Corporate Social Responsibility is a way to conduct business in an ethical way by catering for interests of the wider community, as well as taking into consideration societal priorities and expectations. Thus, the firm has to act as a good citizen in the community by balancing shareholder interests against the interests of the wider community. Thus, a private corporation has responsibilities to society that extend beyond making profit. To behave in a socially responsible way, firms' decision-making processes must reflect broad societal concerns. For example, corporations need to analyse the social consequences of their decisions before they make them.
Different School of Thoughts on CSR
Since the 1950's there has been much debates concerning the exact definition of Corporate Social Responsibility. Subsequently, while different approach and theory has been defined, there has been no exact agreement on the definition of corporate social responsibility (Elisabet Garriga & Domènec Melé, 2004).
A particular definition which puts the concept of CSR in a broad yet understandable perspective, was presented at the World Business Council for Sustainable Development (WBCSD) by Holme and Watts, (2000): "Corporate Social Responsibility is a 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 of the local community at large."
As defined by the International Organisation of Employers (IOE) CSR refers to "voluntary positive initiatives by business that looks to go beyond legal compliance in a diverse range of social, economic and environmental areas". It follows that in assuming their social responsibility enterprises must fulfill their ethical and social duties by:
Consider the impact of their operations on environment, employees, stakeholders and communities in which they operate
Integrating societal and environmental issues into business strategy and operations
Affirming values and principles in their own internal processes and within their sphere of influence
According to Cannon (1994), there is a specific relationship between the organisation and the community "whether implicit or explicit there is a contract between business and the community that it operates. Business is expected to create wealth, supply markets, generate employment ...and produce sufficient surplus to improve competitiveness, whilst contributing to the maintenance of the community. The interdependence between society and business cannot and should not be understated."
Hockerts and Moir (2004) on their part have defined CSR as "a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis."
Corporate Social Reporting is "the process of communicating the social and environmental effects of organizations' economic actions to particular interest groups within society and society at large" (Gray et al., 1987, p.ix).
Theories on Corporate Social Responsibility
Similar to CSR definition, implementation of CSR includes a big proliferation of terminologies, theories and approaches. The various theories of CSR can be classified in four groups for better understanding: instrumental theories, political theories, integrative theories and ethical theories (Garriga 2004).
Instrumental theories
In this set of theories, CSR is considered only as a tool to achieve economic goals. Friedman (1970) asserts that increasing profit is the only social responsibility of business. In a free society, business has only one responsibility, to increase its profits as long as it stays in open and free competition. Instrumental theories have been widely accepted by business for a long time.
The stakeholder's theory, developed by R.Edward Freeman (1984) referring to a theoretical framework how corporate governance can be examined, implies that companies should give appropriate regards to the interest of the stakeholders including employees and community at large. The company must ensure that an apprporiate balance is manitained between the intersts of stakeholders and the interests of the compnay. International experience suggests that this incluisve approach favours sustained business and steady, long-term growth in shareholder value. They should be informed about the functioning of the organisation adequately and timely.
It is suggested that satisfying the stakeholders'interests can contribute to the maximization of shareholder value (Mitchell et al 1997; Odgen and Watson, 1999). There is some evidence that the correlation between CSR and corporate financial performance is positive (Frooman, 1997; Roman et al., 1999). Thus, firms need to identify the various interest groups including customers, government, workers, creditors, suppliers, shareholders and local community in general.
