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Costs Of Corporate Social Responsibility

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Question:

Discuss about the Costs of Corporate Social Responsibility.
 
 

Answer:

Introduction

Ethics are the basic values and morals on the basis of which an entity functions. Ethics are what govern the actions of an individual and the same is also true for the organizations. The role of ethics is enhanced in businesses as the adherence of ethics results in additional advantage for a company (Smith, 2008). An ethical company is more likely to be successful in comparison to an unethical company, which would be constantly faced with issues from different stakeholders, particularly government, customers and employees. As a result of this, the work of the organizations is conducted by following the leading ethical theories, to the line of utilitarianism, virtue ethics, and deontology (Chonko, 2012).

Governance is another crucial component which has to be kept into consideration when the business of an entity is undertaken. Governance, in its literal terms, refers to the process whereby decisions are made on the basis of expectations, management and proper systems (Grindle, 2014). A concept stemmed from governance is corporate governance which relates to the processes, rules and practices which are used for directing and controlling the company. So, in essence, corporate governance is the manner of governing the corporation in terms of the impact of its actions over the different stakeholders (Fukuyama, 2013).

In the following parts, an attempt has been made to cover these concepts in reference to the practices being followed by Puma. In doing so, the organizational culture of Puma would be discussed particularly in context of its objectives related to ethics and governance. The discussion would then move on to the social responsible activities of the company, followed by the ethical perspective of the company. Before concluding the assignment, the justification would be given on the focus of the company on its triple bottom line.

Organisational culture refers to the behaviours and the values, which make a contribution towards the unique social and psychological environment of any company or business entity. It is based on the expectations, values, philosophies and experiences of the organization, which it upholds and is usually express in terms of interactions with outside world, expression of self-image, internal working and future expectations (Huhtala, Feldt, Hyvönen and Mauno, 2013). Needle (2004) has highlighted that organizational culture shows the collective beliefs, principles and values of the members of the organizational and is a product of factors including the history of the organization, its people, market, product, type, technology, management style, kind of employees, strategy and the like. Rosauer (2013) stated that it was an emergence, which was a complex and an incalculable state, which results from mixing a handful of simple ingredients. In view of Ravasi and Schultz (2006), it was a set of shared assumptions which act as a guidance to what takes place in a company through defining proper behaviour for different situations.  

The organizational culture at Puma is such which promotes creativity, as well as, new ideas which help Puma being placed before the other brands. The company focuses on personal commitment, passion and responsibility. In the culture of the company, diversity, individuality and internationality are deemed as key components and this helps the company in producing unique teams which help it in making certain that the company is successful and is aligned with the tag line of the company, i.e., forever fast (Puma, 2017a). In doing so, the company recruits and promotes talent from across the globe. The company also emphasis on the local knowledge towards the success of the company and so, it works on empowering the people for allowing them to make the decisions. The company has a developed structure which allows the local managers in getting real time responsibility and also in making certain that the company provides tailored results based on the demand of the market. And in doing so, the standards have to be maintained in addition to the management of risks across the group (Puma Energy, 2017a).

 

The corporate governance at Puma as an entire group is deemed as a major corporate policy. In terms of the theme of this discussion, the objectives of the company for its governance aspects resolve around three points. First, the company aims to support performance driven business across the globe where the focus is on growth. Second, the company looks forward at maximising the operational flexibility for promoting an approach which is light touched based for central management for empowering the individuals at local levels. And lastly, company aims to work towards promoting accountability and transparency in every aspect of the operations of the company (Puma Energy, 2017b).

The company recognizes that it has to follow different standards and regulations cross the globe. And irrespective of these regulatory compliances, the company deems it crucial for upholding ethical standards and operate as per the applicable laws. Hence, for the company, compliance is a crucial factor which translates into the success of the company. There are simple objectives with regards to the ethical conduct. And these are summarized in the Code of Ethics drawn by the company. The goal is for the employees, suppliers and customers, on which the basic framework of this code is applicable, are expected to read these codes and act on them properly and included in these are areas like conflicts of interests and anti-corruption. This is because the company recognizes that attaining its goals is only possible when everyone plays the game by rules (Puma, 2014).

Corporate Social Responsibility 

Social responsible activities of a company can be best located in the corporate social responsibility related activities undertaken by the companies. Corporate Social Responsibility, or CSR, refers to the duty of the companies with regards to the impact of their actions and decisions on the different stakeholders of the company (Dima, 2016). Crowther (2008) describes it as a curial management strategy, where the social, economic and environmental benefits for all the stakeholders are combined. Zhao (2014) highlighted that owing to the increase in the interest and awareness surrounding CSR the companies are putting efforts and enhanced focus on CSR related activities.

