanced employee commitment, decreased vulnerability through stronger relationships with communities and improved reputation and corporate image building.
What constitute socially responsible behavior for the business?
Today, corporate social responsibility is being undertaken more on voluntary basis rather than as a legal obligation. Although some legality are intertwined in some CSR, the dynamism and increasing stakeholders demand for businesses to be more responsible is acting out to be the firm premise upon which most businesses are forced to incorporate and implement corporate social responsibility.
Francoise Quairel-Lanoizeelee makes precise argument by saying that CSR is connected with sustainable development. His claim is grounded in United Nations assertion that many corporations and businesses have a role, which they need to play in sustainable development, and this can be achieved by managing their operations and stimulating economic growth while in the same measure designing and implementing protection mechanisms and promoting social responsibility.
A derived idea from this is that a business or firm should be seen to be part of the society where its concern for environmental and social issues needs to be reflected in their strategic management plans and policies.
When it spreads its wings into the international environment, the business is required to contribute to the solution of all vital problems concerning world politics specifically with regard to the environment, the fight against poverty, prevention of war and conflict without forgetting the promotion of human rights, good working conditions, and social stability.
Francoise Quairel-Lanoizeelee finally concludes that, “corporate social responsibility implies the conscious contribution of the firm to engage in the problems of the world community as revealed by the different declarations and statements of intent by international bodies of the United Nations”.
Taking the case and argument by the European Commission, it becomes evident that for business to be regarded as socially responsible, it needs to show concerted efforts in promoting and enhancing human rights, the environment or good relationships with others key stakeholders.
The modern world can be seen to be transforming the institutions of economy whereby, to be viewed as socially responsible, efforts by the business in areas such as human rights issues, environmental degradation concerns and also world conflicts have to be largely reflected in the operations of the business.
On their part, Kumar and Sharma observe that a business can qualify as a socially responsive entity when such business participates in finding solutions to social problems in the community. When the management of such business device initiatives to address the social problems then they are likely to receive considerable public approval for their actions.
Therefore, today business is supposed to facilitate or show social-responsiveness that in turn contribute to social responsibility hence an entity is largely viewed to promote two broad themes of social responsibility: involvement in activities that are geared to prevention as well as solving social problems; and organizations are seen to be the most effective problem-solving organizations in capitalist society.
The two authors go ahead to construct a continuum of social responsibility in which they identify the three meanings of social responsibility. First, on one extreme of the continuum is social obligation-which constitutes business behaviors that shows and reflects a business’s responsibilities as outlined both legally and economically.
Second, the middle part of the continuum largely constitutes social reaction-which includes the behavior type that re generally demanded by various groups that are concerned with the actions of the organization. Lastly, the far extreme is composed of social responsiveness-that is, behavior that is largely a reflection of anticipatory, proactive and preventive expectations.
Specifically, a business will be socially responsible when, within its limits, it is able to provide the following eight categories of socially responsible actions.
- A business should manufacture and distribute products and services that are safe, reliable and of exemplary quality;
- Fostering marketing practices,
- A business needs to be truthful and complete especially in its product advertising;
- Business employees should be effectively prepared to perform duties well and also be subjected to continuous re-training rather than laying off the employees when a new technology is adopted;
- With regard to the environment, a business is regarded to be socially responsible when it is able to implement a production technology that is able to reduce the amount of pollutants produced by the manufacturing process;
- With regard to employee relations, a socially responsible business is one that is able to provide benefits to employees while providing a satisfying and enriching job environment;
- With regard to do with employed minorities of the society, a business is seen to be socially responsible when it is able to provide and promote employment opportunities to the minority groups;
- Be able to participate in providing a clean, safe and comfortable working environment that enhances the safety and health status of the employees.
Therefore, for a business to be considered as socially responsible in terms of behaviors then it has to be seen or it has to integrate the above outlined measures in its management strategies.
Predominant themes arising from the definition of CSR and their conceptual value added
The recent decades have witnesses much involvement in seeking to understand better the concept of corporate social responsibility. First, many debates continue to revolve around the role that corporate social responsibility plays in the society, and as a result, standards governing CSR have been defined differently by the ideological orientation of each society.
The authors further notes that, “high performance and high integrity are good for the bottom line and that citizen require a rigorous, unwavering compliance with the law that strictly blends and adhere to capital performance with integrity to never allow that commitment to corrode those principles…”.
