Present business environment is characterised by loads highly uncertain volatile and complex changes that deeply impact organisations, its individuals, and the community (Roberts, 2010). In the last 10 years leadership failed to see really what changes were coming and the oncoming future is also very ambiguous and unclear (Roberts, 2010). As a result the survival of today's organisations depends on 'Corporate Social Responsibility' more than on anything else to pursue corporate sustainability for survival both in the present as well as in the future (Fisher, 2010). And such sustainability should be social, cultural, economic, and environmental (Roberts, 2010).
Furthermore, today's corporate leaders should be able to develop and design sound plans to address social responsibility effectively (ibid). This is very much imperative in the 21st century 'globally integrated economy' which increasingly provides not only new opportunities but also poses more challenges to organisations (ibid, p29) the more recent one being the global economic crisis triggered by the US subprime mortgage market since 2007 which has resulted in reduced spending by consumers (Shiller, 2008).
The noted Edgar Schein (2009) emphatically states that the vulnerability created by current economic crisis are causing highly consequential interconnected changes and would in turn strongly influence what leaders of the future should be and what leadership skills they should possess to address these consequential must be and do. These consequential interconnected changes would require organisations to focus on the following realities (ibid, p1):
"Increasing technological complexity
Evolution of information technology and the web
Globalization
Global warming and social responsibility."
Organisations will, therefore, need leaders with new leadership skills in order to manage the above realities (ibid).
Accordingly these would require leadership within a culture of change in order for the leaders to understand the change process for moving people and organisations successfully into the future and thereby contributing a large scale improvement to the organisation (Mullins, 2007). In other words corporate leaders with strong leadership skills to achieve socially responsible change that contributes to the organisation's economic, environmental, and social performance (Fisher, 2010).
This paper discusses the importance of Corporate Social Responsibility (CSR) amidst the changing global business environment today and the increasing organisational necessity for having corporate leaders with strong transformational leadership skills to bring about socially responsible changes by contributing to the organisation's objectives and at the same time meeting stakeholders' expectations.
Corporate Social Responsibility
Organisational survival today is inextricably dependent upon the innumerable exchanges between the organisation and its environment (Mullins, 2007). These exchanges inevitably creates much wider internal and external responsibilities for the organisation which are known as "corporate social responsibilities" (ibid, p542). Further there is a growing recognition that good CSR can produce positive impact on the business performance (Joyner & Payne, 2002).
The term 'Corporate Social Responsibility' is used in practice interchangeably with the terms 'corporate responsibility' and 'corporate sustainability' (Waddock & Bodwell, 2007).
(This view has been adopted in presenting this paper. Likewise, both the words 'company' and 'organisation' have been used interchangeably).
Definition of Corporate Social Responsibility
There is no agreement amongst writers as to the meaning of 'Corporate Social Responsibility' in the management literature. Corporate Social Responsibility has been defined by the All Party Parliamentary Group (in Cable, 2005) as, "The comprehensive organisations take to meet or exceed the expectations of stakeholders beyond such measures as revenue, profit and legal obligations. It covers community investment, human rights and employee relations, environmental practices and ethical conduct".
Davis et al (1980, p81) define Corporate Social Responsibility as the combined responsibility of the top managerial decision makers to take actions that protect and improve the society's welfare holistically and in doing so enhancing their own interests also.
'HRH The Prince of Wales' (in Greyson & Hodges, 2001, pp.8-9) emphatically states that the operations of the business communities in the 21st century are increasingly subject to the scrutiny of the customers as they are operating under the public eye. Furthermore, the customers believe that the companies much larger role to play than rendering the functions of complying with law, being good taxpayer, and making profits (ibid). Likewise, Chant (2005, p12) asserts that CSR is about a mutual partnership between the companies and the communities with which the companies are linked with whereby both have "something to give and something to gain".
CSR can mean to include the philanthropic and charitable activities provided by a company in return for the resources received by it from the society and the environment (D'Amato & Roome, 2009). On the other hand, CSR refers to corporate practices to cater to the demands of the society and their constituent parties which are created by the interaction of economic and environmental forces (ibid). In other words, social responsibilities need to be looked into from the view of the companies' stakeholders.