Workers
These people have direct interests in the organisation because they are satisfying their needs by working there. Henceforth, it is the responsibiliy of the management to protect and ensure that workers interests are protected in the following ways:
Developing administrative procedures that promote cooperative endeavor between employers and employees
Adopting a progressive policy to recognise trade union rights
Ensuring that workers participate in management to improve working conditions and create a sense of belongingness
Giving fair and reasonable wages and other fiancial bebefits to worker
Customers
Firms have a key responsibility in providing a fair deal to customers and this is done in the following ways:
Customers should be charged at a reasonable and fair price
The supply of both goods and services should be standardised and of reasonable quality
Customers should not be misleaded by false and exaggerated advertisements
Creditors, Suppliers and Others
They affect the organization in various ways and the organisation is responsible to:
Create a healthy and cooperative inter-business relationship between several businesses
Provide accurate and relevant information to creditors and suppliers
Pay materials, interest on borrowings and other charges propmptly
Government
When government exercises control over business this causes overall development of businesses. Management can discharge its obligation to government when:
Companies are law abiding citizens
Pay taxes and other dues fully, timely and honestly
It should not engage in fradulent practices or misguide the state
Society
Facilities are provided to organisations that operate within a social system. Likewise, they have certain obligations toward the society such as:
Maintaining fair business policies and practices
Playing a proper role in civic affairs
Providing and encouraging a wide range of facilities and create better living conditions
Political theories
This group of theories focuses on the interactions and connections between business and society. It also concerns the power and position of business in the society. Business, as a social institution, has power and it impacts the society that it operates in (Davis 1960). The social power that a business has determines that it has social responsibilities. The company will lose power if it does not use it responsibly. Other groups will take the power and the company will lose its position in the society.
Integrative theories
Integrative theories demonstrate that business depends on society in a broad sense. Nomally social demand is a way through which the society communicates with business. Thus, a company should listen to the society and integrate social demands in its corporate management (Garriga 2004). It depends on the role of the company and the social context. The task of the company is to find out what the social demands are and take actions to respond (Preston and post, 1975).
Ethical theories
The last group of theories focuses on the ethical standards that could facilitate a good business and society relationship. Ethical theories of CSR focus on 'ethical requirements that cement the relationship between business and society and is based on principles that express the right thing to do' (Garriga and Melé, 2004, Donaldson and Preston 1995). It is essential for an organisation to have a code of ethics and it is even more important for managers to consider and adhere to that code.
Resource-Based View of the firm and dynamic capabilities
The first theoretical paper to apply the RBV framework to corporate social responsibility was Hart (1995), who focused exclusively on environmental social responsibility with the external stakeholders as well as the characteristics of "dynamic capacities". In his conceptual framework he intersected three main strategic capabilities: pollution prevention, product stewardship and sustainable development. He asserted that, types of firms, environmental social responsibility can constitute a resource or capability that leads to a sustained competitive advantage. Russo and Fouts (1997) tested this theory empirically using firm level data on environmental and accounting profitability and found that firms with higher levels of environmental performance had superior financial performance, which they interpreted to be consistent with the RBV theory.
The natural resource-based view of the firm (Barney, 1991; Wernerfelt, 1984) indicates that firms are able to compete only if there is a strong interaction of individual and physical resources in the organisation. The "dynamic capabilities" approach gives an active feature of the resources. In this particular point of view, some authors categorised social and ethical resources and capabilities to be the foundation of competitive advantage, such as the link with the primary stakeholders: employees, customers, suppliers, and communities (Harrison and St. John, 1996; Hillman and Keim, 2001).
Social Responsibility Model
Carroll's Pyramid is probably the most well-known model of CSR, with its four levels indicating the relative importance of economic, legal, ethical and discretionary responsibilities that society expects of organisations. Carroll has integrated concepts of stakeholders and corporate citizenship into his pyramid and this act as a framework for understanding CSR. Carroll (1991) depicts these four components in the form of a pyramid where later Visser (2006) revised this pyramid in the context of developing countries.
The four components of CSR: Carroll's Pyramid
For the past 27 years, the different components in the pyramid have been widely used by top management and managers to better define CSR and explore the different types of obligations that society expects of businesses. However, the new challenges faced by corporations in the 21st century have warranted a re-examination of Carroll's pyramid.
