Corporate Social Responsibility

Lesson 08

CSR• Classical concept of the corporation

presents the corporation as existing primarily to serve the shareholders. According to this view, the interests of the shareholders are paramount and come first over all other interests.• A corporation has the same ethical obligations to its shareholders, employees, customers, suppliers, and the community and the same responsibilities with respect to the environment

Social Responsibility◦Is the obligation a business assumes

toward society.◦Is designed to maximize the positive

influence & minimize the negative.◦Includes economic, legal, ethical,

and humanitarian dimensions.

CSR Definition◦The idea of social responsibilities

(SR) suppose that the corporation has not only economic & legal obligations but also certain responsibilities to society which extend beyond these obligations.

Joseph McGuire (1993)

CSR Definition◦SR refers to the objectives or

motives that should be given weight by business in addition to those dealing with economic performances.

Jules Backman (1975)

CSR◦CSR describes an organization’s

duties to its internal and external stakeholder groups, which it may or may not willingly accept.

◦In other words, it is the way an organization behaves towards its shareholders, customers, employees, suppliers and society in general.

◦Then socially responsible implies that the organization operates as a good corporate citizen, both locally and globally.

CSR◦CSR is an umbrella term under which

the ethical rights and duties existing between companies and society are examined.

◦In both cases the business attempts to maximize its positive impacts on stakeholders and society and minimize its negative impacts.

Ethics & CSR• Ethics are the concerns of individual

managers and employees.

• CSR is a concern of the entire organization.

CSR Principle◦Business that practice CSR principles

support their employees and consumers by

◦Providing a safe and healthy work environment

◦Adopting fair labor polices◦Protecting the environment◦Being truthful in advertising◦Avoiding price discrimination◦Donating to charity

CSR Principle – Twofold◦Stewardship principle – Bible,

Wealthy people should act as caretakers of their property Business should multiply society’s wealth.

◦Charity principle – More fortunate should assist less fortunate.

Triple bottom line (holistic approach)

◦Society depend on economy and economy depend on global environmental ecosystem

◦Economic – express revenue & income growth

◦Environmental – protect environment (waste, pollution, management)

◦Social – public health, confirm to regulations, philanthropic activities

Six fundamental precepts of CSR

◦Power holds responsibility◦Taking responsibility voluntary is better

than Govt. intervention◦Voluntary social responsibility requires

business leaders to accept needs of the other groups in the society.

◦CSR require respect for law◦Business firm take a long run view of

profit.◦Greater economic, social and political

stability.

Arguments for & against CSR

◦For As business create problems (to

resources) and should help to solve them Corporations are citizens of the society

and have obligations as citizens Business have resources to solve the

problems Business is a partner of the society

Arguments for & against CSR

◦Against Potential for conflicit of interest –

(cigarette / cancer hospital) Business lack the expertise to handle

social problems Activities in social programmes give them

more power Milton Fredman – going out of basic

mission of earn profit for owners

CSR Consideration – Model◦One of the first approaches

encompasses the spectrum of economic and non-economic concerns in defining SR was the “Three Concentric Circle” (Committee for Economic Development – 1971)It includes

◦Inner circle,◦Intermediate circle and◦Outer circle.

CSR Consideration◦Inner circle: clear – cut basis

responsibilities for the efficient execution of economic function – product, job and economic growth

◦Intermediate circle: encompasses responsibility to exercise this economic function with a sensitive awareness of changing social values & priorities. Ex. With respect to environment conservation, hiring, and relations with employees.

CSR Consideration◦Outer circle: outlines newly emerging

& still amorphous responsibilities that business should assume to become more broadly involved in actively improving the social environment.

◦The outer circle would refer to business helping with major social problems in society such as poverty, and urban blight.

Three Dimensional Conceptual model of CSR

◦A basic Definition of SR ( a firm SR be assessed)

◦An enumeration of the issues for which SR exists (identify social issues)

◦A specification of the philosophy of response (a response philosophy be chosen)

◦These three distinct aspects of Corporate Social Performance must be articulated and interrelated.

