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Ethics & Corporate Social Responsibility

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Question:

Discuss About the Ethics and Corporate Social Responsibility?

 

Answer:

Introducation:

Corporate Social Responsibility (CSR) is understood as a business approach which contributes to sustainable development through delivering environmental, social, as well as economic benefits for every stakeholder. CSR fosters a vision of business accountability to many stakeholders above and beyond investors and shareholders (Keinert 2012, p. 13). While there are a number of arguments in favour of companies participating in CSR initiatives, there are also several arguments against it. This paper provides arguments against and for Corporate Social Responsibility. Real life examples are provided to support the arguments made.

Arguments in Favour of CSR

 

Improved company image and reputation

Adopting a CSR policy, paired with real action, could actually improve or build the company’s reputation. If a certain behaviour or operation of an organization creates a negative backlash which results in lost profitability, for instance over issues pertaining to the environment, CSR becomes a method that the company can use in repairing the reputation damage and restoring profitability (Fiore 2017, p. 43). In other instances, embracing a CSR policy works as part of an organization’s essential brand, and customers have the tendency of demonstrating more loyalty to businesses which can show that they are committed to environmental concerns (Griseri & Seppala 2010, p. 26).

An example of a company that has been able to improve its image and reputation through its CSR policy is the oil and gas company BP. In the year 2010, the company’s Deepwater Horizon rig situated within the Gulf of Mexico region in the United States exploded. The environmental impact was catastrophic. Not only were the marine animals affected, but the residents of the Gulf of Mexico were affected also as beaches were closed and fishing was called off. The company’s image was greatly tarnished. However, in the following year 2011, this oil and gas company invested a considerable amount of effort, money and time in CSR initiatives.

In 2011, BP spent $103.7 million on community programs, including disaster relief (BP 2016). The firm works with local community groups in delivering programs which are catered to the needs and interests of local communities. The projects include community infrastructure projects which help people in poor nations to access healthcare, drinking water and other basic resources. There are also education programs (BP 2016). Moreover, staff members of BP volunteered their time and raised money that benefited charities in many part of the world. Employees of BP in 2011 donated nearly $8 million to charities, whilst BP Foundation gave nearly $9.8 million. In 2015, through its BP Foundation, BP donated $125,000 to provide shelter, health services as well as food to people who had been affected by floods in Texas (BP 2016). These CSR ventures greatly helped to improve BP’s image and reputation following the oil spill disaster.

Walmart has also used corporate social responsibility to improve its image in the community. Walmart is committed to helping people in the communities in which it operates live a better life through its CSR ventures in 3 major areas: Children’s Food Safety & Nutrition, Women’s Economic Empowerment, and Sustainability & Community. Walmart has also donated in-kind support and cash worth more than $20 million to welfare organizations and local charities in different parts of the world (Chernev & Blair 2015, p. 1425).

Better customer relations

A major hallmark of CSR is staying involved in the communities in which the company carries out its operations. Such community involvement, as Chernev and Blair (2015, p. 1413) pointed out, is of great importance in creating trust between the company and the customers. If an organization builds trust with its customers, those customers are inclined to give that company the benefit of the doubt in the event that something goes badly, instead of supposing raw negligence or malicious intent (Griseri & Seppala 2010, p. 34). In addition, clients have the tendency of sticking with business organizations which they trust instead of trying to find new firms, which helps in keeping an organization profitable over the long run (Skilton & Purdy 2017, p. 99). Researchers have reported that nearly 80% of consumers think that business organizations have to be socially responsible. Customers in general are attracted to businesses which actually have a repute of being a corporate citizen (Chernev & Blair 2015, p. 1414). It is of note that customers are willing to pay a 10% higher price for product items from companies which they consider as being socially responsible (Chernev & Blair 2015, p. 1415).

 

Cost savings

One way of engaging in CSR activities is through decreasing the company’s resource usage, emissions, as well as waste and in so doing helping the environment. Using energy-efficient equipment could help the company save money (Griseri & Seppala 2010, p. 35). This is because the company owners can reduce their utility bills and attain cost savings for the business (Keinert 2012, p. 14). An example of a company that uses CSR to save costs is Lawson. Lawson Inc., is a Japanese convenience store franchise chain. In order to save energy use across its stores throughout Japan, the company is introducing energy-saving air-conditioning and refrigeration equipment in addition to LED lighting in each of its store facilities (Lawson 2016). By the year 2020, Lawson seeks to attain a 20% decrease in consumption of electricity per store in comparison to the financial year 2010, which would result in considerable cost savings (Lawson 2016). This Tokyo-based firm is working to decrease its energy utilization at its stores for the purpose of reducing their environmental impact, and in doing save energy costs (Lawson 2016).