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Economic Responsibilities
A first level of responsibility of all businesses is the long-run efficient and effective combining of resources to generate goods and services that society needs and wants to sell them profitably. Economic responsibility is important to:
Perform in a manner consistent with maximising earnings per share
Be committed to being as profitable as possible
Maintain a strong competitive position
Maintain a high level of operating efficiency
Legal Responsibilities
Society has not only sanctioned business to operate according to the profit motive; at the same time business is expected to comply with the laws and regulations as the ground rules under which business must operate. Its importance is as follows:
Perform in a manner consistent with expectations of government and law
Comply with various federal, state, and local regulations
Be a law-abiding corporate citizen and a successful firm defined as one that fulfills its legal obligations
Provide goods and services that at least meet minimal legal requirements
Ethical Responsibilities
Ethical responsibilities embody those standards, norms, or expectations that reflect a concern for what consumers, employees, shareholders, and the community regard as fair, just, or in keeping with the respect or protection of stakeholders' moral rights. For instance, firms should not impose social costs like unnecessary pollution or unknowingly produce harmful products.
Philanthropic Responsibilities
Philanthropic encompasses those corporate actions that are in response to society's expectation that businesses be good corporate citizens. This includes actively engaging in acts or programs to promote human welfare or goodwill. Examples of philanthropic include business contributions to financial resources or executive time, such as contributions to the arts, education, or the community.
Development and implication of strategic CSR
Developing strategic CSR can act as a positive factor that creates opportunities in business and can link to increasing competitiveness. It is argued that corporate social responsibility (CSR) can be a potent source of innovation and competitive advantage. Many firms are typically investing in socially responsible practices, both in ways that solve pressing social issues and improve the firms' competitive edge.
Baron, (2001); McWilliams and Siegel, (2001) were the first two authors to explicitly model "profit-maximising" CSR. Baron developed the phrase "strategic CSR". He defines CSR as the "private provision of a public good." More importantly, Baron asserts that companies compete for socially responsible customers by explicitly linking their social contribution to product sales.
As Porter and Kramer (2002) observed, "it is through strategic CSR that the company will make the greatest social impact and reap the greatest business benefits." They also observed that strategy is always about the choice of organisations that 'make the right choices and build proactive and integrated social initiatives in concert with their core strategies'.
Moreover, to the extent that firms engage in CSR strategically, this behaviour can be examined through the lens of the resource-based-view-of-the-firm (RBV). RBV was introduced by Wernerfelt (1984) and refined by Barney (1991), borrows heavily from earlier research by Penrose (1959). This theory presumes that firms are bundles of diverse resources and capabilities that are imperfectly mobile across firms. Barney (1991) maintains that if these resources and capabilities are valuable, rare, inimitable and non-substitutable, they can constitute a source of sustainable competitive advantage.
Improving competitive context through strategic CSR
An article published by Porter and Kramer (1999) cited the importance of corporate social initiatives that enhance the long-term competitive potential of businesses. In doing so, they make two important observations:
Social and business objectives are not necessarily separate and distinct
Expertise, resources and relationships can confer a competitive advantage to corporations relative to individual donors, foundations and government in achieving social objectives
Campbell and John (2007) analyse from the transaction point of view that good reputation may signal the seller's competence and goodwill. In the same way, Morgan and Hunt, (1994) bring some clarity by highlighting that reputation reduces stakeholder uncertainty and buyers can rely largely their trust on the sellers' reputations to evaluate the cost and benefit.
Transparency/Accountability/Sustanability
Today companies and organisations are operating in a market place where stakeholders expect a business performs its operations in a more responsible way. Companies are required to adopt standards of accountability, transparency, and sustainability. Many are recognising the benefits of encouraging responsible business practices and reducing reputational risk through a responsible and sustainable model called Corporate Social Responsibility (CSR).
In 2001, Faust and Svensson came forward that transparency is the degree of asymmetric information about control errors. Authors such as Jensen (2002) have periodically focused on greater transparency that can contribute to an increase in credibility of a firm's CSR and better strategic outcomes. This is intended to ensure and strengthen public confidence in the integrity, quality and effectiveness of products and services. Henceforth, companies must develop strategies to fulfill the goal of transparency.
Competitiveness plays a critical role that leads a company to sustainability. To be competitive, Price and Newson, (2003) have debated that companies have to provide not only better quality of products or services, but also demonstrate the CSR management of business. In business fields, Sedikides et al., (2002) claim that a company that provides accountability acts in compliance with prevailing norms and justifies conduct that deviates from those norms. Accountability is the duty to provide an account of those actions for which one is held responsible.
