Political Economic Social And Cultural Factors Management Essay

Published: November 30, 2015 Words: 2926

Historically Moral obligations existed for those who were engaged in trade and commerce. In modern times, the first publication can be traced back into 1930s but the general concerns about the organisation social responsibilities were raised in 1960s. These concerns were generallyrealised by society as whole against the organisation's operations impact on society. There was rise in public scrutiny in number of areas for example genderdecimations, minorities'rights and product safety.

Business reacted to the concerns raised by different groups and saw corporate social responsibility as a method of self-regulation distancing from government legislation and managerial ethics.These days, most of issues were previously seen, as corporate responsibility has become legislated, which do not leave any choice for corporation. But there has been recent rise in debate of CSR in Europe. Businesses' including the Governments has initiated these debates.

Defining Corporate Social Responsibility

As its broader level, it can be defined as the form of self-regulation to corporate behaviour to society's values and expectations. Howard Bowen defines, "Corporate Social responsibility is an obligation that arises from the impact of corporate decisions and actions have on the lives of people." Brown argues that companies should make their decisions in linewith societies expectations and values. This means corporate should be making decisions and polices which are lined with societies' values and their expectations. CSR of a corporate should help advance in their operations as oppose to conflicting with societies norms and values.

Companies should behave in accordance to values and expectations of society but not all the authors agree to this definition. Many critique authors argue that not all the demands are justified and well formed. Other arguesthat organisation does not necessarilybe responsive to those expectations. Indeed responsible to expectation of one group can be deemed as irresponsible for other group.

Researches have also suggested that CSR refers to corporatebehaviour, which is not bound by economic interests or legal bindings. This view argues that corporate should be self-responsible in their behaviour towards society and act beyond the economic benefits and legislations imposed on them. Davis defines CSR as "The firm's considerations of, and response to, issue beyond the narrow economic, technical, and legal requirements of the firm." Nevertheless a debate is still going on either corporate should be responsible in all activates or only actives which are related to economic interest or law requirements.

Most like other heavily debated issue by academics and practitioner the CSR still lack commonly accepted definition or commonly conceptualbasis. The non-specific use of terminology has led to miss use of it. Sethi, for instance, said, "the phrase corporate social responsibility has been used in so many different contexts that it has lost all meaning".

Carroll's Pyramid of CSR

Archie Carroll presented one of the most popular definitions of CSR. According to Carroll, "Corporate Social Responsibility involves the expectations that society has of the business." Carroll suggested that expectation to the business evolve over the time and differ across different countries. The corporate accommodate these expectations to there behaviour; theirresponsibilities are examined based on its behaviour towards these expectations. Carroll argued that definition of CSR should cover all sort of expectations including economic, legal, ethical and philanthropic responsibilities from an organisation.

Carroll's pyramid of CSR

Figure. 1.1

Economic Responsibilities

The primary focus of the companies is to be profitable for shareholders by producing goods and services. Companies offer jobs and opportunities for society and that's how its an economic unit of modern society.

Legal Responsibilities

Companies fundamentally play economic roles but companies perform these roles in comply with rules and regulation that reflect the norms and value's of the society. Legal expectations are juristic binding on companies and also on employees of the company irrespective to their role of responsibilitiesin those organisations.

Ethical Responsibilities

Companies are expected to abide the ethical values and expectation of society. Carroll's argue that ethical values are difficult to abide as compare to legal binding. Ethical values have ambiguities for their expectations and sometimes inherit link with laws. For example historically social movement against woman discrimination and later became law for companies

Philanthropic responsibilities

Lastly companies involved in activities that are beyond the expectations of societies. These activities include volunteer work, donations, support community projects and sponsoring various philanthropic projects.

Critical Review of CSR

There was particular strong debate on CSR in 1970's when Milton Friedman and other author criticise the idea being a free market supporters. It remerged after the corporate scandals in 1990s. There have been arguments on role of business in society and CSR impact on organisation performance.

These arguments can be divided into following subheadings.

Profit Maximization

Many critiques including Milton Friedman argue that maximising shareholder values is in conflict with corporate social responsibility. According to them companies involve CSR may lose their focus from core activities of organisation and it can be costly as well. They believedit can make their idea of profit maximisation slow and it's not in the interest of society either. Other argues that companies working in lined with CSR can have long-term benefits. Companies working according to the expectation of various groups in society can leads to good will of company and which ultimately translate into good employers brand, more customers and profit maximization.

Resource Fit

Many suggest that companies with exceptional training, experience, skills and resources can be useful in solving the societal problems. Inopponentsbelieves these skills are different in terms of their usage andSocialissues needs different skills, techniques and knowledge to deal with these problems. As some writer wrote organisation solving social problem is like washing clothes with dishwasher.

Lack of accountability

By and large companies are accountable to their shareholders not to society. Some argued that companies should engage in activities to maximise their profit, rather then focusing and engaging in social activities. But following CSR does not mean that companies will become paternalistic or unaccountable rulers. Its been argued in opposition that it is primary duty of government to regulate companies. CSR implementationundermined democracy and it controls the free market,apparently its primarily function of elected governments.