Help solve problems in the society

The other reason for business organizations to be socially responsible is that they have many resources that are required to solve problems in the society and they have to utilize them to do so. For example, they can give in-kind gifts, financial donations, or participate in employee volunteerism (Griseri & Seppala 2010, p. 48). According to Fiore (2017, p. 55), CSR activities can greatly help in solving a number of problems within the society for instance crimes, pollution, poverty, health, poor management of waste, inequality, obesity, and even environmental hazards.

There are many businesses that help in solving societal problems in different parts of the globe through their CSR policies, for example Foo Kon Tan, a Singaporean company. One of the corporate social responsibility initiatives of this company entails providing foodstuffs to the needy people within the community in which the company operates (Foo Kon Tan 2017). The firm also donates blankets and clothes to help the needy. The New York-based multinational pharmaceutical corporation Bristol-Myers Squibb every year donates medicines to people in Africa, Middle East, South America and Asia. The firm donated medications worth more than $66 million in the year 2013 (Bristol-Myers Squibb 2016). This allows Bristol-Myers Squibb to promote health equity. It also allows the company to improve the health outcomes of populations in different parts of the globe that are disproportionately affected by serious conditions and illnesses (Bristol-Myers Squibb 2016).

Another big company that makes donations to charitable organizations that help solve problems in the society is Qantas Airways. Every year, the company puts aside airline pillows, duvets and blankets after their flying days are over. Qantas then donates these used duvets, pillows and blankets to human services charity organizations and to persons in need throughout Australia (Daoud 2016).

CSR helps a company to attract and retain talented people

Being a sustainable and socially responsible company might make recruiting new talented staffs and/or retaining the existing ones easier for the business. Skilton and Purdy (2017, p. 102) pointed out that staff members might be motivated to continue working for such a company for a longer period of time. This is very important and beneficial to the company as it reduces the disruption and costs associated with recruiting new employees and retraining workers. All in all, engaging or participating in CSR activities supports the company being an employer of choice, which basically translates into the capacity of the firm to draw and retain employees of high calibre (Griseri & Seppala 2010, p. 49). Researchers have reported that a robust CSR framework could help a business organization to become more attractive to prospective future staffs who want to work in companies with sound ethics, community mindedness, and responsible practices (Chernev and Blair 2015, p. 1417).

Arguments against CSR activities

Costs

One of the main arguments against embracing a CSR policy is cost. Keinert (2012, p. 29) reported that CSR initiatives aimed at reducing the company’s impact on the environment in most cases call for costly changes in equipment or ongoing expenses without any precise way of recouping those losses. For example, assume that a company wants to incorporate CSR principles into its business operations in order to reduce its adverse environmental impacts. The company may need to make significant investments in newer, more energy-efficient equipment which are generally expensive (Sims 2011, p. 122). SP Group is a Danish plastics manufacturing company that operates globally. It has its headquarters in Denmark. As part of CSR ventures, this multinational firm invested a substantial amount of money totalling over $5 million in energy-saving equipment for its plastic manufacturing factories in Denmark, Sweden, Germany and other parts of Europe. SP Group sought to decrease its consumption of energy and decrease the waste percentage, and its factories were focused on these efforts (SP Group 2014). Also, the decision to procure from local producers or maintain domestic manufacturing facilities instead of outsourcing or moving production to low-cost Asian countries could drive up expenses for an organization. In addition, there is no clear proof which shows that sticking to a CSR policy brings about a considerable increase in revenues or profits (Fiore 2017, p. 46).

 

Less money going to employees and shareholders

Another major argument against CSR activities is that less money could be going to the company’s staff members and/or the shareholders. This is mainly because a proportion of the company’s profit is directed toward charitable activities. Fiore (2017, p. 47) reported that even though some firms, General Electric and Toyota for example, have profited from CSR activities, businesses which engage in CSR activities in most cases prove as likely to lose their money since there are very few records showing that CSR activities help to increase profits (Sims 2011, p. 123). For this reason, investors and shareholders might oppose any attempts by the company’s top managers to move the firm toward that direction (Skilton & Purdy 2017, p. 118).