The Mauritian context
Overview of CSR in Mauritius
The European Commission defines corporate social responsibility (CSR) as a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. This is indeed somewhat contradictory to business terms since the only goal of a business is to make profits. However since CSR encapsulates the interest one and all in terms of economy, ecology and social upliftment, it has become more and more important in the past years. Following this global trend the government of Mauritius has chosen to include a mandatory form of CSR in the legislation of Mauritius.
It is important to note that CSR initiatives have been stressed in the July/December 2009 budget whereby all profitable firms are required to spend 2 % of their annual book profits towards some well-defined CSR activities. These schemes are approved by the Government to be used in the fight against poverty and contribute to the social and environmental development of the country.
According to the Mauritian guidelines on CSR, the objectives are as follows:
Encourage companies to manage their own programmes, impacting the intersection of economic with social and environmental development
Facilitate the contribution of companies to support existing Approved National Programmes implemented by Companies, national agencies or NGOs
Promote a functional community on NGOs with complementary workplans that are relevant to the national development programme
Culture and tradition of voluntary social engagement
Private enterprises in Mauritius have a long cultural and traditional way of CSR, particularly in terms of voluntary social engagement in the communities where they operate and in the wider society. They have made an important contribution over the years to the social and environmental development of the country. Previous survey reports (2006, 2008) published by the MEF indicate that Mauritian businesses in their large majority believe that their role in society extends beyond wealth generation and that "pursuing economic interests needs to be balanced with social and environmental responsibility". Mauritian enterprises, driven primarily by ethical considerations, employee motivation, brand positioning and company reputation, have been engaged in both internal CSR, undertaken for the benefits of employees, and external CSR initiatives, developing or supporting social and community related activities. The MEF Surveys have also shown that CSR has followed a rather philanthropic approach, characterised by ad-hoc activities, unrelated to business operations and strategy.
Motivations that drives CSR
Companies that are socially responsible in making profits also contribute to some, although obviously not all, aspects of social development. Firms which are socially responsible make their products and services more attractive to consumers therefore this makes the company more profitable. This will ultimately assign a premium to their share price. CSR makes companies attractive to investors and to the fast-growing ethical investment sectors. These motivations that include:
Creation of Value
Some areas of research saw CSR is an instrument of accountability and the creation of value (Gray, 1996; Mayo, 1996). According to this view CSR could increase the 'voice' (Hirschman, 1970) and the involvement of the stakeholders. Thus it can be used as an instrument to facilitate changes in the mechanism of governance and to predict external changes.
To maintain positive public image and reputation enhancement
Following the arguments above regarding legitimacy it could be suggested that companies do perceive social and environmental accounting to be useful as a tool to enhance the image of the company (KPMG survey, 2005)
The desire to comply with legal requirements
For example, Mauritian Corporate Code of Governance has encouraged lots of firms to start reporting on their social practices.
Improve relations with stakeholders
By giving more attention to various stakeholders, the company builds trust and loyalty among them. Through the responsibility practice, companies are trying to understand how he different stakeholders perceive them and they can take immediate remedial actions where they get negative feedback. By creating a positive image, these firms also bring the government on their side and gain several advantages.
Use CSR as a risk management tool
CSR can be used to identify practices or situations that can cause liabilities to the company. While working closely with various stakeholders, management gets to sense any problem easily. It becomes possible to solve the problem at an early stage and this saves a lot of legal actions and/or negative public exposure that could have happened.
To gain market advantage
By using the positive image that management has been able to attain through CSR, the firm can attain a greater market share of the market as well as discover new and overseas market. Using this advantage of positive image, these firms are able to overcome all the challenges of a new market.
Managing the supply chain
Nowadays, lending institutions and suppliers are asking their clients to periodically provide information about their social and environmental policies performance. This is done by them as part of their own risk management policies.
