Economic and Legal Components of Corporate Social Responsibility
Table of Contents
TOC o “1-3” h z u HYPERLINK l “_Toc405071089” Introduction PAGEREF _Toc405071089 h 1
HYPERLINK l “_Toc405071090” Economic Responsibilities PAGEREF _Toc405071090 h 1
HYPERLINK l “_Toc405071091” Economic and Legal Components of Corporate Social Responsibility PAGEREF _Toc405071091 h 2
HYPERLINK l “_Toc405071092” Ethical and Philanthropic Components of Corporate Social Responsibility PAGEREF _Toc405071092 h 3
HYPERLINK l “_Toc405071093” How does the internet support CSR? PAGEREF _Toc405071093 h 3
HYPERLINK l “_Toc405071094” How does CSR support an organization? PAGEREF _Toc405071094 h 4
HYPERLINK l “_Toc405071095” > Risk Management PAGEREF _Toc405071095 h 4
HYPERLINK l “_Toc405071096” > Product differentiation PAGEREF _Toc405071096 h 4
HYPERLINK l “_Toc405071097” > Employee motivation PAGEREF _Toc405071097 h 5
HYPERLINK l “_Toc405071098” Reputational risk and CSR PAGEREF _Toc405071098 h 5
HYPERLINK l “_Toc405071099” Ethical Lapses PAGEREF _Toc405071099 h 6
HYPERLINK l “_Toc405071100” Customer Service Failures PAGEREF _Toc405071100 h 7
HYPERLINK l “_Toc405071101” Low Employee Satisfaction PAGEREF _Toc405071101 h 7
HYPERLINK l “_Toc405071102” Data Breaches PAGEREF _Toc405071102 h 8
HYPERLINK l “_Toc405071103” How does CSR help society? PAGEREF _Toc405071103 h 8
HYPERLINK l “_Toc405071104” Benefits of CSR PAGEREF _Toc405071104 h 9
HYPERLINK l “_Toc405071105” Improved financial performance PAGEREF _Toc405071105 h 9
HYPERLINK l “_Toc405071106” Enhanced brand image & reputation PAGEREF _Toc405071106 h 9
HYPERLINK l “_Toc405071107” Conclusion PAGEREF _Toc405071107 h 9
HYPERLINK l “_Toc405071108” References PAGEREF _Toc405071108 h 10
Introduction
Corporate Social Responsibility is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. CSR is generally understood as being the way through which a company achieves a balance of economic, environmental and social imperatives (“Triple-Bottom-Line- Approach”), while at the same time addressing the expectations of shareholders and stakeholders. In this sense it is important to draw a distinction between CSR, which can be a strategic business management concept, and charity, sponsorships or philanthropy (Barnea & Rubin, 2010). Even though the latter can also make a valuable contribution to poverty reduction, will directly enhance the reputation of a company and strengthen its brand, the concept of CSR clearly goes beyond that. For CSR to be accepted by a conscientious business person, it should be framed in such a way that the entire ranges of business responsibilities are embraced. It is suggested here that four kinds of social responsibilities constitute total CSR: economic, legal, ethical, and philanthropic. Furthermore, these four categories or components of CSR might be depicted as a pyramid. To be sure all of these kinds of responsibilities have always existed to some extent but it has only been in recent years that ethical and philanthropic functions have taken a significant place. Each of these four categories deserves closer consideration.
Economic Responsibilities
Historically, business organizations were created as economic entities designed to provide goods and services to societal members. The profit motive was established as the primary incentive for entrepreneurship. Before it was anything else, business organization was the basic economic unit in our society. As such, its principal role was to produce goods and services that consumers needed and wanted and to make an acceptable profit in the process. At some point the idea of the profit motive got transformed into a notion of maximum profits, and this has been an enduring value ever since. All other business responsibilities are predicated upon the economic responsibility of the firm, because without it the others become moot considerations (Bénabou & Tirole, 2010).
Legal ResponsibilitySociety 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 promulgated by federal, state, and local governments as the ground rules under which business must operate. As a partial fulfillment of the “social contract” between business and society firms are expected to pursue their economic missions within the framework of the law. Legal responsibilities reflect a view of “codified ethics” in the sense that they embody basic notions of fair operations as established by our lawmakers. They are depicted as the next layer on the pyramid to portray their historical development, but they are appropriately seen as coexisting with economic responsibilities as fundamental precepts of the free enterprise system (Carroll & Shabana, 2010).
