Abstract
Corporate social responsibility (CSR) is a growing corporate practice in most countries. Multinational corporations (MNCs) are championing its adoption. This paper shows that many companies can benefit from CSR by realising multiple bottom-line successes and an improved quality of human capital.
Companies that embrace CSR enjoy these benefits within the confines of four theories – corporate citizenship, stakeholder interest theory, moral minimum theory, and the profit maximisation theory.
Evidences from the United Arab Emirates (UAE) show that the multifaceted nature of the corporate citizenship theory makes it the most appropriate theory for guiding CSR practices today.
Introduction
CSR is a corporate self-regulation mechanism that ensures businesses abide by the law, uphold ethical values, and subscribe to international standards of operations. Schwartz (2011) says CSR emerged from the idea that “a corporation not only has economic and legal obligations, but also immense responsibilities to the society” (p. 18).
Through this statement, Schwartz (2011) believes CSR articulates the effort by decision-makers to make corporate decisions that not only benefit their organisations, but the society as well. An assessment of this background shows that CSR is a continued commitment by businesses to be ethical when undertaking their economic activities.
The gist of this argument therefore premises on the continued improvement of the quality of life for employees and the society, in general. This paper investigates the theories underlying CSR practices and the arguments that support and undermine the practice.
To have a practical understanding of CSR, this paper also analyses the adoption of CSR practices in five UAE firms. Overall, this paper shows that most UAE companies subscribe to the corporate citizenship theory.
CSR Theories
Stakeholder Interest Theory
The stakeholder interest theory advocates for the prioritization of stakeholder interests before any other interest in an organisation. McAleer (2003) believes this view is a straightforward approach for directing corporate affairs. Within this framework of analysis, any investment made by a company ensures it maximises stakeholder value.
This theory also suggests the elimination of social costs if they have a huge impact on a company. As outlined by Garriga & Mele (2004), the concept of maximising stakeholder value aims to distinguish social objectives from economic objectives. Illustratively, Garriga & Mele (2004) say if a company invests in the welfare of a community; it should enjoy improved human capital because CSR attracts quality employees.
This way, the company would also reduce its wage bill and minimise the possibility of employee fraud, or a high human capital turnover. This position advocates for a differentiation of social objectives from economic objectives.
This position also underscores the importance of using shareholder value maximisation as the main framework for guiding all corporate affairs. The agency theory surfaces as the most applicable theory for articulating this concept (Eisenhardt, 1989).
Milton Friedman (cited in Eisenhardt, 1989) introduced the agency theory by saying the sole responsibility of a business is to maximise profits. His view emerged from the premise that most shareholders contract businesses to maximise profits on their behalf.
Therefore, the main responsibility of a business is to conduct its operations, according to the wishes of its owners (shareholders). An agency contract defines the relationship between the two parties (hence the agency theory). This contract emphasises profit maximisation, as the core basis of business activities (the regard for societal welfare is secondary to this purpose) (McAleer, 2003).
Although many organisations strive to maximise their shareholder values, critics say this framework is highly selfish and creates room for companies to engage in unethical business conduct (Eisenhardt, 1989). Consequently, researchers have proposed an alternative framework for maximising shareholder value because they say it is possible to maximise shareholder value and still cater for societal needs (McAleer, 2003).
This proposal centres on appreciating the importance of a long-term framework for conducting organisational activities. Researchers, such as Jensen (cited in Garriga & Mele, 2004), have championed this proposal because they recognise the need for stakeholder tradeoffs, as a framework for decision-making.
Moral Minimum Theory
Researchers such as Schwartz (2011) have greatly explored the concept of moral minimum by saying companies can implement their CSR objectives by “not harming” the society. This concept stems from the philosophy that regardless of how people minimise their CSR responsibilities, they cannot ignore the negative consequences of their activities.
Thus, companies may use several explanations to explain why they cannot participate in CSR; however, few companies can justify causing harm to others. Indeed, companies may have competing obligations that cause harm to the society, but none of these obligations could justify societal harm.
As he explained the moral minimum theory, Schwartz (2011) clarified that he did not support companies that pursued the concept of moral minimum. However, he emphasised the need to appreciate the fact that different companies cannot demonstrate the same commitment to CSR (Schwartz, 2011).
Profit Maximisation Theory
The theory of profit maximisation closely associates with the stakeholder interest theory. This comparison arises from the assumption that many stakeholders are interested in making profits, as their primary goal of engaging in business. However, to differentiate both theories, it is crucial to mention that not all stakeholders engage in businesses to make profits.
