This project aims to offer a preliminary case study exploration of Corporate Social Responsibility (CSR). CSR is the commitment of businesses to provide more benefits than just profits for shareholders. It has a role to play in treating its employees well, preserving the environment, developing a sound corporate governance, supporting philanthropy, fostering human rights, respecting cultural differences and helping to promote fair trade, among others.
This study concentrates on each and every aspect of the above mentioned definition as well as the areas in which companies implement it and the approaches used to do the same. Further then, it offers an extensive case study of examples of companies undertaking CSR and the variations observed between developed and developing nations. It then offers an insight into the current status of CSR in Dubai and how far have its principles been accepted in this part of the world. This study will be concluding by offering an explanation on the importance and emphasis of Social Responsibility in the Corporate World.
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Chapter 1
Introduction
In the last twenty years, a vast number of changes have taken place in relationship maintained by a company with the state and society. No longer does a company continue to act as independent entity regardless of the public interest and welfare of the society and its effect on the environment. The growth of the relationship between a company and the society has been a slow transformation from just a humanitarian coexistence to a point where the interest of stakeholders and society is increasingly becoming of prime importance. Organizations are beginning to realize the fact that in order to stay ahead in the business and gain strategic benefits
Corporate Social Responsibility
Social Responsibility
I start this study first, by understanding the meaning of the term from which Corporate Social Responsibility is derived, i.e. Social Responsibility.
Social Responsibility is defined as, "Obligation of an organization's management towards the welfare and interest of the society which provides it the environment and resources to survive and flourish, and which is affected by the organization's actions and policies."
What I understand from this is, is that a Socially Responsible organization also focuses on protecting and improving society and the resources it uses rather than on solely making profits.
Therefore, now moving on to the term Corporate Social Responsibility (CSR):
Corporate Social Responsibility
The World Business council for sustainable development defines CSR as, "Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large".
The CSR definition used by Business for Social Responsibility is: "Operating a business in a manner that meets or exceeds the ethical, legal, commercial and public expectations that society has of business."
The European Commission supports two definitions wrapped into one:
"A concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment, &
A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis".
Different perceptions of CSR are made across the world, across different societies:
The variations of the above stated definition are: "CSR is about capacity building for sustainable livelihoods. It respects cultural differences and finds the business opportunities in building the skills of employees, the community and the government" from Ghana to "CSR is about business giving back to society" from the Philippines.
At the core they all point towards the same fundamental principle:
A company is responsible for providing more benefits than just profits for shareholders. It has a role to play in treating its employees well, preserving the environment, developing a sound corporate governance, supporting philanthropy, fostering human rights, respecting cultural differences and helping to promote fair trade, among others. All are meant to have a positive impact on the communities, cultures, societies and environments in which companies operate. These efforts should also benefit a company's various stakeholders, who comprise all or some of the following: customers, employees, executives, nonexecutive board members, investors, lenders, vendors, suppliers, governments, NGOs, local communities, environmentalists, charities, indigenous people, foundations, religious groups and cultural organizations.
The Triple Bottom Line- TBL (or) 3BL:
Known as "People, Planet, Profit or The Three Pillars, is a criteria used for measuring organizational and societal success.
This has become a dominant approach towards implementing and measuring CSR.
This diagram shows the all the various stakeholders and the areas in which CSR is broadly implemented.
On reviewing each of these definitions we see that in general CSR can be viewed as:
A concept or a mechanism by which businesses consider it their responsibility to contribute towards a healthier environment, focus on the welfare of the society i.e. including the welfare of its employees and their families and also the community at large.
It is a mechanism by which a company responsibly embraces its duties towards the environment, consumers, employees, communities and its stakeholders rather than solely concentrating on making profits and its own welfare regardless of public interest.
CSR also incorporates doing business ethically and responsibly i.e. ethical behavior of and towards the staff, ethical business practices and transparency in corporate dealings.
Hence, CSR can also be termed as the deliberate inclusion of public interest in corporate decision making.
Therefore, to summarize, CSR can be considered as the impact of the company's actions on the society as a whole. From the management point of view, it becomes a manager's duty to overlook whether the actions performed by his organization are socially responsible.
Corporate Social Responsibility (CSR) is also termed as Corporate Citizenship, Global Citizenship and Corporate Accountability.
History of Corporate Social Responsibility:
The term "Corporate Social Responsibility" originated in 1953 with the publication of Bowen's Social Responsibility. The growth of CSR is as old as trade and business. Industrialization and impact of business on society and environment has added to the development of CSR. By 80's and 90's CSR was undertaken for discussion academically. The first company to employ CSR into practice was Shell in 1998. 1990 saw CSR as a standard with companies like Price Waterhouse Cooper and KPMG taking it under their wing. CSR has evolved beyond code of conduct and nowadays, with well informed employees and stakeholders, CSR can be a threat to the development of a company.