Economic and Legal Components of Corporate Social Responsibility
It is important to perform in a manner consistent with maximizing earnings per share, It is important to perform in a manner consistent with expectations of government and law. It is important to be committed to being as profitable as possible. 2. It is important to comply with various federal, state, and local regulations. t is important to maintain a strong competitive position. 3. It is important to be a law-abiding corporate citizen. It is important to maintain a high level of operating efficiency. It is important that a successful firm be defined as one that fulfills its legal obligations. It is important that a successful firm be defined as one that is consistently profitable. It is important to provide goods and services that at least meet minimal legal requirements.Although economic and legal responsibilities embody ethical norms about fairness and justice, ethical responsibilities embrace those activities and practices that are expected or prohibited by societal members even though they are not codified into law. 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. Philanthropic Responsibilities Philanthropy 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 philanthropy include business contributions to financial resources or executive time, such as contributions to the arts, education, or the community. A loaned-executive program that provides leadership for a community’s United Way campaign is one illustration of philanthropy. The distinguishing feature between philanthropy and ethical responsibilities is that the former are not expected in an ethical or moral sense. Communities desire firms to contribute their money, facilities, and employee time to humanitarian programs or purposes, but they do not regard the firms as unethical if they do not provide the desired level. Therefore, philanthropy is more discretionary or voluntary on the part of businesses even though there is always the societal expectation that businesses provide it
Ethical and Philanthropic Components of Corporate Social ResponsibilityIt is important to perform in a manner consistent with expectations of societal mores and ethical norms. It is important to perform in a manner consistent with the philanthropic and charitable expectations of society. It is important to recognize and respect new or evolving ethical moral norms adopted by society. It is important to assist the fine and performing arts (Du, Bhattacharya & Sen, 2010). It is important to prevent ethical norms from being compromised in order to achieve corporate goals. It is important that managers and employees participate in voluntary and charitable activities within their local communities. 4. It is important that good corporate citizenship be defined as doing what is expected morally or ethically. 4. It is important to provide assistance to private and public educational institutions. It is important to recognize that corporate integrity and ethical behavior go beyond mere compliance with laws and regulations. It is important to assist voluntarily those projects that enhance a community’s “quality of life.”
How does the internet support CSR?One of the most critical drivers of the importance of corporate social responsibility in the last few years has been the Internet. What it’s done is that it’s allowed consumers two things. One is it allowed greater visibility into the actions companies are actually taking. So they know more about what companies are doing today than they ever have in the past. The second thing that it’s doing is it’s allowing consumers to band together to create advocacy groups much easier than they ever could do in the past and to exert influences on corporations once they’ve banded together. The internet allows spreading a more important quantity of information, at a lower cost, at reduced time Furthermore, several targets can be reached and specific information can be sent to them As for the information, they are updated, archived, available at any time and accessible low-cost. Internet has become one of the main communication channels used by companies regarding the broadcasting of information concerning their responsible practices.
How does CSR support an organization?Being socially responsible is increasingly important for modern organizations. As consumers become more demanding and investors become more sophisticated, corporate social responsibility (CSR) becomes increasingly significant for businesses that need to demonstrate responsiveness to social problems (Karnani, 2010). The extent to which an organization can benefit from corporate social responsibility varies depending primarily on the nature of the business. However, business literature has identified a strong correlation between social performance and financial performance. Research from the Institute for Business Ethics suggests that organizations that demonstrate corporate social responsibility are more likely to be commercially successful in the future. The potential business benefits derived from the implementation of corporate social responsibility are the following:
> Risk ManagementModern organizations implement risk management strategies to decrease or even eliminate the risk posed on the organization by a variety of practices associated to several potential threats. Risk management is of vital importance to many corporate strategies. Organizations that have made strong efforts over the years to build a good reputation and have spent a lot of money to maintain it through product development and customer loyalty strategies, may be ruined is seconds due to a corruption scandal (Enron scandal) or an environmental accident (Chernobyl disaster). Such incidents draw the attention of the media and may cause irrevocable damage to the reputation of a firm. The only way to anticipate such events is to embed social responsibility into organizational culture in order to offset such risks.