Critics of CSR pursue their stand by claiming that CSR possess the potential to be “insulated, self-serving and self-affirming-often to the detriment of the society where it is supposed to be social, political, technical, and financial benefit…”.
No fierce debate has been witnessed in CSR like that initiated by Milton Friedman in 1970, who boldly asserted that CSR was an absurdity. The period that followed witnessed those who supported and defended Milton on one side and those who criticized him on the other side. Friedman argued that companies that were publicly managed had only one responsibility-to increase profit for the organization which it him was an efficiency paradigm of organizational starling performance.
He went further to claim that companies should only give wages and salaries to employees to a level they are able to operate efficiently while at the same time they should not hurry to pay taxes. Those who champion and defend this position claim that, there exists no any viable and exhaustive data, which explains or shows that there exists a positive relationship between the numerous activities of CSR and the corporate financial performance in terms of profits.
The modern themes underlying the concept of corporate social responsibility can be traced to the origin of the concept itself. For instance, Arthur Page, a renowned historian and editor of the World’s Work did a detailed work of analyzing the origin and development of the CSR concept.
Working on the same works by Page, Remund did a literature examination of 180 issues of the World’s Work and noted that CSR rested on five key themes: “environmental protection, labor rights, consumer protection and education, child welfare and corporate transparency”.
During this period, Page was more involved in Agitating for,” sustainability in logging practices, labor rights for African-American cotton workers, better safety measures for underground miners, greater consumer education about investment banking, an end to child labor, and more corporate transparency”.
Prior to the year 2000, Crane, McWilliams and Matten noted that CSR themes were shifting from over-concentration on the theoretical orientation to empirical research and new modern themes revolved around stakeholders theory, business ethics, sustainability and corporate citizenship.
Writing during the same period in the year 2000, Bryan Husted developed and outlined a contingency theory of corporate social performance (CSP) where he advanced the argument that the theory fitted well between the nature of the social and its subsequent strategies and structures. As such, modern themes of CSR revolve around corporate social responsiveness, issues management, and stakeholder management.
During the 2001-2, other numerous researches were conducted that revealed the broadening themes in CSR. For example in 2001, Smith et al., examined the extent to which characteristics of diversity and stakeholder role influence corporate social orientation, and Jones and Murrell in 2001, established how a business public recognition for excellent performance has the ability to serve as a positive signal of the business performance to the shareholders.
In 2001, Zyglidopolous studied the impact of accidents on a business’s reputation for social performance, and Schwartz and Carroll in 2003 developed and presented a three-domain approach that constitute the main themes of modern CSR and in the model the authors postulated that modern CSR themes centers on economic, legal and ethical aspects.
How viable can CSR framework be linked to the business strategy?
Bilson writes that,“an effective strategic social responsibility framework aligns community efforts with core business strategy, company expertise and market needs”. When a business is able to develop a strategy incorporating the three main actors outlined above, then possibilities are that the business will manage to empower the society in addition to building its own reputation and income stream.
In creating a framework that aligns the business strategic goals to the CSR, key steps have been outlined which when followed, there will be numerous success.
First, the business should develop a value proposition, on which abilities and guideline to sell corporate social responsibility needs to originate from the board. At the same time, the business needs to indicate to the board how viable the business will be socially responsible while the financial prospects and fortune of the business remains healthy and sound. Why is the board important in all these?
The board as the vital organ of the business plays and assumes a vital role that frequently has been seen to “shape and develop the value proposition, especially when performing business performance management”.
Second, the business needs to engage the larger community, which will in turn lead to sustainability. Building on this premise, businesses are advised to seek by identifying the various social opportunities in which the business can get involved in, while at the same time remaining and improving long-term competitiveness of its overall business fortunes in the environment.
As such, the business needs to draw wider participation of the community it is responsible to without removing or divorcing the business’s expertise from the process. Therefore, the premise of this strategy I that the business while reinforcing and pursuing its strategic goals needs to modify value chain activities so that the larger society can benefit.
Third, business needs to participate in a continuous process of measuring and weighing corporate social responsibility efforts and results. First, it is a basic fact that anything that is measured is the one that will be accomplished or one that will draw sustainable efforts to accomplish it.