Significance and Importance of Corporate Social Responsibility:
What is the significance of CSR?
As quoted by Peter Duker, "The 21st century will be the century of the Social Sector Organization. The more economy, money and information become global, the more the community will matter.
Incorporating CSR in organizations:
Demonstrates a commitment to society's values and contributes to society's social, environmental, and economic goals through action.
Insulates society from the negative impacts of company operations, products and services.
Leads to sharing of benefits of company activities with key stakeholders as well as with shareholders.
Demonstrates that the company can make more money by doing the right thing.
What is the importance of CSR?
A global survey conducted by The Economic Intelligence Unit found out that 85% of senior executives and institutional investors believe that CSR is an important consideration in decision making, indicating that CSR has been accepted even without a clearly defined business case.
What drives a company towards practicing CSR?
The community demanding greater involvement and contributions due to the perceived shrinking of NGOs.
Customers are increasingly demanding safe products and ethical businesses and are willing to alter their purchasing habits due to the same.
Stakeholders and shareholders are looking towards better risk and reputation management to protect future profits.
Employees seeking great empowerment, more job-security, better work-life balance and a sense of meaning in their work.
The challenges faced by organizations these days in one or more of the above mentioned areas has driven them towards seeking an integrated approach to battle these concerns.
Till date companies have managed by interpreting CSR as external community relations and treated it accordingly, but this isn't enough anymore. This approach misses out the fact CSR also extends to a company's products and services. It is unadvisable for a company to indulge in charity work whilst producing unsafe products and providing unethical services. Hence implementing CSR is an all over exercise that needs to be practiced with great care and caution.
CSR is important because businesses are based on trust and foresight. Establishing and keeping trust with customers, communities and regulators isn't simple and can be easily damaged or lost. To be successful in the long-term, companies need to think beyond what's affecting them today to what's going to happen tomorrow. This isn't just about addressing changes to technology or the needs of customers, but also taking into account alterations in social, environmental and governance issues.
According to strategic CSR by William B. Werther and David Chandler, there are three reasons why CSR has an increasing amount of importance:
Increasing Affluence: Customers from an elite class can afford to purchase premium branded products but the middle and lower classes might not be able to afford branded items, rather they prefer to spend their money on investments and items which can take their business to a higher level, i.e. help them to grow.
Changing Social Expectation: Customers demands and expectations from a company are shaped and modified by the type of profile and personality it keeps and not only by its product.
Globalization and free flow of Information: As mentioned above, it is very important for an organization to maintain a respectable profile to its customers, as with the growing trend of media and easy access of information through internet and television, every move an organization makes is highlighted and hence even a minor mistake could cause a lot of problems.
Especially in countries like India, Corporate Social Responsibility is of growing importance to governments and service providers as they promise to combat social issues within changing welfare environments.
A company must not be seen violating any ethical laws in any of the areas like market behavior, trade policies, employment relations, sourcing of raw materials, human rights, environmental laws.
Hence, Incorporating CSR puts and ethical and social pressure on companies to give back at least a part to society in return for what they have gained from it.
Why should an organization practice Corporate Social Responsibility?
Because it leads to the following benefits:
Consumer Loyalty and Satisfaction
Improved Relations with Regulators
Enhances reputation and improves Brand Management
Employee Recruitment, Motivation and Retention
Cost Savings and Operational Efficiencies
Learning and Innovation
On the other hand, a company could face various negativities for not incorporating CSR:
-Unfavorable public opinion and increased reputation risk which might lead to decreased shareholder value and diminished stock price.
- Increased litigation and related legal costs on various social and environmental issues.
- Decreased customer loyalty, loss of customers and stakeholder support due to the negative publicity garnered.
David Henderson also argues about the negative implications of implementing CSR stating that: "Adoption of CSR would reduce competition, economic freedom and undermine the market economy." While also stating that, "It is liable to hold back the development of poor countries through the suppression of employment opportunities within them. "
Summarized below are some arguments for and against CSR:
Arguments FOR:
Promotes social issues and business causes and facilitates for business to be a part of the solution to the issues
Restricted government intervention
Allows issues to be addressed proactively using business resources and its expertise.
Arguments AGAINST:
Implementing CSR results in the restriction of the free market goal of profit maximization, hence diluting the primary aim of businesses.
Can be risky for the life of a business, if it is not well-equipped to handle social activities
Limits the ability of an organization to compete in a global marketplace.
How do companies do CSR?
Methods of CSR Reporting:
There are three distinguished types of CSR reporting:
Community Involvement
Socially Responsible Production Processes
Socially Responsible Employee Relations
During the initial stages of a company's involvement towards CSR, 'community involvement' is only limited to charitable involvement where the company concentrates on developing the minimal amount of goodwill necessary for the business to operate productively. Companies concentrate on supporting the initiatives taken by the government towards the society. The other two parameters are internal to the firm and are taken care of as a part of its business activities. As companies start employing CSR practices in their daily affairs, it leads to changes in production processes so that all environmental and societal norms are satisfied even though they may not contribute to the profit maximizing objective of the firm.