The 'Iron Law of Responsibility'

Lastly the Davis called it the "Iron law of responsibility". He argues that organisation may lose their power if they don't act with responsibility. The only way to retain the power is to use it in a certain way with responsibility. Organisation should act in lined with expectation of groups in societies. If organisation doesn't behave that way then these group start acquiring these power. These days organisation has started acting actively to social and environmental changes to avoid legislations and limitations. Other argues that these limitations can be costly can damage organisationperformance which can ultimately transferred to society. For example, in 2003 financial governance act known as "Sarbanes-Oxley" cost an organisation over US$1 million.

Stakeholder

Stakeholders are individual or groups sometimes who have particular interest in an organisation. Edward Freeman defines stakeholder concept as "Stakeholders include employees, customers, suppliers, stockholder, banks, environmentalists, government and other groups who can help or hurt the corporation" (A Stakeholder Approach, 1984).

Stakeholders can be categorised in different ways, internal and external stakeholders based on their interaction. Then stakeholders are also grouped based on their interest, primary and secondary interests to organisation. Primary stakeholders are those without whom a firm cannot survive like shareholders, employees and customers. Secondary stakeholders may not be essential for firm survival but may interfere into firm business.

Stakeholder Theory

Stakeholder theory articulates the firm as hub between different stakeholders relationship. These relationships are not only two-way relationship with firm but it defines that firm stakeholders are interconnected. More recently researchers has argued that these stakeholder relationship are not easy to manage and are far more complex then just a relationship.

Stakeholder Management

Reconciling the company's objectives to meet the expectation of various stakeholders is known as stakeholder management. The firm needs to develop successful stakeholder management, which fulfil the organisation, needs to manage its stakeholders.

Implications on Corporate Social Responsibility

Stakeholder'smanagement can seem as alternative to CSR to meet the expectation and values of society. Stakeholder management is a process to measure and anticipate the expectation of different stakeholder, particularly related to society and work towards meet those expectations.

Manyresearches have regarded stakeholder management theory as compliment rather then an alternate to CSR. According to Freeman "the identification and prioritisation of issues for each stakeholder group as an essential element of stakeholder analysis" (Freeman, 1984). Furthermore Savage et al. (1999) of the view that " the relevance of stakeholders for the organisation is issue-specific and that the willingness and opportunity of stakeholder act relate to particular issues".

In summary, practising manager is of the view that the stakeholder manager and identification process for the importance and expiation of stakeholders are based on nature of business. Organisations such as financial services are carefully regulated and stakeholder's issues are covered in that. Other organisations like elected bodies and representatives are more carefully in meeting the expectations of various stakeholder groups.

Corporate Social Responsibility Factors

Corporate social responsibility has raised debates and controversy among different stakeholders. There have been arguments that corporation sole purpose is to make profit and opponents argued that corporate should operate in accordance to society's values. There havebeen various groups pressing to influence the CSR policy in corporations. In 2005, KPMG conducted a survey for business in different countries to find out what are the main drivers of CSR polices.

Economic considerations

74%

Ethical considerations

53%

Innovation and learning

53%

Employee motivation

47%

Risk management or risk reduction

47%

Access to capital or increased shareholder value

29%

Reputation or brand

27%

Market position (market share) improvement

21%

Strengthened supplier relationships

13%

Cost saving

9%

Improved relationships with governmental authorities

9%

Other

11%

(2005 KPMG International)

Political Factor

There has been recent rise in debate on CSR polices due to some corporatescandals. Not only business but also government has encouraged these debates. In result of that there is a need of balance between economic, social and environmental objectives for various stakeholder of the organisation.

In 2001 European Union commission issued significant policy"Green Paper". Policy document was prepared after consultation with different stakeholder groups such as trade unions, business actors and social partners. Later in 2002 commission issues another document with similar group consultation entitled "Corporate Social Responsibility: A business contribution to sustainable development." it reads as follow:

"...a concept whereby companies integratesocial and environmental concerns in theirbusiness operations and in theirinteraction with their stakeholders on avoluntary basis as they are increasinglyaware that responsible behaviour leads tosustainable business success." (EC 2002).

This initiative revealed the interest of different groups. Some argue that CSR polices should be legislated and some supported the volunteer CSR polices. There are various actors including EU institutions, national, sub-national, business groups, individual business, interest groups and social and environmental groups involved in policy making. There is little disagreement in defining the CSR polices but it becomes wider and highly conflict when it comes to implementation of these polices. Some group try to impose more pressure on environmental or social and some argues having volunteer implementation of these polices.Commissioncontinues to support volunteer approach so as business despite the oppositions by trade unions, environmental and social groups.

Christian Aid has beenpressuring the UK government to assure company directors for greater care over their firms' social and environmental impact.

"We have nothing against CSR reports as such, but we have to see real results for it to matter," said Andrew Pendleton, Christian Aid.

In 2008 Denmark passed a CSR law that make organisations mandatory to include CSR polices in their annual financial reports.