Prices of company products/services go up

When a company engages in various CSR activities such as donating time or cash to charitable organizations, ensuring safety of products, cleaning up the environment, or investing in energy efficient equipment that reduce the company’s environmental impact, its costs would increase. Eventually, the company will pass this cost to the end-users by increasing the prices of services and/or products (Chernev & Blair 2015, p.1419). Even though some consumers might be prepared to pay additional costs for a service/good from a socially responsible firm, other customers may not be willing to do so. This could consequently put the firm at an economic disadvantage (Sims 2011, p. 125).

Responsibility of executives is to maximize profits

The other argument against CSR activities is that managers are not empowered to spend on social welfare. Business organizations are meant to create/provide services or products and not handle welfare activities. Companies in essence lack the knowledge or expertise needed to handle social problems in the society. In addition, if the manager concentrates on social responsibilities, he or she fails to perform his/her primary duty for the business organization at full capacity (Fiore 2017, p. 41). The top executives of a company have a fiduciary duty to the company’s shareholders, and a corporate social responsibility policy opposes this fiduciary duty (Sims 2011, p. 126). In essence, the management’s responsibility to the company’s shareholders is to maximize profits. Managers who forsake profit in favour of some benefits to the community might lose their job and replaced by managers who consider profit a major priority (Keinert 2012, p. 110)

 

Conclusion

In conclusion, there are a number of benefits and drawbacks associated with embracing a CSR policy for a company. The main benefits is that they improve the company’s image and reputation, help the firm in attracting and retaining staffs members of high calibre, and help in solving problems in the society. Even so, the main drawbacks include the fact that CSR activities result in less money going to staffs and/or the shareholders, it could be costly, managers have a fiduciary responsibility to shareholders to maximize profits, and prices of the company’s products may go up to as the company seeks to recoup the money spent on CSR activities.

 

References

BP 2016, BP Foundation. Retrieved from https://www.bp.com/en_us/bp-us/community/bp-foundation.html

Bristol-Myers Squibb 2016, Drug donations and philanthropic efforts. Retrieved from https://www.bms.com/about-us/responsibility/access-to-medicines-in-the-developing-world/drug-donations-and-philanthropic-efforts.html

Chernev, A, & Blair, S 2015, 'Doing Well by Doing Good: The Benevolent Halo of Corporate Social Responsibility', Journal Of Consumer Research, 41, 6, pp. 1412-1425, Business Source Complete, EBSCOhost, viewed 20 May 2017.

Daoud, E 2016, First class friends: Qantas donates blankets and doonas to RSPCA. Retrieved from https://www.news.com.au/travel/travel-ideas/best-of-travel/first-class-friends-qantas-donates-blankets-and-doonas-to-rspca/news-story/6a783cfe28298420c49c7a2a7cd7e563

Fiore, R 2017, 'Corporate social responsibility as a corporate strategy, do investors benefit?', Proceedings For The Northeast Region Decision Sciences Institute (NEDSI), pp. 43-55, Business Source Complete, EBSCOhost, viewed 20 May 2017.

Foo Kon Tan, 2016, CSR. Retrieved from https://www.fookontan.com/corporate-social-responsibility

Griseri, P., & Seppala, N 2010, Business ethics and corporate social responsibility. Sydney, Australia: Cengage Learning.

Keinert, C 2012, Corporate Social Responsibility As An International Strategy, Heidelberg: Physica, eBook Collection (EBSCOhost), EBSCOhost, viewed 20 May 2017.

Lawson 2016, Corporate social responsibility: Energy saving. Retrieved from https://lawson.jp/en/csr/energy_saving/stores/

Sims, RR 2011, Ethics and corporate social responsibility: Why giants fall. Westport, Conn: Praeger Publishers.

Skilton, P, & Purdy, J 2017, 'Authenticity, Power, and Pluralism: A Framework for Understanding Stakeholder Evaluations of Corporate Social Responsibility Activities', Business Ethics Quarterly, 27, 1, pp. 99-123, Business Source Complete, EBSCOhost, viewed 20 May 2017.

SP Group, Corporate social responsibility. Retrieved from https://sp-group.com/investor-relations/corporate-social-responsibility/
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