Corporate Social Responsibility and Global Companies

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Indicate to what extent, and for what reasons, you believe that large corporations with a global reach need to be encouraged or compelled to engage with the corporate social responsibility agenda.

Corporate Social Responsibility (CSR) is a relatively new concept that has acquired more importance in recent years. Earlier, the prime focus of companies / organisations and businesses used to be only on generating profits and improving their bottomlines, even if that meant that they had to make use of unethical or destructive activities like polluting the environment or disturbing ecology / natural habitats. However, companies began to realise that ethical and fair practices in their operations would only help them attract and retain both customers and employees. They responded by adopting a “New Consciousness / Awareness”, which has been termed Corporate Social Responsibility (CSR). This term was coined sometime in the 1970s, which is when this concept started gaining currency (Idowu and Filho, 2008).

With globalisation, businesses and corporations are no longer restricted within the established borders of their respective nation – states / countries. One of the main features of globalisation is that the market spreads up and there are changes in the ways of production. The mode of production is not concentrated in one location any more, but has become decentralised, with centres of production spread across the globe.

While globalisation has, on one hand, given a wonderful opportunity to organisations and companies to expand their market share and production base, there has been a flip – side as well. There has been mounting discontent and displeasure against large corporates, especially multinational corporations (MNCs), with protests from labourers, social & environmental activists, and marginalised consumers, against their ways of conducting business. Moreover, with more attention from the media, pressure from activists and non-governmental organizations, and rapid communication & information sharing, there has been an increasing demand from governments, consumers, and civic society in general, for businesses to conduct ethical and sustainable business procedures.

Corporate Social Responsibility (CSR) could be said to have different connotations for different people, but some notions are common to all. One of them is that CSR does not refer to charity or philanthropy by organisations, rather it is about being accountable and responsible for one’s actions. It can be defined as “Corporate initiative to gauge and be responsible for a company or business’ impact on the lives of people and on the environment” or “the continuing obligation by businesses to act ethically and contribute to economic development, while simultaneously improving the quality of life of their staff and their families, as well as of the indigenous people and society at large” (Boeger, Murray and Villiers, 2008). In fact, CSR expects an organisation to do a little extra than that required by the legal norms in terms of :

treating employees in a just manner and with respect

working ethically in it’s dealings with business partners and customers

respecting human rights

sustaining ecology & environmental balance for posterity

being a considerate neighbour to local community and a model ‘corporate citizen’

Corporate Social Responsibility

Figure 1 : Source : Adapted from (Visser, Affairs. and al, 2010)

In short, businesses are now expected to do well not just in terms of increasing profitability and revenues, but also in non – financial spheres like business ethics, civil rights, environmental factors, development of the community, and workforce-related matters. Some instances of CSR could be – contribution to charities and community groups; providing safe, secure and hygienic working conditions for workers / employees, and environmental stewardship. However, sometimes the issue arises that companies that profess to follow socially responsible practices sometimes do not live up to their claims. With CSR becoming increasingly popular among companies, what happens is that some of them just put up an appearance of CSR irrespective of whether they actually have a plan / strategy in place or not.

So even though most are happy and satisfied with the recent spread of CSR, there are some who argue that companies are either acting in self interest or are just not doing enough. For instance some state that MNCs that act fairly in highly regulated areas like USA, behave contrarily in other places, e.g. they use child labour or do not use environment – friendly ways of production. I also tend to agree with them as I feel that some large corporations are not doing enough and can contribute to society in a much larger way than they are doing currently.

Of course a lot has been done over the last twenty years, with a huge number of companies and business houses responding positively in a positive way to CSR standards. Maybe this has been partly because of their desire to make their working / operation more proper and ethical. Even governments have encouraged the adoption of CSR because businesses can play an important role in the progress of society, but the activist community may be credited more for the increasing value of CSR in view of their endeavours in compelling companies to implement CSR norms. Activist groups, aided by media, have, in many cases, highlighted corporate wrongdoings in response to which many companies introduced CSR programs and reports to salvage their reputation.

While this makes for gripping headlines, it also puts pressure on companies to return to society at least a fraction of what they have gained from it. This is not to say that businesses have not, by themselves, made social contributions without pressure from outside; there are examples like Joseph Rowntree, better known as a philanthropist than a chocolatier, and others who developed their workforce in exemplary ways.

In the 1980s, a group of companies joined together to set up “Business in the Community” (BITC). Then they established the “Per Cent Club” whose members donated 1 % of their pre-tax profits to the society/community. BITC has become an influential force not only in business circles but also in the CSR space. It has even developed a set of 27 indicators to evaluate and report CSR, in terms of 4 impact areas – the environment, workforce, community and the market place (Crane, 2008).