Therefore, while the above section of this report outlines that most businesses would first cater to stakeholder interests, it is crucial to acknowledge that such interests may not necessarily be profit maximisation. Nonetheless, the concept of profit maximisation lies deep within the roles and responsibilities of businesses.
Through such an analysis, the agency theory comes into focus again because it outlines that business processes that do not strive to maximise company profits are inefficient and unnecessary (McAleer, 2003). This analysis emphasises the need to understand the relationship between CSR and profit maximisation.
Researchers who explored the above relationship posted mixed results. However, most of them affirm that the two variables (CSR and profit maximisation) share a positive relationship (Huniche & Pedersen, 2006). Others believe the two variables do not share any discernible relationship at all (Huniche & Pedersen, 2006).
The challenge with understanding the relationship between CSR and profit maximisation is the lack of causality between the two. Moreover, the concept of CSR is often abstract. It is therefore difficult to establish how CSR leads to profit maximisation. Indeed, as Schwartz (2011) says, although CSR may improve a company’s image and sales record, it is still difficult to establish causality between the two.
Overall, it is crucial to acknowledge that the concept of profit maximisation in CSR dictates that most companies should first meet their profit objectives before they meet their CSR objectives.
Sometimes, these objectives (social welfare and profit maximisation) clash and companies have to decide which option to choose. Decision-makers who choose the profit maximisation theory would meet economic objectives first and pursue social objectives later.
Corporate Citizenship Theory
Some researchers use the term corporate citizenship interchangeably with CSR. They believe when companies are socially responsible, they become corporate citizens (Huniche & Pedersen, 2006). This understanding is true because people may use the two concepts interchangeably to mean the same thing.
However, CSR denotes the process, which companies engage in ethical and environmental sustainability, while corporate citizenship underlies the entire concept of CSR. Therefore, companies that undertake CSR are good corporate citizens. Globally, many companies have earned the reputation of being good corporate citizens.
For example, Microsoft is a good corporate citizen because it has demonstrated the commitment to serve the needs of different people and communities around the world. As the demand for social responsibility increases in the corporate space, companies and people are starting to use their powers to punish errand companies that do not subscribe to this philosophy (corporate citizenship).
Huniche & Pedersen, (2006) add that most companies that still do not subscribe to this philosophy have not only suffered negative press, but also experienced boycotts of their company products. This understanding shows how good corporate citizenship is an ingrained component of today’s corporate practices.
Most Appropriate Theory
Corporate citizenship is the most appropriate theory for CSR. The easy alignment between corporate citizenship and globalisation explains this fact. Certainly, it is important to understand this issue from a broader perspective of globalisation because globalisation informs today’s ethical standards.
The growing number of multinationals in today’s business space, and the resultant pressure on such organisations to embrace ethical practices also underscores the importance of understanding corporate citizenship from a global perspective.
Although globalisation may benefit different economies, it is a two-edged sword, in the sense that it can provide immense economic benefits (stimulate economic, social and environmental growth) and still make it difficult for governments to regulate business practices.
Huniche & Pedersen, (2006) believe the situation is worse for developing economies because their governments could easily forego ethical considerations for economic benefits. This eventuality is highly likely because people know multinational companies for their skills in exploiting regulatory gaps.
Corporate citizenship helps to mitigate the above concern because it provides an opportunity for companies to self-regulate, when governments cannot regulate them. Huniche & Pedersen (2006) say corporate citizenship can achieve this outcome by “adopting social and environmental management systems, labelling schemes and reporting data” (p. 10).
The suitability of corporate citizenship in today’s business world emerges through its acceptability in today’s corporate circles. Scholars and academicians also approve the theory through the publication of numerous literatures that highlight the successes and suitability of corporate citizenship (Garriga & Mele, 2004).
This approval has seen a surge in the number of companies that have formulated ethical codes of conduct to guide their corporate activities. For example, most companies today publish environmental reports to account for the environmental impact of their activities. Many companies also choose to undertake environmental impact assessments before they embark or approve any project.
Companies also appreciate their role of being good corporate citizens by including communities as important organisational stakeholders. Huniche & Pedersen (2006) also acknowledge the advancements of non-governmental organisations, private institutions, and government institutions in developing new ethical criteria for guiding organisational activities.