> Product differentiationOrganizations that want to remain competitive and viable in today’s marketplace need to offer differentiated products. Through product differentiation, organizations aim at achieving a competitive advantage by increasing the perceived value of their products relative to the perceived value of the products of their competitors. Particularly, for organizations that implement socially responsible policies, product differentiation can satisfy the unmet needs of consumers offering both financial and business benefits to the firm. Firms that offer environmentally friendly products experience higher sales growth than firms that sell conventional products, and usually such products sell at a higher price. Besides, firms that offer unique value propositions to consumers differentiate their products in consumers’ minds and contribute to building customer loyalty based solely on ethical values. Therefore, in the context of corporate social responsibility, organizations develop new products aiming, not only to become more competitive, but also to make a greater impact on society through their ethical practices
> Employee motivationOrganizations that are socially responsible are more likely to recruit and retain their human capital easier. When employees have a positive view for the organization’s CSR strategies, they are more willing to work for it, participate to its efforts, align with its culture and recommend it as the best place to work (Karnani, 2010). Employee satisfaction deriving from corporate social responsibility leads to higher productivity, higher employee retention rate, better organizational performance, and ultimately, higher profitability. If conducted properly a company can reduce costs through CSR by:
More efficient staff hire and retentionImplementing energy savings programs, managing potential risks and liabilities more effectively, and Less investment in traditional advertising. Conclusively, although the benefits of corporate social responsibility cannot be explicitly measured as they are primarily based on the nature of the business, they are numerous and they cannot be neglected. Particularly, in an era that the protection of the environment is imperative and global warming threatens human existence, social responsibility is the least organizations can demonstrate to provide an optimistic future. Besides, the opportunities offered for exhibiting responsiveness to social, economic, environmental and ethical issues are numerous. At the end of the day, it is to their long-term interest to undertake socially responsible initiatives.
Reputational risk and CSRReputation can be defines as the way constituents view the organization. A company’s reputation is one of its biggest and most important assets. When people hear and say great things about an organization and its good standing is reported in the media, it may receive more customer inquiries, see increased profit margins and be able to expand its operations. After a public relations disaster, the reputation a firm has worked diligently to build can easily be destroyed – and may be nearly impossible to rebuild. That’s why it’s essential for businesses to continually assess their reputational risks to avoid worst-case scenarios as much as possible (Werther & Chandler, 2010).
Ethical LapsesStrong ethics initiatives are essential at any company, and particularly for firms that want to avoid staining their reputations. Limited ethics practices can lead employees, no matter what their position, to slip up and make serious judgment errors. Theft, accounting fraud, and other illegal activities may be the result of a single employee’s behavior, but they can have a significant impact on a business as a whole. Instances of illegal business activity, especially among large corporations, are highly publicized and make their way across media outlets quickly (Werther & Chandler, 2010). Even a minor ethical issue can spiral out of control once the word hits news channels and can cause serious harm to a company’s reputation in just hours. Clients may be unwilling to continue working with a company that is quickly becoming known for a fraud or insider trading investigation, which could cause profits to plummet as long-time customers seek new partners. To deter the risk of reputational damage from ethical issues, it’s critical for businesses to have in place strong mechanisms that deter employees from breaking the law. Setting high standards and significant repercussions for noncompliance with these expectations can help prevent such occurrences and potentially serve to bolster a company’s reputation in the long run (Werther & Chandler, 2010).No Corporate Social Responsibility PoliciesWith more consumers and investors concerned about environmental sustainability, waste, pollution, and the impact companies have on the areas in which they do business, corporate social responsibility is a growing trend. More organizations are implementing processes that allow them to lower pollution and resource use, increase recycling activities, and give back to the communities in which they do business. On the other hand, those companies’ competitors could be at risk for a plummeting reputation if they have failed to implement corporate social responsibility policies their consumer and investor base expects (Karnani, 2010). With social media use so common and information instantly accessible via the Internet, it’s easy for potential customers to see what their favorite companies are doing to better the planet. Individuals who discover brands have no current initiatives and believe they are being contradictory may spread the word via popular networking websites, which can anger millions of potential customers and prove damaging to a company’s standing. While there’s always a risk consumers will unearth a company’s limited corporate social responsibility plans and raise awareness, the possibility of a disaster and the fallout of such an event are even more damaging. Several American apparel retailers learned this lesson the hard way when a factory fire in Bangladesh killed more than 100 workers in November 2012, and a facility collapse just a few months later left more than 1,100 workers dead. The factories were found to have various safety violations the retailers failed to address (Carroll & Shabana, 2010). If the companies had kept a close watch on their overseas clothing suppliers, they may have avoided these public relations disasters. Those who had quick responses to the disasters – and had contingencies built into their supply chain to make changes – fared better in the public eye.