Responsibilities toward Stakeholders
Leaders and managers have to address the innumerable interests of the following stakeholders (Cable, 2005):
Communities and the environment
Customers
Employees
Lenders of finance
Government
Other societal associations and groups.
Communities and the Environment
Companies have unavoidable responsibilities to not to misuse the scarce resources employed in production by them for making their money and not to endanger the communities and the environment (Greyson & Hodges, 2001; Cable, 2005). For e.g. companies should take adequate and appropriate care of (Cable, 2005):
Effects and potential dangers of contamination, pollutions, and waste disposals
Use of recyclable materials in their product packing and packaging.
Customers
Apart from viewing their customers as providers of revenue companies have wide responsibilities that include (Cable, 2005):
Provision of goods and services on the basis of 'value for money'.
Product safety
Fair employment practices, fair trading practices and fair advertising
Transparency in providing customers with the information they require.
Employees
A company's responsibilities toward its employees go beyond the boundaries of the contract of employment today (Carroll, 1991; White et al, 2003). People expect more from the companies today like fair treatment at workplace, workplace safety, better rewards, participatory decision making, quality of work life (QWL), training and development for learning and acquiring new skills and understanding new technologies, etc.
Lenders of Finance
Many people subscribe today directly to shares and securities issued by companies worldwide. They also indirectly subscribe as shareholders through mutual funds, insurance companies, and pension funds (Allen et al, 2004). As a result shareholders as well as potential shareholders have expectations to receive a fair and reasonable return on their invested capital and security of their investments. In consequence, social responsibilities of the companies extend not only to safeguarding of investments but also to provide good corporate governance over their investments (Hutchinson & Gul, 2004).
Government
As mentioned earlier government actions imply compliance by the companies to social responsibilities through legislation, even if they are not going to be in the best interests of the top management. Examples include: controls over sale of cigarettes and alcohol by making the companies to display the statutory health warnings (Stewart & Martin, 1994).
Other Societal Organisations and Groups
These include: labour unions, trade and commerce associations, organisations associated with the 'green movement' (Lyne, 1990). Companies owe social responsibilities to these organisations in the form of fair trading, providing support to arts and education and charities.
Ethical Dimensions of Corporate Social Responsibility
Business ethics has a strong impact in extracting CSR. Business ethics is about the applications of the moral principles of good conduct and bad conduct on the part of the people in the corporate organisations operating within the society. Essentially business ethics is seen as applied ethics to the orderly conduct of an organisation's business. This would mean that companies have to effectively integrate the organisation's purpose and its corporate strategy as both these factors exert strong influence on what the organisation want to do and the impact of the consequences of such actions upon people within and the communities outside the organisation (Epstein, 1987). Accordingly a company should have a strategy to support the communities much in the same way as its corporate economic strategy to pursue where the company wants to be and the people it wants to hire (Andrews, 1987).
However, applying business ethics to extract CSR (ibid) is not easy and very complex due to the differences in opinion that exist among management scholars, which in turn are difficult to reconcile. The noted economist Milton Friedman (1970) views that the social responsibility of business is to earn the maximum possible profits to its shareholders in a fair way. In other words the economic purpose of business lies in carrying out its activities in the best interests of the owners of the business as the owners are the primary stakeholders of the business as they have made the investment in the business.
An extension of Friedman's view is the view put forward by Sternberg (1994) who regards the business ethics as the pursuit of business purpose to maximise long term profitability for its owners by satisfying the ethical tests of 'common decency' and 'distributive justice'.
Ethical dimensions of CSR also extend to the stakeholders as well. According to Cannon (1994) business and society are interdependent in that there are both explicit and implied contracts between them wherein the business provides goods and services and in the process earn profits to its owners, create employment opportunities, engage in innovation and thus contribute to the welfare of the community within which the business operates.
Consequently, striking a balance between the two extreme ends of focusing on the best interests of owners and the other stakeholders' interests could be difficult to achieve since the scope of business ethics is too broad (Goodpaster, 1991). Nonetheless, the needs of these two groups are not incompatible and good leadership should be able to meet both the group's needs (Sternberg, 1994). This means whatever the leaders do on behalf of their companies have to be performed ethically in carrying out their business activities.
