Corporate Social Responsibility. No Strategic Benefit for Companies?

Table of Contents

1. Introduction

2. Main Part

3. Conclusion

Bibliography

1. Introduction

Every organisation usually has its own individual strategy in order to achieve its main objectives. Nevertheless, every organisation is also influenced by environmental issues which have an impact on its performance, financial development, growth or in particular its reputation. With regard to the last key word, there is strong debate whether it is a beneficial measure for an organisation to include Corporate Social Responsibility (CSR) to gain strategic and competitive advantages (Ceglinski and Wisniewska, 2016, p. 11) on a long-term basis or whether CSR is just its reaction to environmental issues but without a strategic benefit.

Firstly, this essay will clarify the historical development of CSR, its importance for current organisations in general and which environmental issues give them a reason to include CSR in their daily business under consideration of the increasing public demand for an organisation’s ethical awareness with regard to its activities.

Secondly, it will afterwards critically compare the theories of Milton Friedman and Edward Freeman with regard to CSR in order to analyse whether an organisation can even have social responsibilities considering the fact that companies have different strategic orientations in the business area they are operating in.

Thirdly, it will critically evaluate the direct strategic benefits of CSR and also the risks and disadvantages for an organisation that might occur of its implementation.

Finally, the conclusion will clarify whether there is a clear strategic benefit in CSR for an organisation or whether the main focus of CSR are the environmental influences.

2. Main Part

2.1 Historical development of CSR and its importance for current companies

In earlier times, the strategy of companies did not include a clear focus on social responsibility as “profit maximization was the sole business objective” (Jhawar and Gupta, 2017, p. 105) and most of the companies had this sort of strategic attitude. However, since the second half of 20th century the leading companies in the United States and in Europe began to understand that there is an essential “need to unite different elements of corporate policies related to the relationship of the company with the environment, and to the development of a single integrated approach to interaction with society” (Madrakhimova, 2013, p. 509). Since that time, organisations started to reconsider their policies and the importance of the interaction between them and some of the most influential external factors, namely the society as well as their stakeholders as e.g. customers, employees, manager or suppliers.

According to Crane, Matten and Spence (2013) the ethical and social responsibilities of organisations have even become key issues in business strategy, accordingly companies have to be eager to react to ethical, legal, economic and philanthropic demands of a society which is also described as Corporate Social Responsibility. Meeting these demands is a form of social investment that would e.g. not only increase the company’s positive reputation or probably solve some social problems but it “is highly connected stakeholder engagement” (Amankwah and Taylor, 2016).

Particularly, for so-called global players as e.g. the multinational company ‘Google’ who has stakeholders worldwide, it became more and more important and also challenging reacting to certain environmental influences for example the internationally rising demand for CSR (Epstein-Reeves, 2010). The impacts of non-compliance with CSR expectations were fully noticeable last year, when despite a clear anti-harassment policy “Google had paid millions of dollars in exit packages to male executives accused of harassment and stayed silent about their transgressions” (Benner, Conger and Wakabayashi, 2018). In order to demonstrate their dissatisfaction, approximately 20,000 of its employees worldwide protested against “sexual harassment, misconduct, lack of transparency and a non-inclusive workplace culture” (Segarra, 2018) which resulted in a high reputational damage and decreasing sales revenue.

Therefore, and as illustrated in Figure 1 (Carroll, 1991), a company as Google is not only

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Figure 1: Carroll’s pyramid of CSR

required by the society to show economic responsibility and to fulfil its legal obligations to societal stakeholders, but also expected to generally operate in a more ethical fashion. As per Carroll (2016) “part of the ethical expectation is that businesses will be responsible for and responsive to the full range of norms, standards, values, principles, and expectations that reflect and honour what consumers, employees, owners and the community regard as consistent with respect to the protection of stakeholders’ moral rights”. On the other hand, if this model is taken into an international context it would be more complex because of the cultural, legal and economic differences in certain countries Google is operating in. In contrast to European countries (e.g. in Germany or France) where there is a good economy, existing applicable laws and also health care, in other countries as in South Africa where the unemployment rate “rose to 27.5 percent” (Trading Economics, 2019) last year and many citizen are “living in extreme poverty” (Miller, 2018), they do not tend to care much about ethics but more on the economic and legal aspects of a company’s strategy due to the circumstances they are living in.