3C-SR Model

Commitment

Consistency

Connections

1

3

2a

a• Effective corporate

citizenship

1• Corporate social

performance deficit

2• Stakeholder deficit

3• CSR deficit

3C-SR Model◦Ethical and Social Commitment

represent the values element of social resources.

◦They comprise the ethical standards & social objectives the organization subscribes to and are manifested in its mission, strategic objectives, strategy program. Organizational policies and corporate culture.

◦These commitments should encompass legal, economic & ethical dimensions.

CSR deficit ◦They comprise the ethical standards &

social objectives the organization subscribes to and are manifested in its mission, strategic objective, strategy program. Organizational policies and corporate culture.

◦These commitments should encompass legal, economic & ethical dimensions.

◦Due to consistent focus on short term profits across the value network, CSR deficit will occur.

Stakeholder deficit◦This value results from;◦Value creating system within which

different economic actors (suppliers, business partners, allies, customers) work together to co-produce value.

◦Failure to work towards dissemination of social values within a wider value network a stakeholder deficit will exist.

CSR deficit◦Consistency refers to the behavioral

element of social resources over time and across all facets of an organizations operation.

◦Thus development of social resources requires consistent adherence to externally recognized and accredited standards.

◦Failure to consistently behave will result in corporate social performance deficit.

CSR Four- Part framework

◦The Proportions simply suggest the relative magnitude of each responsibility

Discretionary Responsibilities(D)Ethical Responsibilities(C)Legal Responsibilities(B)Economic Responsibilities(A)

Total SR=A+B+C+D

CSR Consideration◦These Four are not mutually

exclusive, nor are they intended to portray a continuum with economic concerns on one end and social concerns on the other. That is they are neither cumulative nor additive.

Economic Responsibility◦The first and prime SR of business is

economic in nature.◦Since business institution is the basic

economic unit in our society it has a responsibility to produce goods & services for the society and sell at a profit.

◦All other business roles are predicated on this assumption.

Economic…

How resources for the production of goods and services are distributed within the social system

Do you think consumers favor socially responsible companies or are they most enamored/ care with companies that maximize profits?

Legal Responsibility◦Through the society has allowed the

economic system, it has laid down the laws and regulations under which the business units expect to operate.

◦Society expects business to fulfill its economic mission within the framework of legal requirements.

Legal….◦Refers to obeying governmental laws

and regulations ◦Civil Law : rights & duties of

individuals and organizations◦Criminal Law: prohibits specific

actions and imposes fines and /or imprisonment as punishment for breaking the law.

Legal Issue and CSR All organizations will need to comply with

the legal requirements in day to day operations, but CSR means going beyond these legal and accepting that the sole function of a business is not just making profit for its shareholders.

Ethical Responsibility

◦Although economic & legal responsibilities represent ethical norms there are additional behaviors that are not necessarily codified into law but expected by the society from the business.

◦Ethical Responsibilities are ill defined and consequently are among the most difficult for business to deal with.

Ethical…◦Behaviors and activities that are

expected or prohibited by organizational members, the community, and society (not codified into law)

◦Standards, norms, or expectations that reflect the concern of major stakeholders.

Discretionary Responsibility

◦Are the responsibilities about which society has no clear-cut message for business.

◦They are left to individual judgment and choice.

◦They are voluntary not mandated or required by law.

Sehti model of CSR◦Adaption of corporate behavior to

social need Social obligation – behavior according to

market response or legal constrains Social responsibility – bringing up the

behavior up to prevailing social norms, values & expectations

Social responsiveness – more than responding to social pressure, their long role in a dynamic social system

Importance of Being with CSR

◦Business Image It improves the Image of the business

and its goods and services and can provide it with competitive advantage.

◦Attracts New Customers & Customer Loyalty It attracts new customers and can create

customer loyalty and repeat purchase behavior.

Research has shown that customers are more likely to choose products they perceive as being produced in a socially responsible manner.