Increasing Attention to Corporate Social Responsibility
Informed by the eminent authority in management the late Peter Drucker (1954) that business have social responsibilities toward the communities in which they operate, the attention given to social responsibilities of business toward wide stakeholders group has been growing ever since (Joyner & Payne, 2002).
Communities worldwide today are increasingly expecting companies to show greater concern to accept their social responsibilities (Cable, 2005). Increasing expectations of the communities and employees and the necessity to attract and retain the right kind of people in the competitive global business world have been putting CSR in greater focus (Sternberg, 1994). These are primarily due to the growing recognition attributed to government actions and legislative frameworks in relation to protection of employment, equal opportunities and diversity, emphasis on new work ethic, corporate laws, and preserving the environment (ibid). For example, governments around the world are critically concerned over the environment and to this end they work with the companies to reduce carbon reduction to minimise global warming.
There is a growing awareness of CSR among leading companies worldwide which is evidenced through their annual reports. The European Commission has been constantly encouraging companies to gauge their business performance by emphasising their employees' welfare and due care for the environment rather than emphasising their profit margins only (Harris, 2002). As a result most companies in the UK and in the EU inform more openly about their activities in their annual reports and provide a transparent and fair view of their operations.
The international magazine, The Economist observed in its supplement (2008, January) 'Just Good Business' that many companies have been forced to adopt CSR policy and it is very unlikely today for any global corporation to operate without a CSR policy (Sir Michael Rake & Grayson, 2009).
Today an increasing number of companies publish a 'code of ethics' or 'code of conduct' which further indicates the necessity of incorporating CSR into their operations. For example the Netflix Company, which is engaged in the online movie and TV business, publishes annually its code of ethics [1] .
Summary:
A company cannot effectively operate today by ignoring the interests of its communities and its environment making it imperative for it to adopt CSR. The corporate responsibilities are owed not only to the owners of the company but also to a much broader stakeholders group.
Leadership
Leadership is the major aspect of any organisation that coordinates the activities of people in achieving the organisational goals. Since leadership is the main feature of organisational performance it is critical for managers today to know and understand the nature of leadership and what skills they must possess for becoming effective leaders.
Definition of Leadership
According to Rubenstein (2004) 'Leadership' is the creation and fulfillment of worthwhile goals and opportunities through honourable means. Kanter (2004) defined leadership as how one builds the confidence of their people which inspires and motivates people.
Mullins (2007, p363) defines leadership as, "a relationship through which one person influences the behaviour or actions of other people".
Heifetz (1994), states that leadership involves the exercise of authority in a much broader context to facilitate the followers in dealing with their conflicting values due to the rapid changes taking place in their work environments and in their social cultures.
Importance of Leadership
Leadership today happens in a culture of change today and without doubt it is quality of leadership that determines whether the business would be able to achieve its successful organisational performance or not (Kanter, 2004). Further leadership is the key to effecting changes and bringing about large-scale improvement of the organisation (Andrews, 1987). The changing nature of work organisations today, de-layering of organisational structures (toward flatter structures), more and more delegation, employee empowerment, effective use of scarce resources, and increasing awareness of social responsibilities together indicate the increasing importance of leadership (Kanter, 2004).
The leader's job has an important presumption of taking care of their people and assuming responsibility on behalf of them (Epstein, 1987). And in doing so a leader should approach their work both ethically and effectively particularly in crisis times and ensure that are always available during the crisis times (ibid).
Within the CSR background the role of leadership requires the execution of the leader's job of introducing sustainability in their organisations at three leadership task levels (Quinn & Dalton, 2009, p24):
"Setting Direction,
Creating Alignment, and
Maintaining Commitment".
Success of an organisation depends on the honesty and integrity of its leaders. The celebrated management author Barnard (1938) asserted that the long term sustainability and endurance of business entities therefore require quality leaders and such quality is derived from morality. This is more appropriate for leaders today engaged in CSR tasks and activities.