Increase financing
Most investors are including non-financial metrics in analysis of their investment. It has been noted that investors are willing to pay higher prices for shares of companies that are willing to invest more in well-governed companies than in poorly governed ones. Thus, management can view CSR as a means to attract additional investors.
Avoid negative campaigns
In order to prevent being target of campaigns by human rights and labour rights, firms prefer to indulge in social practices which may cost less as compared to negative effects these campaigns can cause. At the same time, this produces an improved reputation of the business.
Increase worker productivity
By doing business in accordance with human rights and labour rights, management can ensure their workers will be encouraged to work harder and overall productivity will increase. This can also help to reduce workers turnover.
Reducing cost and increase profitability
Operational efficiencies can be achieved by reducing energy and materials. Minimising waste enable firms to reduce their cost of production and hence increase profits. Also, waste can be recycled and hence there is protection of the environment.
Improve competitive advantage
According to Connolly (1997) ,when engaging and showcasing the companies social and economic best practices to protect the environment, the company can enjoy a competitive edge in the market, which in turn impacts on the scrutiny of corporate sustainability activities.
Mauritius Employee Federation (MEF) role
The MEF has a fundamental responsibility in channeling the CSF Fund from private firms to social, economic and environmental enhancement of the Mauritian society. Henceforth, this new CSR regulation obliges Mauritian enterprises to adopt ethical and responsible business practices and to reinforce corporate citizenship between oraganisations. The MEF is considered to be a crucial aspect of the UN Global Compact (UNGC) in Mauritius. The UNGC is the world's biggest voluntary corporate citizenship scheme and it one of the most renowned frameworks for CSR. The federation also hosts a CSR-UNGC Committee which regularly meets to discuss matters pertaining to Corporate Social Responsibility and the Global Compact Network Mauritius, with special focus on supporting the UNGC participants and promoting collective action.
Emergence of CSR movement
CSR initiatives have started in the Corporate Mauritius some 20 years back. Since the 1980s, the Mauritius Employment Federation (MEF) imbued the concept of social obligation of enterprises to pursue social goals in its 'Code of Practice for Enterprises'. According to a report by Deloitte et al. (2008), it was found that the involvement in CSR has started at varying points in time for the companies surveyed. Many enterprises are engaged in CSR initiatives for the benefits of their employees and the wider community. The 2006 MEF Survey on CSR shows the commitment to social responsibility is primarily motivated by ethical considerations, the need to have and maintain a good reputation and to create an engaged and inspired workforce (MEF, 2008).
The MEF is committed to promoting the social role of enterprises thereby enhancing their contribution through CSR. This is been carried out through poverty alleviation in order to promote the social and environmental development of the country. The Federation is involved in many activities regarding CSR, which is the MEF CSR fund.
The MEF CSR Fund
The Mauritius Employers' Federation CSR Fund was set up in March 2010 and its primary objective is to:
Devise and execute CSR programmes that address the socio-economic and environmental challenges facing enterprises and the country
Endorse CSR as an effective means for the private sector to contribute to sustainable development
Promote active participation of private sector enterprises, especially SMEs, in CSR
Encourage collective action among private sector enterprises
Guarantee a better management and synergy within the private sector
Cultivate positive affiliations between the private sector, public organisations and civil society
Poverty Alleviation
In Mauritian society, the business sector plays an important role in the poverty battle. Society expects organisations to go beyond mere compliance with law and regulations. Businesses are expected to recognise and respect new or evolving ethical norms being institutionalised in society (Caroll, 1999). Organisations are now perceived as having social obligations beyond obeying the law and providing the goods and services that its customers want, at a price they are willing to pay. Companies are in fact realising that CSR can be more than a cost, a constraint or a charitable deed, as it can be a source of opportunity, innovation, and competitive advantage (Porter and Kramer, 2006). We are going to analyse the contribution of business organisations towards non-governmental organisations (NGOs) and how these firms engage in the fight against poverty.
