Corporate Social Responsibility

          Corporate Social Responsibility¹ (CSR, also called corporate conscience, corporate citizenship or sustainable responsibility business/Responsibility Business) is a form of corporate self-regulation integrated into a business model. CSR policy functions as a self-regulatory mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards and international norms.With some models, a firm's implementation of CSR goes beyond compliance and engages in "actions that appear to further some social good, beyond the interests of the firm and that which is required by law. CSR aims to embrance responsibility for corporate actions and to encourage a positive impact on the environment and stakeholders including consumers, employees, investors, communities, and others.

          The term "corporate social responsibility" became popular in the 1960s and has remained a term used indiscriminately by many to cover legal and moral responsibility more narrowly constructed.

          Proponents argue that corporations increase long term profits by operating with a CSR perspective, while critics argue that CSR distracts from business' economic role. A 2000 study compared existing econometric studies of the relationship between social and financial performance, concluding that the contradictory results of previous studies reporting positive, negative, and neutral financial impact, were due to flawed empirical analysis and claimed when the study is properly specified, CSR has a neutral impact on financial outcomes.

          Critics questioned the "lofty" and "sometimes "unrealistic expectations" in CSR. or that CSR is merely window-dressing, or an attempt to pre-empt the role of governments as a watchdog over powerful multinational corporations.

          Political sociologists became interested in CSR in the context of theories of globalization, neoliberalism and late capitalism. Some sociologists viewed CSR as a form of capitalist legitimacy and in particular point out that what began as a social movement against uninhibited corporate power was transformed by corporations into a 'business model' and a 'risk management' device, often with questionable results.

          CSR is titled to aid an organization's mission as well as a guide to what the company stands for to its consumers. Business ethics is the part of applied ethics that examines ethical principles and moral or ethical problems that can arise in a business environment. ISO 26000 is the recognized international standard for CSR. Public sector organizations (the United Nations for example) adhere to the triple bottom line (TBL). It is widely accepted that CSR adheres to similar principles, but with no formal act of legislation.

          The notion is now extended beyond purely commercial corporations, e.g. to universities.


Definition
          Business dictionary defines CSR as "A company's sense of responsibility towards the community and environment (both ecological and social) in which it operates. Companies express this citizenship (1) through their waste and pollution reduction processes, (2) by contributing educational and social programs and (3) by earning adequate returns on the employed resources.

          A broader definition expands from a focus on stakeholders to include philanthropy and volunteering.


Consumer perspectives
          Most consumers agree that while achieving business targets, companies should do CSR at the same. Most consumers believe companies doing charity will receive a positive response. Somerville also found that consumers are loyal and willing to spend more on retailers that support charity. Consumers also believe that retailers selling local products will gain loyalty. Smith (2013) shares the belief that marketing local products will gain consumer trust. However, environmental efforts are receiving negative views given the belief that this would affect customer service. Oppewal et al. (2006) found that not all CSR activities are attractive to consumers. They recommended that retailers focus on one activity. Becker-Olsen (2006) found that if the social initiative done by the company is not aligned with other company goals it will have a negative impact. Mohr et al.(2001) and Groza et al. (2011) also emphasise the importance of reaching the consumer.


Approaches
          Some commentators have identified a difference between the Canadian (Montreal school of CSR), the Continental European and the Anglo-Saxon approaches to CSR. it is said that for Chinese consumers, a socially responsible company makes safe, high-quality products; for Germans it provides secure employment; in South Africa it makes a positive contribution to social needs such as health care and education. And even within Europe the discussion about CSR is very heterogeneous.

          A more common approach to CSR is corporate philanthropy. This includes monetary donations and aid given to nonprofit organizations and communities. Donations are made in areas such as the arts, education, housing, health, social welfare and the environment, among others, but excluding political contributions and commercial event sponsorship.

          Creating Shared Value, or CSV is based on the idea that corporate success and social welfare are interdependent. A business needs a healthy, educated workforce, sustainable resources and adept government to  compete effectively. For society to thrive, profitable and competitive businesses must be developed and supported to create income, wealth, tax revenues and philanthropy. The Harvard Business Review article Strategy & Society: The Link between Competitive Advantage and Corporate Social Responsibility provided examples of companies that have developed deep linkages between their business strategies and CSR. CSV acknowledges trade-offs between short-term profitablity and social or environmental goals, but emphasizes the opportunities for competitive advantage from building a social value proposition into corporate strategy. CSV gives the impression that only two stakeholders are important - shareholders and consumers. Many companies employ benchmarking to assess their CSR policy, implementation and effectiveness. Benchmarking involves reviewing competitor initiatives, as well as measuring and evaluating the impact that those policies have on society and the environment, and how others perceive competitor CSR strategy.