Arguments for CSR
Triple Bottom-Line Success
As observed in the above sections of this paper, CSR involves undertaking corporate responsibilities in a responsible way. Proponents of CSR argue that CSR gives economic longevity to companies because it provides a long-term perspective of how they make profits. They also argue that the failure to practice CSR may amount to short-term profits and long-term losses (Garriga & Mele, 2004).
This argument outlines the role of CSR in helping companies to achieve triple bottom-line success. The triple bottom-line success hinges on three pillars – people, planet, and profit (Spence & Painter-Morland, 2010). The “people” concept refers to labourers and community stakeholders. Stated differently, it outlines the different types of human interactions that most businesses experience.
The “planet” concept refers to the importance of businesses to undertake environmentally sustainable practices. For example, companies that embrace CSR are not supposed to produce, or dump, harmful waste in the environment. Instead, they are supposed to protect the environment from such waste. The last pillar of the triple bottom-line success is profit.
This concept refers to the traditional understanding of profit, as the economic value of doing business. Companies that adopt CSR practices could easily achieve the three levels of success defined above (triple bottom-line success). Spence & Painter-Morland (2010) say the realisation of the triple bottom-line success has enabled most businesses to be more conscious of their ethical obligations in the society.
Improvement of Human Capital
The improvement of human capital is also another argument proposed by proponents of CSR to support its adoption. Particularly, proponents of CSR believe the concept can help to improve the recruitment and selection process by attracting the best human capital in the market (Garriga & Mele, 2004).
This view stems from the fact that many prospective employees use CSR records to decide if they want to work for a company, or not. Therefore, companies that adopt CSR practices have a competitive edge over companies that do not adopt the same practices (because they stand a better chance of attracting quality human capital).
Internally, proponents of CSR say its adoption would help to improve the quality of human capital when existing staff participate in CSR activities (Garriga & Mele, 2004). For example, Spence & Painter-Morland (2010) say when existing employees participate in fundraising activities, or charities, they become more motivated to work.
Spence & Painter-Morland (2010) add that such employees also become more experienced and loyal to the company. Overall, the perception of the company among its staff improves. Comprehensively, these benefits of CSR outline its adoption in corporate circles.
Arguments against CSR
Critics of CSR argue that the concept merely window-dresses company activities, without authentically portraying the “real” picture of company activities. They also argue that most companies engage in CSR activities to minimise public and government scrutiny (McAleer, 2003).
In part, this view stems from the opinion that most companies adopt CSR to legitimise capitalism by window-dressing the excesses of corporate activities.
People who hold such views believe proponents of CSR wanted to counter-check a social movement that questioned excessive corporate powers wielded by multinational organisations (McAleer, 2003). Thus, they say companies engage in CSR as a risk management concept.
The above argument highlights the view of many critics of CSR who believe companies that engage in CSR initiatives are insincere and hypocritical.
Less critical pundits believe that CSR distracts companies from their primary goal of making a profit (Spence & Painter-Morland, 2010). Similar views draw attention to the fact that only people have the need for social responsibility because companies do not have this need.
Therefore, they do not understand why companies should meet social responsibilities when their primary purpose is to make profits. Critics therefore believe that CSR is incongruent with the main purpose of business – to make a profit (Spence & Painter-Morland, 2010).
Some critics have taken this argument further by saying CSR limits free will. They compare major human advances in health, education, politics, (and such like factors) to free enterprise. They also believe CSR contradicts the purpose of civilisation by threatening the basis through which human societies have grown (McAleer, 2003).
Examples of CSR in the United Arab Emirates (UAE)
CSR is an old concept in the UAE because it traces its roots to ancient Islam. Islam often requires people to donate money and goods to charities and needy people. This is part of Sharia compliance. Recent years have seen an upsurge of UAE companies abiding by these principles. Noeiaghaei (2009) believes the UAE leads the Middle East in adopting CSR. This section of the paper highlights CSR initiatives by five UAE companies.
Jumeriah Group
The Jumeriah group is a real estate company that manages hotels and resorts (Noeiaghaei, 2009). CSR is a key principle of Jumeriah’s operation plans. So far, the company has received several accolades for its CSR records (the company received six awards for having the best CSR record in Dubai) (Noeiaghaei, 2009).
Jumeriah’s CSR initiatives span across four key components – stakeholder engagement, management of social and environmental impacts, the implementation of responsible business practices, and accountability to stakeholders. To ensure the company implements its CSR practices, Jumeriah has embedded its CSR practices to its strategic framework.
