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CSR Strengthens Corporate Reputation And Performance

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Question:

Discuss about the CSR Strengthens Corporate Reputation and Performance.

 

Answer:

Corporate Social Responsibility makes corporate reputation stronger and helps companies to cater to more customers earning higher revenue. It refers to the responsibility of the corporate sector to act in compliance with law, ethics and sustainability. Salib et al., (2015) describes CSR as when the profit earning organisations transcend their profit making motives and act in ways to benefit the wellbeing of the entire society. The concept was conceived in the United States of America when the American companies adopted CSR on their own to acquire a positive social image and customer loyalty. Today CSR is no longer limited to the voluntary choice of the management and has grown in status. CSR is the outcome of the deterministic external business environment with the agency theory based strategies of the managements of the companies. For example, the Companies Act in India makes CSR mandatory for at least the PSUs and seeks to extend it to the private sector as well (Dhingra, Sarin & Gill, 2015). The companies today view CSR as means to attract customer loyalty and retention and have made it an indispensible part of the business strategies. Their commitments to act towards the betterment of the society constitute the very missions and vision. CSR is a rich body of knowledge having contribution of several theories and literary sources.

 

Corporate Social Responsibility or CSR is a rich area of knowledge with enriched by several management theories. The richness CSR lies in the fact it embraces the entire society including the companies, stakeholders and management. Thus, CSR theories draw their strengths from stakeholder theory, organisation theory and management theories. There are two primary stages of CSR which have their own sets of theories. Traditional CSR theorists viewed it as  a method of give back to the stakeholders. The brand image and public perception formed drivers of the organisational CSR which was merely donated to charities as  token of social belongingness.  The organisations merely distributed value  and did not take any proactive role in social development on their own. The contemporary CSR has gone steps ahead where corporate are profit generating and distribution centres for the whole society. They proactively take part in charities and collaborate with organisations like the United Nations in their social development initiatives. Today, they actively take part in social development, water conservation and other environment development activities and are no longer mere donors. Contemporary CSR is very much a strategic business planning area which enjoys attention from the apex managers and incorporate components of external environment like law and consumer benefit. The CSR of the multinational companies appear on the official websites and even on the product packages. This help these companies to create higher image in the consumers’ minds which goes a long way in ensuring high revenue and performance of the companies(Ali, Frynas & Mahmood,  2017).

The organisations have recognised that they should work towards betterment of the groups who provide them with resources and impact their operation. These groups in a way known as stakeholders and their importance to the companies form the next CSR theory called the stakeholder theory. The stakeholders can be of various types depending on their functions and all of them play important role in ensuring high performances of the companies. The consumers who directly consume the products are the primary stakeholder whereas the government and the legal machinery are the key stakeholders. The management, shareholders and the employees are the internal stakeholders while the others are external stakeholders. Irrespective of their category all the stakeholders are parts of the society and the companies should act towards their benefit. Thus, stakeholders form parts of CSR and lack of benefit for one can attract action from the other affecting the companies. Researchers try to find how companies create value for the stakeholders (Bridoux & Stoelhorst, 2014). The companies produce high quality goods and services to the customers at affordable prices which benefits them. The companies like Unilever manufacture high quality consumer goods which satisfies the need of the consumers. The company serves a global consumer base which generates huge revenue which leads to capital maximisation for the shareholders. The high market position of Unilever and the products with high brand value acts as securities for the investors which generates huge investment. Thus benefitting consumers attracts high revenue and market position. This in turn attracts investments and earns the company an enviable position in the stock market. Hence, following CSR and stakeholders theory helps a company perform both in the product market and stock market.