There are presently some 6,000 voluntary organisations enrolled with the Registrar of Associations in Mauritius. However, most are community-based associations, which are mainly ethnic or special interest based, and not really engaged in development work. Some 300 organisations correspond to the characteristics of an NGO (SNSM, 2007). The Mauritius Council of Social Service (MACOSS) which was founded in 1965 following the need for a social service coordinating body, has over time developed as a council of NGOs dedicated to social services and sustainable development. There are presently 236 organisations registered with the Council and, of these, 110 are reported to be actively engaged in the fight against poverty.
There is indeed a growing interest in social involvement on the part of the business sector. For example, the Mauritius Commercial Bank (MCB), the leading bank in Mauritius, has pledged 1 per cent of its profits before tax (£460,000) for social projects this year and Barclays Bank (Mauritius) has committed Rs £400,000 for the fight against AIDS. The hotel industry, through its national body, has contributed some £800,000 for community projects, and the association has recommended that its members increase their CSR budget to 2 per cent of net profit by 2009. What is even more interesting is that 92 per cent of the MEF members surveyed recognise that Mauritian enterprises are not doing enough in terms of CSR, although they do expect business involvement in social activities to increase in the future (MEF, 2007).
Arguments for Social Coporate Responsibility
Change in public expectations
Nowadays a change in business expectations has a direct impact on consumer needs. It can be highlighted that firms have a social and moral obligation towards the local comminty and in this way they have to respond to the needs of society.
Business is a part of society
There is a very beneficial relationship between the society and business. The community becomes a major recipient of employment opportunities and economic development while the enterprise benefits through its workforce.
Avoiding intervention by government
When firms are socially responsible, they attract less attention from regulatory bodies. Evidently, organisations become flexible in their operating practices and enjoy more freedom.
Balance of responsibility and power
It is true that firms have significant authority and power but they must exercise this power with a corresponding amount of responsibility.
Impact of internal activities of the organization on the external environment
Almost all organisations are based on the open systems, i.e., they have to consider the impact of the impact of their business operations on the environmens. A firm which is socially responsible can prevent negative impact on the local surroundings.
Safeguarding shareholder interests
A company can enhance its image when it participates in social initiatives, therefore at the same time it is protecting shareholders' interests.
New avenues to create profits
Social responsibility also implicates the preservation of natural resources as this can be very beneficial for organisation. Certain items can be recycled and profitably used again.
Favorable public image
Firms create a positive public image in the society if it engages in social activities. Henceforth, this attracts investors, customers and employees.
Endeavor to find new solutions
Businesses are usually on the edge of indulging in innovative practices. Thus, they find remedies for social harms which other institutions were unable to tackle.
Maximum use of business resources
Businesses should make optimal use of its talent and skills as well as the capital resources in order to manufacture better quality products and services. Therefore, firms are fulfilling their duties and obligations in the society.
Prevention is better than cure
The aim of business organisations is to avoid societal problems. Businesses are perceived as a source of employment for eligible youth with better job opportunities. Thus this reduces large scale unemployment which may cause unrest.
Arguments against Social Corporate Responsibility
Opposes the principle of profit maximisation
The main motive of a business is profit maximization. Social involvement may not beeconomically viable for a business.
Excessive costs
When a business incurs excessive costs for social involvement, it passes the cost on to itscustomers in the form of higher prices. Society, therefore, has to bear the burden of thesocial involvement of business by paying higher prices for its products and services.
Weakened international balance of payments
A weakened international balance of payments situation may be created by the socialinvolvement of organizations. Since the cost of social initiatives would be added to the priceof the products, the multinational companies selling in international markets would be at adisadvantage when competing with domestic companies which may not be involved insocial activities.
Increase in the firm's power and influence
Businesses are inherently equipped with a certain amount of power. Their involvement insocial activities can lead to an increase in their power and influence. Such influence and power may corrupt them.
Lack of necessary skills among businesspeople
Businesspeople do not possess the necessary skills to handle the problems of society. Their expertise and knowledge may not be relevant to deal with social problems.
Lack of accountability to society
Until a proper mechanism to establish the accountability of businesses is developed, theyshould not get involved in social activities.
Lack of consensus on social involvement