Besides the external factors, there are also internal factors where CSR has an importance, as for example with regard to the attractiveness of a company internally as well as externally. Thus, a company who takes care of its workers and offers e.g. social welfare packages, personnel development trainings or a good work life balance (Morgan, 2014) will increase the satisfaction of its employees and maintain a good working atmosphere which will also be beneficial for the daily operation. In addition to it, when a company integrates CSR in its policy, it will create a signal for the external world (i.e. applicants) by showing not only social responsibility towards the society but also to its own employees which will cause a trust-building effect and therefore both attract new workers and maintain a positive image (Bustamante, Pelzeter and Ehlscheidt, 2018). One good example is the international toy company Lego who promised to implement environmentally friendly products and started last year with the production of sustainable accessories made of sustainable sugar-cane ethanol. This ethical and eco-friendly measure was not only “a big step toward completing the Lego Group's ultimate blue print of routinely manufacturing its brightly colored eponymous blocks by 2030 using sustainable materials” (Hitch, 2018) but also a good strategy to find more environment-conscious applicants and to offer them job opportunities which also increased its image of being “one of the most popular brands” (Smithers, 2018).

Therefore, it can be generally said that the importance of CSR for companies significantly increased both because of external and internal environmental influences wherefore it clarifies that CSR “has become one of the standard business practices” and is “a crucial component of a company’s competitiveness” (Tennant, 2015).

2.2 Friedman vs. Freeman – a comparison of CSR’s worthiness for organisations

One of the biggest dissensions with regard to CSR is the difference between companies who see CSR as a part of their strategy and other ones who do not view it as a “strategic advantage but as a real strategic necessity” (Falkenberg and Brunsæl, 2011, pp. 9-16).

As Friedman (1970) summarizes, the only one responsibility of an organisation towards the society is the increase of profits to the shareholders and the moral responsibility does not belong to companies but to human beings and generally social issues are much more the problems of the government as a sovereign legislator rather than of corporate managers. The appropriate manager of a company could theoretically show social responsibility by for example building orphanages but should refrain it and instead focus on the most important maxim of the company, namely to increase its profit as long as the business activities are in line with the existing applicable laws. Otherwise, as per Friedman, the managers would only waste the money of the shareholders and not be in line with the primary objective of the company. Therefore, nor the companies nor the respective managers are the bearers of social responsibility (Scholz, 2011).

On the contrary to this argument, a company, who is also regarded as an ‘artificial person’ in the eyes of the law, in some ways has a higher impact or rather influence on its stakeholders and shareholders than even the government and is therefore jointly responsible for the creation and maintenance of adequate values. Moreover, “corporations are more central players in global affairs than nations” (Younge, 2014) let alone the fact that the government often might not have the sufficient resources and market knowledge in order to react to certain environmental issues and to reach a wider set of the according involved consumers/stakeholders. One example is the scarcity of drinking water, which is also “being regarded as a global problem” (Bellware, 2016), and the resulting essential demand for it particularly in emerging nations, where many cities and municipalities do not have a sufficient water infrastructure provided by the state, where in contrast powerful corporations as Nestlé have a better capability of such provision. Instead of giving those areas and those citizens, which are in sore distress, direct access to water supply, Nestlé tapped the sources of water for a longer time for commercial purposes and created a water shortage as e.g. in the Pakistani village Bhatti Dilwan where the ground-water level enormously dropped and a number of wells dried up (Blechner, 2019). Nestlé initially rejected the allegations, but then invested money in a new deep well and a treatment plant.

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