Importance of Being with CSR

Attracts likeminded employeeso It attracts likeminded employees to join the

business.Improve Motivation of existing employees

oWith increased motivation, staff turnover may fall and productivity may increase.

Reduces possibility of Negative Publicity.

It reduces the likelihood that pressure groups will act against the organizations interests.

Importance of Being with CSR

◦Goodwill among stakeholder groups It ensures goodwill among all stakeholder

groups, which may prove beneficial at times of crisis.

E.g.: Suppliers and employees may be prepared to wait for payment during a cash flow crisis, because they feel a sense of loyalty to the organization, which has treated them well.

CSR is Cost or benefit◦Like many other business decisions,

acting responsibility should be considered as a long term benefit, that may have short term cost.

◦The question is whether the business is willing to accept these short term costs when competitors are not.

Famous Quotes about CSR?

◦“Conducting your business in a socially responsible way is good business. It means that you can attract better employees and that customers will know what you stand for and like you for it”

(Anthony Burns, CEO Ryder Systems -1944)

Social Issues◦Many factors come into play as a

manager attempts to get a fix on what social issues should be of most interest to the organization. Social issues must be identifies as an important aspect of Corporate social performance.

◦Matching social need to corporate need or ability to help a social audit is required.

Choosing which social issues to be address

◦As any firm has limited resources, firm should select some issues that intersect with the business. Issues fall under following

◦Generic issue – important to society & no effect to firm (dengu)

◦Value chain social impact – impact due to activity of the value chain.

◦Social dimension of competitive context – Big firms not allowing the firm to operate/Kappam (protection money)

Social Auditing◦The purpose of a social audits it to assess the

impact of an organization’s operations on its stakeholders and wider society.

◦ It is a similar process to a financial audit as the organization generates a set of a ‘social accounts’ that evaluate social performance against non-financial criteria and benchmarks.

◦However, unlike financial auditing there are no legal obligations on an organization to carry out a social audit, although it helps the business address potential problems that might later lead to legal liability.

Social Auditing◦A Strong emphasis on health and

safety may mean the organization avoids prosecution for any accidents caused by the negligence of the organization and its employees.

◦Social auditing should also result in more informed planning and better management.

Who conducts social audit?

◦Social audits are usually conducted by an independent group that prepares a published report assessing the organization’s wider external impact.

◦This report helps clarify social objectives and encourages the business to come up with action plans to sort out any deficiencies that have been identified.

Social Auditing –◦Environment

This includes pollution, waste disposal, and resource depletion.

Energy use – business practices to improve energy efficiency.

◦Human Resources HR and the treatment of employees and

other individuals in the distribution chain – this could cover issues relating to recruitment, promotion, health, safety and remuneration.

Social Auditing – Community Programmes

The business helps organize or fund community based initiatives in education, the arts or the environment.

Product & Service Quality There is an emphasis placed on the durability and safety of the products sold and honesty of services provided.

Corporate Social Responsiveness

“capacity of a corporation to respond to social pressures”

The literal act of responding or of achieving a generally responsive posture, to society is the focus.

Social responsiveness can range on a continuum from no response (do nothing) to a proactive response (do much).

Social Responsiveness Continuum

Do nothing (No

Response)Do much

◦Several writers have provided conceptual schemes that describe the responsiveness continuum E.g. Ian Wilson (1974)

◦Reaction – Defense – Accommodation – Proactive

Social Responsiveness Continuum

◦Reactive – respond to a social issue only after it has challenged social goals.

◦Defensive – company acts to ward off a challenge

◦Accommodative – The company brings itself into line with government requirements and public opinion.

◦Proactive – The Company anticipate demands that have not yet been made.

CSR strategic option◦Shareholder strategy – CSR as a

overall profit motive (Fredman)◦The Altruistic Strategy

(unselfish/philanthropic)-give something back to the society (from of philanthropy)

◦Reciprocal strategy – two fold. Benefit society while gaining a economic benefit to the firm (CSR is done for making profit)

◦Citizenship strategy – all stakeholders & others are well looked after

Thank You