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Different organizations have created different grounds for defining Corporate Social Responsibility (CSR). However, they do share one common ground on the basis of which CSR can be described as a voluntary activity that a corporation does for its employees and society as a whole as well as the environment around it for its operations and functions. It is what the corporation gives back to the community after using its resources to make profits.
According to Horrigan (2010), there is no definite answer to what CSR is owing to the high level of ambiguity and controversy related to the topic. However, Baker (2004), proposes CSR as, ‘It is how the organizations manage the business process to produce an overall positive impact on the society.’
Emergence of CSR
|1930s||‘CSR’ as a term came into existence in the 1930s supposedly because Prof. A.A. Berle and Prof. C.G. Means at Harvard University, USA, wanted corporations to take responsibility after the Great Depression of 1929. According to them, this event had occurred because of the irresponsibility shown by the corporations|
|1960s & 70s||Examples of CSR started being put across in the business world. Owing to the civil rights movement, consumerism and environmentalism transformed the perspective of the society regarding the business world’s behavior. In the year of 1960, Organization for Economic Co-Operation and Development (OECD) convention was developed to advocate the policies that aimed at achieving sustainable economic growth and employment and elevate the living standards in the member-nations while maintaining financial stability at the same time.|
|1980s & 90s||In 1980, International Union for Conversation of Nature (IUCN) published a World Conservation Strategy. This strategy was aimed to create more stable world economy, stimulate world growth, perish world equalities and work on the worst impacts of poverty.In the year of 1992, the UN Earth Summit was held in Rio de Janeiro, where ‘triple bottom line’ business model was floated along with an idea of using sustainable development to a company’s competitive advantage.|
Thereafter, many significant incidents took place that further strengthened the roots of CSR and forced the business developments to see the need for CSR.
There are four types of CSR according to its beneficiaries:
This type of CSR focuses on reducing detrimental effects of the corporation’s operations on the environment. The corporation innovates in its manufacturing stage to reduce the production of environment harming by-products. It also promotes the use of non-renewable energy sources to prevent harm caused to the environment by burning of fossil fuels.
The corporation joins hands with other organizations (usually Non-Profit ones) to ensure the welfare of a local community’s people. These organizations either fund or receive funding from corporations to perform tasks that can improve the living conditions of the community’s people.
Corporations focus on the well-being of their own staff and improve their living conditions. The companies may extend compassionate leaves like paternity leaves so that the employee can look after his newborn. They can also provide medical insurance to their employees to take care of accidents caused due to occupational hazards.
In a charity-based CSR, corporations donate to organizations or individuals (usually through a charity partner) to improve their financial condition and for their general upliftment. This is the most common form of a CSR activity. Most corporations provide direct financial support to organizations or individuals who require such assistance.
Now that we know what CSR means and what its forms are, we will read about CSR’s advantages.
The most obvious advantage that a corporation can obtain by implementing CSR policies is that of an increased goodwill value. This serves a dual purpose – Firstly, people will want to buy the product that the corporation is selling because of its good and clean image. Secondly, other enterprises will want to do business and be associated with the corporation. This increases the corporation’s prestige to such a high level that its name may become synonymous with reliability and goodness.
People always want to be associated with the best and the most popular, so in that respect, the corporation rises in stature and becomes an important player in its market.
Companies having solid CSR commitments find it easier to recruit and retain employees. People want to work for companies that care about the well-being of their employees and provide good working conditions. Compassionate attitude towards employees is highly desired by both new recruits and old employees alike. Appraisals, financial assistance in times of need, and attention given to personal achievements and special days (like birthdays) make employees want to remain with the company.
This is a huge advantage when there is a tight labor market situation. This will reduce the cost of training new recruits and free up incentives for existing employees. Incentives induce efficient work out from employees. In short, if the company’s workforce is happy, the company gets more profits due to increased efficiency in production.
A corporation with strong CSR programs will not be scrutinized by regulatory authorities as much as companies without CSR programs. The authorities will be lenient in their regulation because they feel that the company must be complying with all regulations as it is supported by firms and people alike for its welfare work. A company with strong CSR programs will always work within regulations to get benefits (other than profits) from these CSR programs.