Customer Service FailuresIf consumers are treated poorly, a corporation risks significant damage to its reputation. It will lose key references who will not recommend the company to friends, family members, and business associates. Because companies want current clients to act as brand ambassadors and extol the advantages of their services, they need to work hard to consistently improve the customer experience and ensure all consumers are well-served (Bénabou & Tirole, 2010). Employees who are short with clients, are unwilling to provide solutions to fit their needs, or who fail to follow up on requests may send the wrong message to consumers and tell them a company doesn’t actually care about their needs. Those who have a poor experience may complain to potential customers and prevent them from working with a company or even take their issues to social media sites.
Low Employee SatisfactionEnsuring employees are happy isn’t just a way to build up a brand’s internal culture, it’s also a way to improve a company’s reputation with the public. Satisfied teams are more likely to feel positively about their jobs and have a stronger sense of attachment to their employers. This makes it easier for them to encourage others to try a brand’s products or services and promote the company even when they aren’t on the job. Content employees are also more likely to go out of their way to provide better client experiences and ensure customers are better served (Barnea & Rubin, 2010). Customer service training initiatives are essential, but they may not work as well if employees are dissatisfied with their positions. Brands with good reputations, such as Google, Whole Foods Market and Facebook, are often known for being some of the happiest places to work (Barnea & Rubin, 2010).
Data BreachesBusinesses rely on technology more than ever, and while this may make some processes easier, it carries with it a reputational risk. Data breaches have become more common in recent years, as hackers look to gain access to corporate secrets, financial data, and customer information. As such, it has become imperative for companies to employ stronger systems to protect digital files. Firms that do experience a data breach need to own up to the mishap, which can cost them valuable standing with customers. Some consumers may feel a business didn’t sufficiently prepare for a cyberattack and didn’t take risks seriously, which can make a firm appear ill-prepared to handle other important tasks (Karnani, 2010).
How does CSR help society?The benefits of Corporate Social Responsibility to the local community and the world are self-explanatory. A company committed to Corporate Social Responsibility will often support projects that will do things like lower pollution, recycling of waste, and provision of green spaces to the community or lower energy output, or in some cases, companies will even give portions of their profit to charities, or will have their employees volunteer for community-building non-profits. Overall, a commitment to Corporate Social Responsibility will help the community surrounding the corporation, but it will also have a larger impact on the world, particularly if multiple companies commit to it. An example of Corporate Social Responsibility is through “The Body Shop.”
Benefits of CSRImproved financial performanceA recent longitudinal Harvard University study has found that “stakeholder balanced” companies showed four times the growth rate and eight times employment growth when compared to companies that focused only on shareholders and profit maximization.
Enhanced brand image & reputationA company considered socially responsible can benefit -both by its enhanced reputation with the public, as well as its reputation within the business community, increasing a company’s ability to attract capital and trading partners. For example, a 1997 study by two Boston College management professors found that excellent employee, customer and community relations are more important than strong shareholder returns in earning corporations a place on Fortune magazine’s annual “Most Admired Companies” list.
Conclusion
Companies that demonstrate that they are engaging in practices that satisfy and go beyond regulatory compliance requirements are being given less scrutiny and freer rein by both national and local government entities. In many cases, such companies are subject to fewer inspections and paperwork, and may be given preference or “fast-track” treatment when applying for operating permits, zoning variances or other forms of governmental permission.
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Carroll, A. B., & Shabana, K. M. (2010). The business case for corporate social responsibility: a review of concepts, research and practice. International Journal of Management Reviews, 12(1), 85-105.
Du, S., Bhattacharya, C. B., & Sen, S. (2010). Maximizing business returns to corporate social responsibility (CSR): The role of CSR communication.International Journal of Management Reviews, 12(1), 8-19.
Karnani, A. (2010). The case against corporate social responsibility. Wall Street Journal, 23, 1-5.Werther Jr, W. B., & Chandler, D. (2010). Strategic corporate social responsibility: Stakeholders in a global environment. Sage Publications.