 

• AccountingAbility's AA1000 standard, based on John Elkington's triple bottom line (3BL) reporting
• The Prince's Accounting for Sustainability Project's Connected Reporting Framework
• The Fair Labor Association conducts audits based on its Workplace Code of Conduct and posts audit results on the FLA website.
• The Fair Wear Foundation verifies labour conditions in companies' supply chains, using interdisciplinary auditing teams.
• Global Reporting Initiative's Sustainability Reporting Guidelines
• Economy for the Common Good's Common Good Balance Sheet
• GoodCorporation's standard developed in association with the Institute of Business Ethics
• Synergy Codethic 26000 Social Responsibility and Sustainability Commitment Management System (SRSCMS) Requirements - Ethical Business Best Practices of Organizations - the necessary management system elements to obtain a certifiable ethical commitment management system. The standard scheme has been build around ISO 26000 and UNCTAD guidance on Good Practices in Corporate Governance. The standard is applicable by any type of organization.
• Earthcheck Certification / Standard
• Social Accountability International's SA8000 standard
• Standard Ethics Aei guidelines
• The ISO 14000 environmental management standard
• The United Nations Global Compact requires companies to communicate on their progress (or to produce a Communication on Progree, COP), and to describe the company's implementation of the Compact's ten universal principles.
• The United Nations Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) provides voluntary technical guidance on eco-efiiciency indicators, corporate responsibility reporting, and corporate governance disclosure.
• The FTSE Group publishes the FTYSE4Good Index, an evaluation of CSR performance of companies.   

Ethics training
        The rise of ethics training inside corporations, some of it required by government regulation, has helped CSR to spread. The aim of such training is to help employees make ethical decisions when the answers are unclear. The most direct benefit is reducing the likelihood of "dirty hands", fines and damaged reputations for breaching laws or moral norms. Organizations see increased employee loyalty and prode in the organization.


Common actions
        Common CSR actions include:

• Environmental sustainability: recycling, waste management, water management, renewable energy, reusable materials, 'greener' supply chains, reducing paper use and adopting Leadership in Energy and Environmental Design (LEED) building standards.
• Community involvement: This can include raising money for local charities, providing volunteers, sponsoring local events, employing local workers, supporting local economic growth, engaging in fair trade practices, etc.
• Ethical marketing: Companies that ethically market to consumers are placing a higher value on their customers and respecting them as people who are ends in themselves. They do not try to manipulate or falsely advertise to potential consumers. This is important for companies that want to be viewed as ethical.

Social license
        "Social license" refers to a local community's acceptance or approval of a company. Social license exists outside formal regulatory processes. Social license can nevertheless be acquired through timely and effective communication, meaningful dialogue and ethical and respnsible behavior.

        Displaying commitment to CSR is one way to achieve social license, by enhancing a company's reputation.



Potential business benefits
       
        A large body of literature exhorts business to adopt measures non-financial measures of success (e.g., Deming's Fourteen Points, Balanced scorecards). While CSR benefits are hard to quantify, Orlitzky, Schmidt and Rynes found a correlation between social/environmental performance and financial performance.

        The business case for CSR within a company employs one or more of these arguments:


Triple bottom line
        "People, planet and profit", also known as the triple bottom line form one way to evaluate CSR. "People" refers to fair labour practices, the community and region where the business operates. "Planet" refers to sustainable environmental practices. Profit is the economic value created by the organization after deducting the cost of all inputs, including the cost of the capital (unlike accounting definitions of profit).

        This measure was claimed to help some companies be more conscious of their social and moral responsibilities. However, critics claim that it is selective and substitutes a company's perspective for that of the community. Another critism is about the absence of a standard auditing procedure.


Human resources
        A CSR program can be an aid to recruitment and retention, particularly within the competitive graduate student market. Potential recruits often consider a firm's CSR policy. CSR can also help improve the perception of a company among its staff, particularly when staff can become involved through payroll giving, fundraising activities or community volunteering. CSR has been credited with encouraging customer orientation among customer-facing employees.