Types of Leadership
The rapid changes today have been making the businesses to face growing cut-throat competition in the markets as a result of which they need leadership that can handle people effectively and successfully transform organisations from the present into the future (Heifetz, 1994). For this purpose Burns (1978) and Bass (1985) distinguish between two important forms of leadership, 'transactional leadership' and 'transformational leadership'.
Transactional Leadership
Transactional Leadership is the exercise of clear legitimate authority within the bureaucratic structure of the organisation (Burns 1978; Bass 1985). Transactional leadership influences the self-interest of the leader's followers through organisational rewards and punishments to accomplish work tasks and effect organisational outcomes (ibid).
Transformational Leadership
On the other hand, Transformational Leadership motivates followers to do more than the expected outcomes in transforming from one point to another point wherein the transformation itself is measured by assessing and evaluating the leader's effects on their followers (Burns, 1978).
Further Burns (1978) argues that a transformational leader transforms and motivates followers by:
Successfully creating a greater sense of awareness about the importance of the organisation's purpose and its planned outcomes.
Positively influencing to subordinate their self-interests for pursuing the larger and general interests and goals of the organisation and their coworkers.
Effectively influencing their higher-level needs.
There are four important components to transformational leadership (Northouse, 2001):
"Idealised influence" - due to the charisma of the leader which wins the admiration and respect of the followers.
"Inspirational Motivation" - the leadership that inspires the followers to accomplish their work amidst challenging situations.
"Intellectual Stimulation" - leaders who envision and develop newer approaches to creative problem solving by their followers and obtain their successful performance.
"Individualised Consideration" - leaders who accord special regard and concern to the career growth and developmental needs of their people.
Given the scenario of CSR for the organisations the need to have leaders with transformational leadership skills is extremely vital. Moving people and steering the organisation toward meeting its CSR would necessarily require transformational leaders who are skilled in motivating and inspiring people.
Leadership Skills for Corporate Social Responsibility
Leadership skills that are oriented toward CSR when embedded and integrated into the transformational leadership may provide an appropriate choice for companies to select leaders to transform the organisations through changes in the background of the current global economic crisis. Further CSR efforts would be driven by stakeholders, business performance, and motivation which together require transformational leadership form for leading the companies in their strategic CSR initiatives (Waddock & Bodwell, 2007).
In addition to their competencies, transformational leaders would need to be equipped with leadership skills that would be necessary for CSR are discussed below. In guiding towards its CSR efforts, companies may, therefore, choose leaders with the following skills.
Talents and Skills to handle CSR Issues
The current global economic crisis will continue to force the businesses to face the consequences of endangered trust and confidence. This implies that leaders must articulate their followers to carry out their activities in a way that fosters CSR. To this end leaders would need the right talents and specialised skills and abilities to successfully compete by efficiently and effectively handling the key issues of: innovation, climate change, and societal needs and demands (Sir Michael Rake & Grayson, 2009).
Governance and Strategic Skills
CSR requires sound and robust board governance for CSR and corporate sustainability (ibid). In consequence, leaders must be knowledgeable and possess a detailed understanding of the needs of the internal and external stakeholders within the parameters of both social and environmental impacts, which in turn would help in developing a suitable corporate strategy including the strategy for CSR (ibid).
Innovative Skills
Management innovation offers a great potential to realise positive and profitable outcomes as a whole to both for the company and for the society where it operates (Birkinshaw et al, 2008 in D'Amato & Roome, 2009). In this regard the leaders should have knowledge and understanding of their roles in corporate restructuring and redesigning to effect sustainable development successfully (Hawken, 1993 in D'Amato & Roome, 2009). Moreover, today's CSR requires leaders to be more competent in management innovation and development of corporate sustainability (D'Amato & Roome, 2009).
Change Skills toward Corporate Social Responsibility
Leadership does not remain constant due to the constant and continuous changes happening in the world (Hopen, 2010). Accordingly, the global economy and the resultant multinational diverse work force are common everywhere among the major companies worldwide today and these require leaders with new thinking and skills to address the mandatory CSR requirement in the international standard and as a result stakeholders expect compliance with (ibid).