 


A very important theory that is closely linked with CSR and corporate performance is sustainability theory. The companies use resources like financial and human resources from the society. They sell their products to the consumers who are parts of the society and earn revenue. Their operations like production processes in factories use non renewable fuel like coal which causes pollution and harms the health of the people. This requires the companies to operate in sustainable ways to reduce pollution owing their operations and contribute towards social wellbeing. The sustainability theory as a part of the CSR has two broad divisions, the strong sustainability model and the weak sustainability model. The strong sustainability model lays more importance to ecological goods like preservation of species to ensure sustenance of ecosystems. The weak approach has a more general approach like it may measure the value of the forests against the value of developments activities in future. The stronger approach would have more specifically stressed on conservation of the forests (Jenkins, 2017).

The  researches on corporate social responsibility  and relevant concepts like stakeholders show that they play significant role in ensuring high corporate performances. The companies today consider themselves to be members of the society and take their social impact very seriously. They source their raw materials and machines from sustainable sources to ensure that their products are also more environment friendly.  The multinational companies like Nestle aim towards increasing their sales of organic products (nestleusa.com, 2017).  Organic products cause less pollution and it finds ready acceptance in the market. In fact, the consumers agree buying organic products in spite of their higher prices compared to their inorganic counterparts. These organic products reward the farmers and cultivators with more revenue from sale. The farmers can practice more sustainable methods of farming like soil conservation and cleaner water harvest. The suppliers as a result are able to provide the companies with superior organic products. The customers prefer organic products because they contribute towards social betterment. This helps the companies to earn more revenue and perform better. Thus, corporate social responsibility and sustainable operations promotes high competitive advantages of the companies. They also contribute towards healthier relationship between the companies and their customers (Govindan et al., 2016).

 


CSR is so crucial to the performance and reputation of companies that they form special committees dedicated to the area. The companies as a part of their CSR promotes social wellbeing which allows them to explore their innovative powers. Samsung, the Korean conglomerate is a global company present in diverse sectors like telecommunication and civil engineering. The company has set up Samsung Technical Program which provides vocational training courses for the youth (samsung.com, 2017). Such vocational training courses are innovative ways to provide education followed by employment. The multinational companies through their CSR encourage entrepreneurial ventures and generate employment opportunities. Research shows that entrepreneurship is integral to economic development and comnatting unemployment. Thus, the companies through their CSR encourage development of emerging markets by contributing towards entrepreneurial growth. This earns them high market position which generates revenue. Thus CSR is integral towards positive image building and high revenue generation (Naudé, 2013).

The management theory of contingency states that companies have to take appropriate decisions to deal with  contingent situation to minimise the loss. The companies today face continuous challenge from the external environment which requires them to take contingent measures. The United States Environmental Protection Agency fined $ 18 billion to Volkswagen in the United States for violating pollution norms (timesofindia.indiatimes.com, 2017). It is evident that such a huge amount of fines affects the finance of the company. This calls for taking of contingent measure to diversify the loss over the huge international market in which the company operates. A look at the CSR of the company shows that it is involved in several social development projects like partnership in education and donation to American Red Cross (volkswagenag.com, 2017). These CSR initiatives help the company to create positive image among the buyers. It allows the company to sell its automobile products and services to its customers all over the world. The global business allows Volkswagen to generate huge revenue to diversify its losses. Thus, CSR and strong market image is integral to taking contingency steps to diversify business losses.

The scientific management theory of Taylor stresses on scientific management of resources to lead to efficient production. The theory emphasis on management of resources and personel towards efficient operation. It is a well known that the companies have to spend a lot of money to manage their wastes and biproducts. An enormous amount of waste and scrap indicate the inability of the company to utilise its full material resources and the amount of money spent to acquire it. The pollution from the waste and the fines borne thereby has bearing on the funds of the company. The factories are often subjected to protests from the local people and even government due to the pollution they create. All these activities disrupts the smooth production, causes business loss and erodes the reputation of the company. The companies like Pepsi, Renault and Unilever are often subject to these problems which render fatal blow to their goodwill. The companies can bring about innovation and manage their operations more scientifically to reduce their wastes. They management can use the saved amount towards other important operations like production and increasing the employee salary. This results in reduction of pollution and benefits the society, especially the people living around the sites. The increase in salary motivate the employees to better their performance. The governments and other bodies award the companies which elevates the goodwill and the market value of the company besides promotion the innovative power. The company is able to gain concessions and permits from governments both in its home countries and abroad. All these factors help the company to manage its production, human resources, supply chain, material resources and all round operations in more scientific ways. The increase in responsible attitutude towards the environment promotes goodwill which attracts both investors and customers. The company is able to amass huge wealth which helps it in strengthening its market position. Such a company enjoys the trust and support of the stakeholders like customers, shareholders, governments and financial institutes. Thus, CSR helps a company to gain high market position and goodwill.