Risk management
        Managing risk is an important executive responsibility. Reputations that take decades to build up can be ruined in hours through corruption scandals or environmental accidents. These draw unwanted attention from regulators, courts, governments and media. CSR can limit these risks.


Brand differentiation
        CSR can help build cusomter loyalty based on distinctive ethical values. Some companies use their comitment to CSR as their primary positioning tools, e.g., The Co-operative Group, The Body Shop and American Apparel.

        Some companies use CSR methodologies as a strategic tactic to gain public support for their presence in global markets, helping them sustain a competitive advantage by using their social contributions as another form of advertising.


Reduced scrunity
       Corporations are keen to avoid interference in their business through taxation and/or regulations. A CSR program can persuade governments and the public that a company takes health and safety, diversity and the environment seriously, reducing the likelihood that company practices will be closely monitored.


Supplier relations
        Appropriate CSR programs can increase the attractiveness of supplier firms to potential customer corporations. E.g., a fashion merchandiser may find value in an overseas manufacturer that uses CSR to establish a positive image - and to reduce the risks of bad publicity from uncovered misbehavior.


Criticisms and concerns

        CSR concerns include its relationship to the purpose of business and the motives for engaging in it.


Nature of business
        Milton Friedman and others argued that a corporation's purpose is to maximize returns to its shareholders and that obeying the laws of the jurisdictions within which it operates constitutes socially responsible behavior.

        While some CSR supporters claim that companies practicing CSR, especially in developing countries, are less likely to exploit workers and communities, critics claim that CSR itself imposes outside values on local communities with unpredictable outcomes.

       Better governmental regulation and enforcement, rather than voluntary measures, are an alternative to CSR that moves decision-making and resource allocation from public to private bodies. However, critics claim that effective CSR must be voluntary as mandatory social responsibility propgrams regulated by the government interferes with people's own plans and preferences, distorts the allocation of resources, and increases the likelihood of irresponsible decisions.


Motives
        Some critics believe that CSR programs are undertaken by companies to distract the public from ethical questions posed by their core operations. They argue that reputational benefits that CSR companies recieve (cited above as a benefit to the corporation) demonstrate the hypocrisy of the approach.


Misdirection
        Another concern is that sometimes companies use CSR to direct public attention away from other, harmful business practices. For example, McDonold's Corporation positioned its association its association with Ronald McDonald House as CSR while its meals have been accused of promoting poor eating habits.


Controversial industries
        Industries such as tobacco, alcohol or munitions firms make products that damage their consumers and/or the environment. such firms may engage in the same philanthropic activities as those in other industries. This duality complicates assessments of such firms with respect to CSR.



Negative impact of corporate psychopathy

        As corporate psychopaths have little or no conscience or care or empathy, it follows logically that they are not driven by any notion of social responsibility or commitment to employees or to the wider public.


Stakeholder influence
        One motivation for corporations to adopt CSR is to satisfy stakeholders.

        Branco and Rodrigues (2007) describe the stakeholder perspective of CSR as the set of views of corporate responsibility held by all groups or constituents with a relationship to the film. In their normative model the company accepts these views as long as they do not hinder the organization. The stakeholder perspective fails to acknowledge the complexity of network interactions that can occur in cross-sector partnerships. It relegates communication to a maintenance function, similar to the exchange perspective.


Ethical consumerism
        The rise in popularity of ethical consumerism over the last two decades can be linked to the rise of CSR. Consumers are becoming more aware of the environmental and social implications of their day-to-day consumption decisions and in some cases make purchasing decisions related to their environmental and ethical concerns.


Socially responsible investing
        Shareholders and investors, through socially responsible investing are using their capital to encourage behavior they consider responsible. However, definitions of what constitutes ethical behavior vary. For example, some religious investors in the US have withdrawn investment from companies that violate their religious views, while secular investors divest from companies that they see as imposing religious views on workers or customers.


Creating shared value
        Non-governmental organizations are also taking an increasing role, leveraging the media and the Internet to increase the visibility of corporate behavior. Through education and dialogue, the development of community awareness in pushing businesses to change their behavior is growing.

        Creating Shared Value (CSV) claims to be more community aware than CSR. Several companies are refining their collaboration with stakeholders accordingly. 


Public policies
        Some national governments promote socially and environmentally responsible corporate practices. The heightened role of government in CSR has facilitated the development of numerous CSR programs and policies. Various European governments have pushed companies to develop sustainable corporate practices. CSR critics such as Robert Reich argued that governments should set the agenda for social responsibility with laws and regulation that describe how to conduct business responsibly.