Though the debate about CSR in a worldwide context is important, there has been little empirical research on the topic. An exception is Baskin’s research where he compares CSR report of 127 companies from 21 developing markets with that of over 1,700 leading companies in developed high-income countries (Hopkins, 2006). What was found was that, interestingly, companies in emerging markets are more inclined to report extensively on corporate social investment activities than OECD companies. It was also seen that developing markets trail developed economies on reporting on equal opportunities and business ethics. It was concluded that CSR in developing markets, while more extensively covered than expected, is less ingrained in corporate plans / strategies, less extensive and not as politically embedded as compared to OECD countries’ (Visser, Affairs. and al, 2010).

We often hear that the so-called ‘Third World’ countries are the favourite dumping grounds for unwanted products in the developed economies. Can CSR play a role in dealing with this hazard in these countries? Statistics show that the business / marketing activities of multinationals and their outcomes some negative impact on developing countries. Some instances are : stores for rejected goods, old or second – hand clothes, various dead – engines, sub-standard products, old technology – all these factors cause a form of pollution, with no compensation to consumers or environment.

The concept of CSR with respect to the role of MNC’s, and the fact whether they are acting responsibly or not, becomes important in ensuring that they become ethically responsible for improving the environment, and the lives of their stakeholders & society. It has been observed that Western media does not pay as much attention to the importance of CSR in developing countries as it does in developed countries. We do not hear of companies carrying out measures like installing waste management or water harvesting facilities.

The working environment and standard of living of their workforce lead us to have reservations about the priorities of MNCs. It has also been observed that employees of multinationals in emerging economies work longer hours and even on weekends, while the same is unheard of in developed countries or in the parent countries of those MNCs (Tsamenyi and Uddin, 2009). In fact there have been studies and articles reported by the media in countries like India that show that Public Sector Undertakings / Companies there have been more pro-active in the CSR arena than multinational companies operating there (Express, 2005).

Of course there have been encouraging examples – some footwear companies like Nike and apparel companies have been monitoring working conditions in their suppliers’ factories in developing countries; Ikea demands that its rug suppliers in India do not employ child labour, and provides families with monetary help to prevent children from entering the labour market; Starbucks sells coffee with the ‘Fair Trade’ label; major sellers of wooden products like Home Depot no longer sell products picked from endangered forests; British Petroleum alongwith some major companies in the United States and Europe, has reduced its green-house gas emissions significantly; Shell has adopted policies to tackle environmental misuse and human rights issues connected with its ventures in developing countries; Timberland lets employees take a paid week off annually to work with local charities .

It is logical to assume that CSR norms / ways taken on by companies are good for them and pay them off in the long run by enhancing their reputation. Moreover, the idea of CSR is gaining more importance in public affairs programmes mainly due to the requirement to maintain a good image, and faith & trust among the stakeholders. Even governments and political entities would not want to sustain an association with companies that do not treat their employees or other stakeholders well. The assessment of inadequate CSR could have its attendant negative results for those organisations that do not follow the ‘best practices’; or do not have a good image in the society or community; or have been targeted by social activist groups or the media because of poor corporate responsibility. Naturally, if competitors / other companies behave better then public relations would suffer.

In future, CSR is expected to gain even more importance for various reasons including competitive advantage to be gained by the companies. Companies in North America and Europe are awakening to the competitive advantages and strategic probabilities by virtue of being an environment friendly. Even end-consumers would be prepared to pay more for environment – friendliness, and for wholesome, healthy food. For example, environment friendly automobiles have been attracting public interest for some time now, even if they cost more.

This is to say that CSR practices and activities would be able to create value addition, which is why, in my opinion, large multinational companies need to adopt them in a big way. As we have seen, it is not just about philanthropy or benefiting the companies in non – financial ways in terms of image and reputation, it indirectly helps in increasing profitability and margins too. Companies should recognise that there are hidden costs of not being able to adhere to this vital responsibility to society, that is more of a moral obligation than a legal necessity. It has oft been suggested that CSR should be integrated into business strategy to gain competitive advantage (Porter, 2008).

In conclusion, we can say that although a lot has been done in the area of corporate social responsibility, with organisations realising that they are ethically and morally accountable for their actions, and need to conscientiously return to people, society and environment what they have taken from them. Moreover, they should know that doing this would eventually benefit them in the long run. There are, however, problems of standardization associated with CSR, but it is believed that a level field will appear as the stakeholders keep increasing. The concept should be given more attention and prominence in a global context so that underdeveloped or unregulated areas are not exploited for profit motives by multinational corporations.

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