The authorities will give fast-track preference to this company. It may also forego cumbersome paperwork that is required to set up projects if it thinks that this project is going to help the community to improve.
A company’s image plays a huge role in attracting investors. If the company is engaged in CSR programs, its image gets a massive boost, and so, people invest in its operations heavily. This company will attract capital even from abroad in the form of FII, thus, helping the country to get valuable foreign exchange. It will also attract investment from other firms and industries, and it will become a name that can be trusted easily.
Even the Government of the country may be willing to invest in the company, leading to lesser regulation and red-tapism.
If the company has invested in an environmental CSR program, it will make sure that its operations do not harm the environment in any way. Inventing machines and techniques to reduce the harmful effects of its operational activities will give the community a clean environment. It will also give the company a chance to explore the usage of renewable energy for its operations.
This will reduce the cost of acquiring fossil fuels and can reduce the cost of production by a one-time investment in renewable energy production.
A popular business principle is that any publicity is good publicity. You should be known to the people to sell your product. A good CSR program will always give good publicity and even act as an advertisement for the company.
It also sets the company apart from its competitors. They may be selling a similar product at lower rates, but you are keeping the interests of your environment and community intact, and so the people do not mind a little extra charge for this thoughtfulness.
Now we will see why CSR is criticized in business circles.
Milton Friedman, an economist, is the biggest critic of CSR. He says that CSR shifts the focus of the company from the objective that made it a financial entity in the first place – profit-making. The company forgets about its obligations towards its shareholders that they have to make profits for them. Instead of focusing on making profits, they engage in CSR programs and use up funds for community welfare.
So basically, instead of an income, the company is effecting an outflow of cash and not fulfilling its profit-making obligations.
According to CSR policies, companies have to disclose shortcomings of even their own products if they are found to violate the CSR program. For example, car manufacturing companies calling back their vehicles in large numbers when they find glitches in the model after having sold them wallops their reputation.
This creates inconvenience to the customers, and they lose trust in the manufacturer.
Initially, customers like to see the companies that they trust are engaged in social welfare programs. They like the fact that these programs are for a good cause. Later, they grow wary of it. If they don’t see instant results from these programs, they think that these are nothing but PR stunts. So it becomes difficult to convince customers that the results will take some time in coming and that they should continue believing in the good intentions of the company.
These attempts of convincing become fruitless day by day because some customers are impatient and have a constant desire to be appeased.
More often than not, CSR programs increase the expenditure of the company. This increased expenditure is reflected in the increased prices of the product for which, ultimately, the customers have to pay.
Large corporations can absorb this increased expenditure. They may not increase their products’ prices, but small businesses have no other option but to increase their products’ prices to meet their increased expenses.
Legislation and provisions imposed on organization regarding CSR vary from one place to another. The value of CSR differs in various contexts, depending on the geographical location, environmental conditions, culture and most importantly legal framework imposed by the different countries. Here we discuss the influencing legal factors that affect an organization in three different geographical locations: Australia, UK and USA.
Organization for Economic Cooperation and Development (OECD) is a forum where 30 countries work in tandem to resolve social, economic and environment challenges the democracies counter. It has come up with guidelines for multinational companies on ethical and responsible business operation. The guidelines are in effect dealing with corporate social responsibility issues. As Australia, UK and USA are members of OECD, the organizations who intend to establish themselves, undertake business activities, import or exports from these three countries have to maintain OECD guidelines.
While supporting the general policies of OECD, an enterprise should take fully into consideration established general policies in the nations that operate, and consider the opinions of various other stakeholders like employees, suppliers, investors, etc. To maintain the general policies, the organizations should —
The organizations are further encouraged to:
To know more about the Guidelines in a detailed manner, you can refer to the OECD’s official website where you get the PDF form of Guidelines.
As a member of OECD, the companies that operate or intend to operate in Australia can report to OECD national contact point for OECD guidelines. When it comes to the laws related to the CSR in Australia, an enterprise should know the Australian court system comprises of local and federal branch. The two branches have both exclusive and shared jurisdiction. High Court of Australia is the highest jurisdiction in all cases. The following are central areas when it comes to influencing factors of corporate social responsibilities in international operations.