Crane (2008) believes that CSR is going beyond the obligations of the company and mitigating the consequences of the actions of the business on the environment and the society, while at the same time, earning profits for the company. As per Sprinkle and Maines (2010), it focuses on making the environment and the society better by the company, and given emphasis to sustainability.  Mallin (2009) highlighted the benefits of adopting CSR activities, in terms of getting enhanced goodwill, which attracts stakeholders towards the company. This includes attracting and retaining talent, particularly when the company is focused on ensuring the safety and health of the workers as a priority, amongst the other things (Gomez and Crowther, 2012). 

The efforts employed by Puma have resulted in rewards for the company, where Puma Energy, which is one of the companies of Puma group, won 2014 Award for Corporate Social Responsibility. The company got this award from Communitas as it was nominated for reducing fatalities in developing nations. This submission was based on the efforts of the company in its Global Road Safety Campaign (Puma Energy, 2014). The company follows German Corporate Governance Code and adjusts its objectives based on the composition of the Administrative Board which addresses the present developments in this code. This code covers the mandatory statutory requirements, recommendations and regulations for supervising and managing the listed companies for responsible corporate governance. The sustainability function of the company was integrated in the Group Sourcing of Puma in 2016 for making certain that the environmental and social issues, along with the standards of corporate governance were properly integrated into the daily activities of the company (Puma, 2016a).

The company’s corporate policy effectively implements corporate governance principles. In this regard, responsibility and transparency are deemed as prerequisites for attaining the targets of the company and for increasing the value if the company in context of sustainability (Puma, 2017c). As a measure of CSR, the company is focused on reducing its CO2 emissions and working towards reducing its waste. The Administrative Board and the Managing Directors of Puma work in a manner that the interests of the company are aligned with CSR, where the company is monitored and managed in an effective manner for making certain that sustainability results in value addition for the company. So from discharging duties of the board to use of powers, everything is properly recorded and done as per the standards of corporate governance (Puma, 2016a).

 


The company has taken numerous steps towards the environment, where it has worked towards improving energy and water efficiency, waste management, climate change, zero discharge of hazardous chemicals and chemicals management. A leading step in this regard by the company is setting up solar modules in the front window of the Puma store located in Herzongenaurach as a step towards using renewable energy (Puma, 2017e).

The company relies on quantitative metrics to capture the performance of the company in terms of its CSR performance (Anderson, 2011). And in this lies the shortfalls of Puma. The company is so focused on numbers that it does not focus on the social aspects in its theme. The above mentioned activities of the company do show the work which the company carries on towards the issues of sustainability, CSR, corporate governance, where each of these have components of benefits to society and environment, it does not take any specific steps in improving the life of such individuals who do not form a part of the stakeholders of the company. The biggest group in this regard are the people belonging to poor background. Instead of working towards improving their lives, the company has face wrath owing to the incidents of poor work conditions (China Labor Watch, 2008). To make the matters worse, the company has also been accused of child labour which shows the utter disregard towards the human component of society (Fischer, 2016).

Ethical Perspective

When it comes to the ethical perspective for Puma, the company adopts Code of Ethics, which has to be followed across the organization irrespective of the nation in which it operates. The Code of Ethics, which were introduced back in 2005 have to be properly followed, which shows the commitment of the company to ethics and towards responsible corporate and ethical behaviour, which has to be complied by all the employees, business partners and affiliated brands of the company. In case any employee comes across a situation or has a doubt regarding the breach of the ethical standards of the company, they are required to raise their voice on a toll free hotline for whistleblowers, which works globally (Puma 2017f).

The Code of Ethics, as stated earlier, is the basic framework which regulates the behaviour of the suppliers, employees and customers of the company. This code sets out basic principles of the company in key areas and basically works towards raising awareness. A key part of the code of ethics of Puma is on issue of antitrust where the company focuses on making contributions towards fair competition and avoiding any such behaviour where the antitrust laws are breached. Puma has a strict policy about accepting gifts and hospitality, and also about accepting the same. The code of ethics also covers the topics like insider information, data protection and data confidentiality, a proper code of conduct speaking about regarding contraventions and about seeking assistance in cases of possible violation of ethical code of the company (Puma, 2014).

Despite such high ethical standards, the company has been accused of being unethical and in indulging in unethical conduct. Child labour is something which is deemed as a major unethical issue and should not take place anywhere in the world. Yet, Puma has been associated with child labour allegations. This is in addition to the workers being made to work in bad conditions. Some workers have stated about being provided bad working environment at Puma. Apart from this, the Clever Little Bag, which was launched by the company a few years back, was overshadowed by violations of human rights (Marati, 2012). In January 2011, the El Salvador producer of Puma came under fire when the working conditions included 60 plus hour shifts (The Local, 2011).