Dimensions of CSR:
The Commission of the European Communities defines two main dimensions of CSR, an external dimension involving the external stakeholders and an internal dimension relating to practices internal to the company.
Corporate Social Responsibility
External Dimension
Internal Dimension
Internal Dimension:
The practices related to the internal working of a company need to be modified to incorporate CSR practices. The various components of the internal dimension are:
Internal Dimension
Management of Environmental Impacts
Adaption to Change
Work Safety and Health Measures
Human Resource Management
Human Resource Management:
This is a very important aspect of CSR, as a company can benefit in more than one ways through successful management of its work force. This internal dimension of CSR concentrates on providing a healthy work related environment for its employees including facilitating continuous learning and adapting, a diversified work force hence improving communication capabilities, a well defined and fair work flow, employee empowerment, helping an employee to better balance work, family and other aspects of their life, profit sharing and share ownership schemes and very importantly showing concern towards job security. A company must also actively follow up and manage employees who are on leave due to a work related injury. It must also extend its responsibilities and recruit people from ethnic minorities, older workers and the unemployed. It must also exercise great care towards not classifying employees or providing unfair benefits on class, race or caste basis.
Work Safety and Health Measures:
Workers safety and laborers' health are very important in order to ensure and increase productivity of the work force. Although in most nations, rules and regulations exist to ensure laborers' safety and also provide health services, companies have also been taking steps towards the safety of their employees.
Recently, companies not only maintain high safety levels but also ensure that their stakeholders also comply with these principles.
Adaption to Change:
In recent times, mergers, acquisitions and downsizing are often being used, although ineffectively as a cost cutting measure by organizations towards their profit maximizing goal. According to the Commission of the European Communities," Restructuring in a socially responsible manner means to balance and take into consideration the interests and concerns of all those who are affected by the changes and decisions. "This means consultation and participation from those who are affected by the decisions made by the stakeholders is essential. Besides, restructuring needs to be well planned by identifying risks, calculating the costs and evaluating all the options.
Management of Environmental Impacts:
This is one of the most important, upcoming and emphasized aspect of CSR and surely cannot be neglected. Optimizing resource utilization and reducing the usage of environmentally damaging effluents can reduce the hazardous impact on the environment, further enabling organizations to alter costs in energy bills and pollution combating costs. Many firms in emerging markets have had to face serious repercussions from the state and society for over exploitation of natural resources and disregard for environmental safety measures. Now many organizations are accepting the fact that complying with the conventional standards will provide strategic advantages in the long run even if they seem to be cost efficient at the moment.
External Dimension:
This dimension is in regards with the practices concerning the stakeholders.
The advance in globalization has lead to the development of international standards for business practices.
Shown here are the various aspects of the external dimension:
External Dimension
Human Rights
Business Partners
Local Communities
Local Communities:
Developing positive relations with the local public and thus accumulating social capital is very essential for organizations. These public relations are increasingly being utilized by MNC'S to integrate their subsidiaries into the various markets in which they have presence. This is an asset which can be fruitfully used by companies to gain strategic advantage. This indirectly then, also facilitates the availability of cheap labor from the local communities.
Business Partners:
Building sound long term relationships with strong and trusted foundations with suppliers and consumers, stakeholders in general enables organizations to meet their expectations in refined manner. Companies need to realize that their CSR practices are judged not only by their own actions but by all its partners in the supply chain. Furthermore, as part of their social responsibility, firms are expected to provide high quality products and services, which reflect its concerns for the environment as well as satisfy its customers. This in turn, would build the stakeholders trust and provide good strategic benefits in the long run.
Human Rights:
Organizations functioning in countries where human rights are regularly violated might experience civil instability and face corruption charges that would make it difficult to maintain good relations with employees, local public and government officials. It the foremost responsibility of a company to protect human rights and use their influence to enforce respect of human rights and democratic institutions, wherever possible.
Therefore, considering the above mentioned dimensions of CSR, here is a summary of the various areas in which CSR is implemented:
Governance:
Sound governance, ethical conduct of staff, and transparency in operations, no conflicting of interests, complying with rules and regulations and the corporate law.
Risk Management:
Ensuring organizational health and safety, products and services safety, regulatory compliance, reputation and brand management, responsible business practices and stakeholder involvement.
Value Chain:
Responsible procurement, supplier management , externalization of costs, supplier screening , supplier feedback and fair trade.
Social:
Human rights, engaging the community, charitable activities and donations, volunteering, social benefits and social investment
Employees:
Boosting employee morale, satisfaction, work-life balance, fair labor practices, job security, remuneration, diversity, equal opportunity and training.
Environment:
Waste and pollution avoidance , eco-efficiency, product recycling , sustainability, resource reduction and adopting precautionary principles.