Mentoring Skills for Transformational Leadership
CSR and corporate sustainability makes it imperative for leadership to meet the corporate needs in a manner that preserves and maintains the ability of the leaders today to train and provide new generations of corporate transformational leaders who can transform and steer the company by managing social, economic, and environmental issues successfully (Fisher, 2010).
Managing Employee Diversity
Not only the multinational corporations (MNCs) but also most of the large companies increasingly employ expatriate work force today due to ease of cross border labour mobility. As a result leaders need to ensure that this diversity is managed by fairly treating their multi-cultural work force throughout on an equal basis in corporate staff recruitment, training and development processes (ibid).
Negotiating Skills
More than ever leaders would need much higher negotiating skills to effectively discuss and resolve both internal and external stakeholders' concerns pertaining to social, economic, and environmental issues (ibid). Prahalad (2005) also stresses that leaders should be able to balance skillfully the diverse stakeholder claims on an international level which pose new "social and humanitarian challenges". Both the leaders and stakeholders share common purposes in that they both have the implied need to operate in a morally consistent way and stay motivated to do so all the way for obtaining a sustainable future by aligning these claims as best as possible (Rost, 1991).
Risk Management Skills
CSR by nature is a risky option (Cable, 2005) and the unpredictable changes driven by the amendments to national and international regulatory frameworks give rise to risks which need to be managed and overcome effectively by the leaders (Fisher, 2010).
Socio Cultural Skills
Effective implementing of CSR would require leaders to be skilled at three levels: complexity, context, and connectedness and ensuring that they remain aligned in order for them to setup a culture to realise proactively and successfully the social and environmental objectives (Waddock & Bodwell, 2007).
Delegating Skills
CSR would also require the leadership practice of deeper delegation as well as empowering and developing people in an organisation in order to make them more conducive and committed toward the implementation of CSR related activities for the mutual benefit all the stakeholders both within and outside the company (D'Amato & Roome, 2009). Also skillful delegation can greatly aid employees' career expectations and growth (Herold et al, 2008).
Communicating Skills
Apart from the more general communication skills which are normally expected from corporate leaders, CSR initiatives would need leaders to be frequently communicating in a CSR-centered background that are likely to have a higher level of both local and global impact (Fisher, 2010). Further CSR-centered activities imply the necessity to keep the people informed up to date as well as motivated at all times by the leaders.
Ethically Oriented
Companies today increasingly function in the eyes of the public. And in consequence, leaders need to exercise responsible leadership that is characterised by professional integrity composed of the twin elements of: value-orientation and ethical-orientation in order to achieve successful CSR initiatives amidst multiple stakeholder claims and their conflicting values (Maak & Pless, 2009).
Conclusion
This paper attempted to explore Question 4. The Question required examining why an organisation would want to utilise the concepts of Corporate Social Responsibility in relation to the organisation's choice of leaders.
Accordingly, this paper looked into the concepts of Corporate Social Responsibility first and analysed its importance today given the fact that many companies and corporations are going slowly through the current global economic crisis. Although the concept of CSR is as old as 56 years since the time Peter Drucker highlighted it the CSR initiative has been more in focus in recent times.
The collapse of large corporations like Enron and Lehman Brothers has resulted in the loss of credibility over the leaders' performance and as a result has put the honesty and integrity of the leaders (the Directors of these companies) in question. Viewed differently, this also shows a total lack of due care owed to the external stakeholders as well as the internal stakeholders which however, could have been minimised if the companies had taken their Corporate Social Responsibility functions seriously.
The negligence on behalf of the leaders of these two large companies in failing to fulfil their roles as wealth maximisers for their owners as well as in discharging their social responsibilities have led to serious financial and economic losses to communities both in the US (where these companies are from) and other countries worldwide where the other institutions got seriously injured due to their interdependent relations with these companies (the debt losses of Lehman Brothers was publicly known through the media at US$700 billion!!).
The author of this paper has therefore attempted to present this paper under a strong belief that the companies need to be more socially responsible in their actions (respecting still the need for them to cater to their owners as well) and to do so transformational leaders with more new leadership skills would be needed to satisfy the requirements of companies today.
(4,064 words Sections 1 to 4)