 


In April 2011, at Huey Chuen factory in Phnom Penh, 101 Cambodian garment workers were reported to have been unconsciousness owing to prolonged working hours, in addition to poor health and safety. Just a few months before that in Phnom Penh, a woman was shot during the labour protests, for asking for higher pay and better working conditions (Reuters, 2012). During March 2012, an independent study revealed the poor working conditions in Bangladeshi factors where apparels for Puma were being produced (Kaur, 2016). Had there been isolated incidents, these could have been ignored. But the repetition of such incidents puts a question mark over the real ethics being followed by Puma. 

The actions undertaken by Puma flout the different ethical theories. Utilitarianism denotes that such actions are correct, which result in maximization of utility of an action. So, an act is ethical when it makes the majority happy (Albee, 2014). However, the poor working conditions making the workers unhappy is an unethical task, as it also results in a breach of human rights, which makes the human right activists unhappy. The virtue ethics require the companies to work in a manner which shows different virtues like that of justice, honesty and integrity. So, when the actions are such where virtues are shown, they would be ethical (Hooft, 2014). The acts of Puma highlighted above have no aspect of virtue. In addition to this, they are just opposite to virtues which are required for an act to be ethical. Coming to another ethical theory which is deontological theory, organizations are required to fulfil their obligations and duties when making decisions (Ferrell and Fraedrich, 2015). Puma here failed to fulfil its human rights obligations, in addition to those associated with work, health and safety, making it an unethical company. A Kantian view would require the companies to treat people as an end, instead of being means to an end (Beiser, 2014). Puma did not follow the Kantian view as it treated the labour force as simply means to an end.

Emphasis on Triple Bottom Line

Triple bottom line is a concept which is born from the theory of CSR and was given in 1994 by John Elkington. It is based on the focus of the organizations on three aspects, i.e., people, planet and profit, in terms of social, environmental and financial obligations of a company (Savitz, 2013). This concept denotes that the companies have to carry work with the objective of earning profits, working towards the environment and betterment of the people. Through this concept, the focus is laid on the financial bottom line of the company, where the environmental and social responsibilities are included. Hence, the triple bottom line helps in measuring the degree of a company towards its environmental impact, economic value and social responsibility (Henriques and Richardson, 2013).

The previous parts have highlighted that Puma, as an organization, has been focused on working towards its triple bottom line. In this regard, the company takes different environmental initiatives, has worked towards people by being an ethical company, and at the same time continues to work on it being a profit making entity. However, there have been instances where the company had the face the wrath of different stakeholders owing to its unethical conduct in context of its labour force. This is one of the reasons why Puma emphasizes upon working towards triple bottom line.

By adhering to triple bottom line, the company would work towards improving its image before the different stakeholders, by showing itself as a compliant company. Triple bottom line model helps in sharing the agenda of CSR (McWilliams and Parhankangas, 2016). And by engaging in activities under triple bottom line, Puma is working in line of damage control. However, the sole purpose of the company is not towards improving its image. The company does genuinely work towards CSR related activities and this can be proved from the award which its group company got back in 2014 for its CSR activities. It also helps the company in reducing legal risks and risks to its brand reputation, in addition to increasing efficiency and goodwill (Beute, 2017).

 

Conclusion

The discussion covered in the previous segments highlighted the governance and ethical aspects of Puma. The organizational culture as its very basics, in addition to the one followed by Puma was discussed at the very beginning of this discussion. This was followed by critical analysis of the CSR and ethical activities of Puma. This analysis revealed that even though the company has taken a lot of steps towards these issues, it has faced problems in the past due to its unethical labour issues in China and Bangladesh. This has resulted in the company’s image being affected and creating uncertainties for the stakeholders of the company. However, to overcome these issues, the company has initiated its emphasis on triple bottom line, which not only allows the company to work for society and towards the planet, but also towards the profits of the company.

On the basis of this, certain recommendations can be drawn for Puma, for its future, in context of its governance and ethical perspectives. The company needs to ensure that the incidents which took place in Bangladesh and China, regarding the poor working conditions and the child labour involvement are not repeated. Also, the company should, as a recuperating measure, should work on education and rehabilitation of the workers affected in the incidents which took place. This would serve dual purpose where not only damage control would be done, but also the company would be working towards improving the society. In addition to this, the company needs to re-evaluate its current processes across the globe to check if such instances are occurring in other associated entities of the company. Even though this is a tough task to do, but it would ensure that the company is truly ethical and also makes its associated companies in being ethical.

 

References

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