A plethora of Australian laws binds Australian companies to comply with the human rights standards. For instance, there are laws prohibiting harassment and discrimination in workplace and requiring employers to offer equal employment opportunities. Laws that regulates work environment like occupational health and safety, minimum wage, terms and conditions of employment, collective bargaining etc also act as an influencing factor in CSR. For example, legislation imposing liability on corporation acts or leaving an impact on human rights like offering bribes to foreign officials or crimes against humanity.
The Corporation Act and Common Law impose the power and duties on directors to act in the best financial interest of shareholders. Section 181(1) of the Corporations Act calls for the directors to act in good faith in the best interest of the corporation; for a definite purpose.
Australian government advocates all the prime conventions of the UN concerning human rights. Australian authorities have created an autonomous body named, Australian Human Rights Commission, to protect and promote human rights in Australia. One of its many responsibilities, this agency also ensures that companies in Australia work to promote and protect human rights and emphasis on corporate social responsibility.
Enterprises, who operate in Australia and intend to undertake business in Australia, must closely follow the local rules and regulations like the amount of hours their employees work, how often they are allowed to take break. Australian employment is regulated by local and federal legislation, regulations and collective contracts that specify information related to working hours, overtime, salaries, procedures for settlement and disputes. Australia also promotes eight core conventions of the International Labor Organizations (ILO) (a U.N. agency that sets labor standards, develop policies and devise programs promoting decent work culture.)
The companies, operating or intending to operate in Australia, should take into consideration the Australia’s environment because the environment is the influencing factor in increased focus on corporate social responsibility. Legislation concerning the protection of the environment is formulated and enforced by federal, state and local Australian authorities. Activities planned by some companies may affect the environment. In this regard, the company needs a license and is accountable to reporting to the authorities. Companies are asked to report their greenhouse gas emission, energy production and consumption.
Australia has ratified the UN convention against corruption. Therefore, it is regarded as one of the least corrupted nations in the world.
The enterprises, which intend to extract natural resources, should take into confidence the indigenous people in the area. Even the consultation is driven by laws. Companies in Australia should consult with local authorities and business organizations.
CSR norms are evolving with days so are the expectation from the corporations. When companies violate these norms, they could face repercussions, ranging from loss of reputation to market share.
Australian Securities and Investments Commission (ASIC) is the corporate, markets and financial service controller in Australia. This body ensures that Australia’s economic reputation and well-being remain unharmed and fiscal markets regulate fairly and maintain transparency. When enterprises regulating in Australia breach any of the above law or any corporation law, the ASIC enforces remedies and take actions available to them.
|Type of Action||Description of Punishment|
|Punitive||ASIC can pursue the court to punish a person or a corporation in response to the misconduct. The actions include:1. Criminal Penalties (terms of imprisonment, community service orders)2. Civil Monetary PenaltiesAll monetary penalties are to be paid to the Commonwealth.|
|Protective||ASIC can take administrative action to protect the financial interest of consumers and investors. The actions include:1. Disqualification from managing a corporation2. A ban on offering financial services and engaging in credit activities3. Revocation, suspension, revision of license terms4. Public warning notices|
|Preservative||ASIC can take jurisdiction action to protect the asset and force someone to comply with the law|
|Corrective||ASIC can seek a court order for corrective disclosure|
|Compensatory||ASIC can ask court to take representative action to recover the damages and cover for those who suffered the loss|
|Negotiated and Agreed Outcome||ASIC can use negotiated alternatives which can reach an effective regulatory outcome. The actions include,1. Enforceable undertaking2. Payment of infringement notices|
Similar to Australia, UK is also a member of OECD. This implies general guidelines of OECD when it comes to corporate social responsibilities in UK. Apart from the guidelines, there are few legislations that influence CSR functioning in UK:
Companies with financial years ending on 31st March 2016 would be the first organizations required to produce a statement in accordance with the UK Modern Slavery Act. The reason is the Business & Human Resource Center has decided to maintain a registry of corporation statements pursuant under the act.