CSR has become integral to goodwill and image building. The multinational companies give a huge importance to CSR to promote their social identity. These companies actively collaborate with government in activities like vocational training and health checkups to advertise their concern for the society. They promote to the development of suppliers like farmers by buying raw materials from them in return of right prices. They through their activities promote development of the entire society which in turn consumes their products. This interaction between the society and the corporate bodies forms the basis of flow of wealth in the world. Thus CSR helps the companies to build strong image and market position which allows them to help the economic development by maximising wealth.

 


A quick reading of the composition shows that CSR is integral to high market position and goodwill creation. The term in smaller sense may look like mere corporate involvement in charity. A closer look and  deeper shows that the concept embraces several other theories like management theories and stakeholder theory. CSR along with sustainability can help the companies to contribute towards development of the whole society and maximise its capital. It is this CSR which helps companies to operate on global scale, generate huge revenue and enjoy high market position. 

 

References:

Ali, W., Frynas, J. G., & Mahmood, Z. (2017). Determinants of Corporate Social Responsibility (CSR) Disclosure in Developed and Developing Countries: A Literature Review. Corporate Social Responsibility and Environmental Management.

Bridoux, F., & Stoelhorst, J. W. (2014). Microfoundations for stakeholder theory: Managing stakeholders with heterogeneous motives. Strategic Management Journal, 35(1), 107-125.

Dhingra, N., Sarin, A., & Gill, B. S. (2015). Dynamics Of Corporate Social Responsibility In India: An Analysis In The Backdrop Of The New Companies Act. International Journal of Research in Management & Social Science, 3(1), 15.

Govindan, K., Seuring, S., Zhu, Q., & Azevedo, S. G. (2016). Accelerating the transition towards sustainability dynamics into supply chain relationship management and governance structures. Journal of Cleaner Production, 112, 1813-1823.

Jenkins, W. (2017). Sustainability Theory (1st ed.). Yale Divinity School. Retrieved from https://www.berkshirepublishing.com/assets_news/sustainability/Spirit_SustainabilityTheory.pdf

Management Approach | Volkswagen Sustainability Report 2014. (2017). Sustainabilityreport2014.volkswagenag.com. Retrieved 11 May 2017, from https://sustainabilityreport2014.volkswagenag.com/people/management-approach#/country/67/87

Naudé, W. (2013). Entrepreneurship and economic development: Theory, evidence and policy. Browser Download This Paper.

Nestlé Nine-month Sales. (2017). https://www.nestleusa.com. Retrieved 11 May 2017, from https://www.nestleusa.com/media/pressreleases/nestl%C3%A9-nine-month-sales

Salib, J., Sun, D., Wu, J., Wen, X., & Huang, C. C. (2015). Corporate Social Responsibility.

Samsung Electronics in India | Samsung Electronics | About Samsung. (2017). Samsung in. Retrieved 11 May 2017, from https://www.samsung.com/in/aboutsamsung/samsungelectronics/india/csr-policy/

Volkswagen faces $18 billion in fines for pollution in US - Times of India. (2017). The Times of India. Retrieved 11 May 2017, from https://timesofindia.indiatimes.com/business/international-business/Volkswagen-faces-18-billion-in-fines-for-pollution-in-US/articleshow/49026339.cms 

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