In summary, Political factor plays important role in forming CSR polices as many stakeholder groups put pressures and business try to lobby to soften the CSR and legislation against business. Government see healthy CSR policy contributes to achieve sustainable goals, despite the fact its volunteer or legislations. Government plays important roles in setting up basic standards such as environmental protection, health & safety and employment rights.

Economic Factor

Some scholars argues that corporation means do business and make profit, and further assert, it's the only responsibility of an organisations. The economist Milton Friedman argued "businesses' sole purpose is to generate profit for shareholders."(1970 Times magazine).

In opposition, many argue that it's in greater interest of the businesses to support and inline theirpolicy with social and ethical values of society. This can result in goodwill of the company. Employees will be happy that result into strong employer brand and goodwill. Companies' socially responsible image will attract more consumers and that can be translated in to profit in financial reports.

Due to various corporate scandals and increasingly reports from investigationjournalists havepressurised organisation to adopt CSR polices. These scandals like "sweatshop" and child labour has damaged brand names and which resulted in heavily financial loses. Companies to avoid these mistakes are practicing and pursuing more social responsible polices that can protect and benefit society at large.Many big brands like Nike and Gap accepting their mistakes and getting involved in social activities to increase their brand trust and image. Consumer more knowledgeable and easy access to information has made its easier to judge who is socially responsible to society.

Corporate perceived socially responsible achieve more brand success and satisfied customers. Whilst brand perceived irresponsible often face dire consequences and may result in product boycott or undesired customer behaviour. The Economist survey in 2008 shows that more then 50% of business owners or leaders basic reasons to engage in CSR 'having better brand reputation'. Companies with stronger global brand can face more pressure from the customers to engage in more social responsible practices. For example 'Nike has probably most vividly demonstrated' (Zadek 2004).

Employer brand including retaining and attracting talented employees are the top priorities of employer in globalised world. A committed talented employee contributes to competitive advantage of the company. Employers can attract and even be more committed employees with socially responsible image (Greening and Turban 2000). A survey was conducted in across 18 countries worldwide, 'fair employee treatment' was one of top reason for a firm perceived as socially responsible.

The increase demand of socially responsible brand and threat of different civil society of groups to boycott products has influenced the companies to revise CSR polices. Company often involved increasing sales with positive contribution to society. Many firms are taking interest in sustainable development.

Social and Cultural Factor

There has been growing awareness in different social quarters of society in regards to organisations behaviour and responsibility to society. Consumers are increasingly exercising their buying power exerting pressures on companies to be responsible to society's values and expectations.

The role of corporate stakeholder is shifting from pressurising companies to work collectively;rather stakeholders and investors are moving towards socially responsible investing and putting pressures on corporate to work accordingly. Non-profit organisations and consumer increasing their power by raising awareness using powerful globalise media like Internet, TV and collective activism. "Through education and dialogue, the development of community in holding businesses responsible for their actions is growing" (Roux 2007).

The increase interest of civil society and consumer has led to popular movements, such as equal rights for woman and more recently green movements and child labour movements. This awareness has led to rise in corporate interest in social responsibility preference of consumers like 'green' and doing 'right things'. According to fifth survey by KPMG there is continues rise in companies interest. More companies are practicing's social and environmental reporting. Survey suggests that more companies are involved in social and environmentalactivates since early 1990. Many business leaders suggest that there is more external pressure on companies as people have become more aware of business impact on society.

"It's true that there have been more companies issuing special environmental reports in the last few years," said utilities analyst Hélne Séré at Fortis Bank in Paris. Similarly Triple Bottom Line"(3BL) principle defines "a corporation'sultimate success or health can and should be measured not just by the traditional financial bottom line, but also by its social/ethical and environmental performance" (Triple Bottom Line).

There are moral arguments of CSR that are important factors for firms to operate socially responsibly.

Corporate impact on environment and cause damages and it's their responsibility to solve those and prevent the future problems.

As one powerful social actor organisation should use these their social power and resources responsibility

As law of motion defines every action has equal or opposite reaction, it applies to corporate as well, they have impact on society in form of product, service or their worker. Hence organisation cannot run away from their responsibility of their impact on society.

Conclusion

Corporate Social Responsibility is about firm's treating their stakeholders responsibly. CSR is seen as self-legislation for firms, which are working towards the social and ethically values of society. Some argue that companies adapting CSR polices can solve lots of world problems but other argues organisations purpose is make profit and CSR is conflicting the corporation fundamental definition.

There are various factors which influence the CSR polices theses days. These factors are often practice by different stakeholders to exert their pressures. Company'spractice CSR polices to meet the expectations and values of different stakeholder groups. These factors are economic, politics, social and culture factors.

In summary, due to globalised and highly interconnected world, there has been need of better CSR polices and different factors influence these polices. The perception of customer priorities self-interest first is proving wrong. There has been great awareness of social responsibility and business impact on environment. Political, economic, social and cultural are in better positions to press organisation for CSR polices then ever before.