Regulation
        Fifteen European Union countries actively engaged in CSR regulation and public policy development. CSR efforts and policies are different among countries, responding to the complexity and diversity of governmental, corporate and social roles. Studies claimed that the role and effectiveness of these actors were case-specific.

        The variety among companies complicates regulatory processes. Self-regulation allows each corporate actor to balance profits and social responsibility without cumbersome governmental involvement. Studies suggest that mandated CSR distorts the allocation of resources and increases the likelihood of irresponsible decisions.

        Bulkeley cited the Australian government's actions to avoid compliance with the Kyoto Protocol in 1997, over concerns of economic loss and national interest. The Australian government claimed that the pact would damage Australia more than any other OECD nation. In November 2007, the new Prime Minister Kevin Rudd ratified the protocal. Canada adopted CSR in 2007. Prime Minister Harper encouraged Canadian mining companies to meet canada's newly developed CSR standards.

        The 'Heilbronn Declaration' is a voluntary agreement of enterprises and institutions in Germany especially of the Heilbronn-Franconia region signed the 15th of September 2012. The approach of the 'Heibronn Declaration' targets the decisive factors of success or failure, the achievements of the implementation and best practices regarding CSR. A form of responsible entrepreneurship shall be initiated to meet the requirements of stakeholders' trust in economy. It is an approach to make voluntary commitments more binding.


Laws
        In the 1800s, the US government could take away a firm's license if it acted irresponsibly. Corporations were viewed as "creatures of the state" under the law. In 1819, the United States Supreme Court in Dartmouth Colledge vs. Woodward established a corporation as a legal person in specific contexts. This ruling allowed corporations to be protected under the Constitution and prevented states from regulating firms. Recently countries included CSR policies in government agendas.

        On December 16, 2008, the Danish parliament adopted a bill making it mandatory for the 1100 largest Danish companies, investors and state-owned companies to include CSR information in their financial reports. The reporting requirements became effective on January 1, 2009. The required information included:

• CSR/SRI policies
• How such policies are implemented in practice
• Results and management expectations

        CSR/SRI is voluntary in Denmark, but if a company has no policy on this it must state its positioning on CSR in financial reports.

        In 1995, item S50K of the Income Tax Act of Mauritus mandated that companies registered in Mauritius paid 2% of their annual book profit to contribute to the social and environmental development of the country. In 2014, India also enacted a mandatory minimum CSR spending law. Under Companies Act, 2013, any company having a net worth of 500 crore or more or a turnover of 1,000 crore or a net profit of 5 crore must spend 2% of their net profits on CSR activities. The rules came into effect from April 1, 2014.


Crisis and their consequences
        Crisis have encourage the adoption of CSR. The CERES principles were adopted following the 1989 Exxon Valdez incident. Other examples include the lead paint used by toy maker Mattel, which required the recall of millions of toys and caused the company to initate new risk management and quality control processes. Megellan Metals was found responsible for lead contamination killing thousands of birds in Australia. The company ceased business immediately and had to work with independent regulatory bodies to execute a cleanup. Odwalla experienced a crisis with sales dropping 90% and its stock price dropping 34% due to cases of E. coli. The company recalled all apple or carrot juice products and introduced a new process called "flash pasteurization" as well as maintaining lines of communication constantly open with customers.

Geography

        Corporations that employ CSR behaviors do not always behave consistently in all parts of the world. Conversely, a single behavior may not be considered ethical in all jurisdictions. E.g., some jurisdictions forbid women from driving, while others require women to be treated equally in employment decisions.

        Anselmsson and Johansson (2007) assessed three areas of CSR performance: human responsibility, product responsibility and environmental responsibility. Martinuzzi et al. described the terms, writing that human responsibility is "the company deals with suppliers who adhere to principles of natural and good breeding and farming of animals, and also maintains fair and positive working conditions and work-place environments for their own employees. Product responsibility means that all products come with a full and complete list of content, that country of origin is stated, that the company will uphold its declarations of intent and assume liability for its products. Environmental responsibility means that a company is perceived to produce environmental-friendly, ecological, and non-harmful products. Jones et al. (2005) found that environmental issues are the most commonly reported CSR programs among top retailers.


Sources:

1.     from. en.wikipedia.org/wiki/Corporate_social_responsibility, retrieved date April 15, 2015.