The companies, operating in UK should have policy commitments to respect human rights. This means they should avoid breaching corporate norms and human rights and should address negative human rights impact which may take place in their operations.
Enterprises, operating in the United States, have to meet a wide range of legal requirements. These requirements state the responsibilities of the corporation towards shareholders and other stakeholder in the organization. For instance, many United States have imposed statutes that allow corporations to consider the interest of all the shareholders as well as the stakeholders.
To make sure the directors do not act negligently or misuse corporation resources for personal usage, the legal framework imposes fiduciary duties of loyalty. This duty of loyalty needs the directors to act in the best interest of the corporation and restrain those purposes, motives and goals that negatively influence the director’s behavior. However, fiduciary duties typically refer to ‘the best interest of the corporation’. Whether it includes the interests of shareholders and/or a wider set of constituents is not very clear from the reform.
Every United State acknowledges the right to make charitable contributions. Seven states encourage corporations to make donations irrespective of the corporate benefit. On the other hand, 19 other states encourage the corporations to make donations that benefit the companies and contribute to social welfare. However, in the remaining 24 states, the statutes are not very clear whether the corporations are allowed to make donations even if they do not benefit the firm.
Corporate statutes, developed by states, impose legal power on corporations and allow enterprises to partake in legal activities. Hence, the corporations presumably have the power to undertake CSR activities. Under this law, corporation can formulate their own charters to authorize themselves explicitly to take part in CSR activities. For example, New York Times has been formed to follow the objectives of social responsibilities rather than drawing profits.
The business judgment rule works as a presumption in favor of the manager’s actions. Under the enactment of this law, the court can defy corporation managers’ decision until the decisions satisfy all the basic requirements related to conflict of interest and negligence.
An increase in national litigation has been witnessed on numerous jurisdictions that aim to encourage business to act more socially responsible. It is important that companies understand the laws as non-compliance with these obligations can have drastic consequences on the companies.
Having read about the advantages and disadvantages of CSR, we will now read about the CSR activities of some top companies which show that CSR’s advantages far outweigh its disadvantages.
Google has made commendable efforts to help in improving community conditions. It is listed by Forbes as one of the companies with the best CSR activities.
Google’s Community Based CSR activity:
Google’s Environmental-Based CSR activity:
Google’s Charity-Based CSR activity:
Effects: Google’s green initiatives have impacted power consumption by big firms. They have all followed Google and are now consuming much less power. Google Grants have furthered the cause of charities by allowing them to advertise on a big platform for no extra costs. All these have made Google a great CSR activities company.
Microsoft has been known to contribute towards community development. Its owner Bill Gates is a renowned philanthropist having given billions of dollars to charity. ‘The Bill and Melinda Gates Foundation’ has helped millions of people with money, aid, and funding breakthroughs in medical research.
Microsoft’s Community-based CSR activities:
Effects: Microsoft’s CSR activities have had a huge impact on community development and employee happiness. According to a study, 86 percent of its employees would recommend people to work at Microsoft. The same study reveals that 94 percent of Microsoft’s employees believe they are treated justly by their superiors and that the company is a good corporate citizen due to its efforts to improve human life in general.
Bosch is a leading company in the automotive and industrial fields.
It is a German company which is highly determined to keep its operations adhering strictly to environment norms —
Bosch’s HR-Based CSR activity:
Bosch’s Environmental-Based CSR activities:
Effects: People are now more aware of products that save energy because of Bosch’s innovation technology. The environment around Bosch’s production sites has also become cleaner due to the strict HSE controls imposed by Bosch itself.
Hewlett-Packard (HP) is a leading IT company.
It has taken many steps to ensure that the IT Industry uses as less energy as possible with its innovative approaches —
HP’s Environmental-Based CSR activities:
Effects: HP’s innovative green programs have helped clients and the general people to know more about clean energy production and how to keep the environment clean.
Baker, M. (2004) “Corporate Social Responsibility – What does it mean?” Available at http://www.mallenbaker.net/csr/definition.php
Horrigan., B. (2010) Corporate Social Responsibility in the 21st Century: Debates, Models and Practices Across Government, Law and Business, Edward Elgar Publishing, Cheltenham, UK
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