This fact does not run away from businesses that are involved in corporate social responsibility activities whereby they are required to establish sustainable measurability tools, which have the ability to conduct analysis in the most cost-effective, and beneficial way as far as CSR expenditure is concerned.
On his part, Collings Rebecca observes that for an organization or business to be regarded as socially responsible, it has to engage in promoting and facilitating good things specifically in the eyes of its stakeholders. The process of finding out what each of these stakeholders considers, as the right thing generally has to involve carrying out dialogue with the concerned stakeholders then afterwards make changes to the existing business behavior. Again, how is behavior changes monitored?
The suggestion given is that business should create sector benchmarks and other necessary performance indicators and the commitment of the business to fulfilling them should be characterized by continuous measurements. The author note that, “it is a forensic process that involves year-on-year data collection and analysis process, that apart from addressing the weaknesses and threats in the environment it should at the same time investigate and identify strength and opportunities present”.
Summarizing research on CSR strategy, WAL-MART publication outlined the basic but fundamental steps to realization of a viable CSR strategy. The advice was directed to businesses that senior leadership and management of the business has to make an authentic, firm, and public commitment to CSR efforts and also engage with them; determine top three business objectives of the company and develop CSR goals that will contribute to the achievement of those business objectives.
After the process of determining business objectives has been done, there is now need to align goals with the firm’s core competencies; integrate CSR efforts into the governance of the business and into existing management systems; and lastly, there should be establishment of clear performance metrics, or key performance indicators to measure the impact of the CSR effort.
Which approach can be considered for CSR across the six dimensions of a firm strategy?
Strategy has been depicted to be concerned with understanding and addressing issues that have the ability to influence a business potential and capability to realize its mission and broader objectives. Hence, within these perspectives, a strategy is concerned with six issues.
What is business participating in order to realize long-term goals; what are the current internal and external issues that are likely to affect the business ability of realizing the established strategic issues; which markets offers the business the greatest chances to compete; what specific products and services suites the customers in the identified markets; how well is the business internally structured in terms of key resources; and which strategies can be adopted for the business to excel in the identified markets.
Developing a model, Carroll in 1979 identified key responsibilities of the firm to involve: the economic responsibility to generate profits; legal responsibility to comply to various laws and treaties that the business operate within; ethical responsibility to meet social expectations by avoiding social injury, respecting moral rights of people and largely doing what is right; and lastly, to foster those behaviors and activities the society deem to be right for the business.
Therefore, in building a CSR strategy that address the six dimensions, the strategy should be based on mission that integrate strategic issues, competitive advantage, business resources, customer needs, and the market forces. In essence, these aspects will interrelate and interact to produce a viable CSR model that covers the six dimensions of the business strategy.
What is the impact of CSR on profitability, benefits, and criticisms against CSR?
Studies done have indicated that there exists a positive relationship between CSR and business financial performance. Studies by Beliveau, Cottrill and O’Neil in 1994; Sen and Bhattachanya in 2001; Rochlin, Witter, Monagah and Murray in 2005 conclude that, “CSR performance can increase market clout if it relates to product quality and consumer personal preferences views on key social issues”.
Further, research by Gildea in 1994 established that, when a business formulates good CSR decisions, there is high potential that the business will realize increased sales and good reputation on its management.
Their data analysis also revealed that, 34 per cent of consumers expressed their position not to make any purchases from a business that they thought was unethical, 16 per cent demonstrated that they always seek information concerning a company’s practices and ethics before making any purchase decision, and another 50per cent of consumers indicated that they were not ready at all to make purchases in any company they perceive not to be socially responsible.
Although many other researchers have criticized the role of CSR claiming that it only siphon financial and other key resources of a business, the wide evidence shows that, CSR is becoming one of the determinant for a business to succeed and when a business is seen or regarded to lack CSR then it is as well as dead.
Globalization and internalization of businesses is bringing new challenges to both the corporate and social world. As business strives to produce goods and services using the available resources, it is becoming clear that social and environmental responsibilities are intertwined in most strategies of the business. CSR policies are becoming the new faces of modern business and those that have effective CSR gain both social and economic approval from the public.
Essentially, sustainable development, a new and widespread anthem in 21st century, is rooted in CSR hence making it a key priority for business to adopt them for survival. The overall observation that can be made I that when properly and efficiently designed and formulated CSR have the capacity to impact positively on the business in terms of financial performance and social approval.
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