Jumeriah’s CSR initiatives show that Jumeriah Group subscribes to the corporate citizenship theory (because of its multifaceted CSR initiatives) (Noeiaghaei, 2009, p. 68). The main limitation to these CSR initiatives is the overall cost of supporting its CSR initiatives.
Therefore, because of cost limitations, the company can only participate in selected CSR projects (Fooks, 2012). Increased collaboration with other companies, like the Emirates Environmental Group (discussed below), would make its CSR initiatives more effective, in terms of cost reduction.
Emirates Environmental Group (EEG)
EEG is a Dubai-based company that promotes CSR practices in the emirate. Technically, the corporation is a civil society organisation, but receives government funds for its activities. As its name suggests, the scope of CSR practices pursued by the Emirates environmental group is environmental conservation.
Paper recycling, can recycling, battery cell collection, and mobile phone recycling are some initiatives pursued by the company (Ronnegard, 2012). The company has achieved tremendous success in these spheres of CSR by formulating action plans, involving communities, and educating the public about the importance of protecting the environment.
Like the Jumeriah group, EEG subscribes to the corporate citizenship theory because it pressures most UAE companies to participate in CSR initiatives. The incompatibility between different company philosophies and CSR outlines the main limitation of the company.
Therefore, while CSR is a good concept, it may clash with some company philosophies. Although this limitation exists, an expansion of the scope of EEG beyond Abu Dhabi and Dubai (into other Emirates) would improve its CSR effectiveness.
Al Futtaim Group (AFG)
Most businesses in the UAE are family-owned. AFG is also a family-owned business because its ownership revolves around a family of the same name. The scope of CSR practices in AFG spans different spheres including philanthropy, environmental conservation, and community empowerment (Bambridge, 2012).
For example, to promote environmental conservation, AFG has participated in different environmental projects, including the installation of information plaques in nature reserves across the country (Bambridge, 2012). In terms of philanthropy, the company runs different charities in Abu Dhabi.
Most AFG activities outline the corporate citizenship theory because the company is striving to be a good corporate citizen by “giving back” to the community (through its CSR initiatives) (Bambridge, 2012).
Like Jumeriah Group, its main limitation is CSR costs because it uses many resources to support CSR. However, it could improve its CSR initiatives by adopting standardised CSR practices, as outlined by its multinational partners.
Dubai Aluminium Company Limited (DUBAL)
DUBAL is a manufacturing company in Dubai, which produces building materials. The company’s CSR record is poor (compared to other companies highlighted in this paper). This is because the company subscribes to the theory of moral minimum. Stated differently, the company’s only scope of CSR is to “do no harm” to the society.
This theory outlines the main limitation of its CSR practices – loyalty to stockholder interests. The scope of its CSR initiatives also span within the confines of environmental management. Evidence shows that the company’s main CSR preoccupation is the reduction of environmental impact.
DUBAL could improve its CSR effectiveness by improving the safety and health standards of its companies because the organisation has received negative press for tolerating poor health and safety standards.
The Mariot Hotel Group (MHG)
The MHG is a tourism company based in the UAE. Like the Jumeriah group, the company’s main business is hotel management. However, unlike the latter, the company’s CSR initiatives mainly underscore the theory of moral minimum because most of its CSR initiatives only strive to reduce its environmental impact (Ronnegard, 2012).
The company’s introduction of the Environmentally Conscious Hospitality Operations programme is an example of the company’s effort in this regard. Through this operation, the scope of CSR operations for the company mainly span within environmental conservation.
The main limitation of its CSR operations is the compliance with stakeholder interests. In other words, it is difficult for the company to engage in further CSR initiatives because it would be overriding the interests of its stockholders. However, the company could further improve its CSR initiatives by expanding their scope to areas beyond environmental conservation (say, by employing more local employees to work in the hotels).
Conclusion
After weighing the findings of this paper, we see that CSR is an emerging concept that redefines how companies conduct their businesses. Globally, most companies subscribe to the corporate citizenship theory, stakeholder interest theory, moral minimum theory, and the profit maximisation theory.
However, the corporate citizenship theory emerges as the most appropriate theory for supporting CSR practices (because of its holistic nature). Some UAE companies subscribe to this theory, but costs and loyalty to stockholder interests prevent other companies from subscribing to the same theory.
Expanding the scope of CSR and seeking mutually beneficial relationships with other companies would however eliminate some of these limitations.
References
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