Seminar Paper, 2003
24 Pages, Grade: 1,3
2 Ideologies behind CORPORATE SOCIAL RESPONSIBILITY
2.1 Shareholders vs. Stakeholders
2.2 Corporate Social Performance
2.2.1 Responsibilities In Society
2.2.2 Social Responsiveness
2.2.3 Social Issues Management
3 Social responsibility in strategy
3.1 Drivers of implementation
3.2 Moving From Local to Global
3.2.1 Obligations of Behavior
3.2.2 Civil Foundation
3.2.3 Consumers and Company image
3.3 Non Governmental Organisations
3.4 The Triple Bottom Line
4 The basis of CSR reporting
4.1 Global Reporting Initiative
4.2 SA 8000 and AA 1000
4.3 CSR Auditing
Is corporate social responsibility a new business trend or perhaps a breeding ground competitive advantage? It definitely is the buzzword of the early 21st century business. The impact of business on the social and natural environment has been more or less under discussion for the past 40 years but just lately it has become the most topical issue in business environment. Investors, academics, NGOs and business consultants are all talking about corporate social responsibility. The concept Corporate Social Responsibility (CSR) can be used as an umbrella term for a range of terms such as corporate responsibility, corporate citizenship, accountability, transparency, triple bottom line management, sustainability, reputation management and people, planet & profit (Kokko 2002, 69).
According to Berthoin, Dierkes, MacMillan & Marz (2003, 27) the CSR issue has recently had three significant developments. Firstly, international organisations have launched CSR initiatives such as GRI and EU Green Paper to promote socially responsible behaviour and social reporting. Secondly, the concept “triple bottom line” (TBL) was introduced to focus the corporations not just on the economic value they add, but also on the environmental and social value they add and destroy. Thirdly, the investors have realised that the value of their investment portfolio may fall if companies act in a socially irresponsible manner. Thus we can infer that there is a growing need for companies to incorporate CSR into their business strategy and everyday business behaviour.
The purpose of this paper is to obtain knowledge of CSR in global business environment. The main objective can be divided into the following sub-objectives:
- To describe the ideologies behind CSR
- To analyse how CSR is connected to strategy
- To examine how CSR can be applied to everyday business and what corporate can gain in including it in its acts
To attain the aim, different ideologies behind CSR are examined within international business environment. The nature of CSR in local and global environment is contemplated along its potential impact to the stakeholders of the company. In addition, the reporting methods and their applicability to business operations are examined.
Ideologies behind corporate social responsibility (CSR) are divided into three: shareholder, stakeholder and broad perspective (Takala 2000, 9). In shareholder perspective corporate social responsibilities are considered to be only towards the shareholders. That is, the only responsibility for a company is to make profit to its owners. One of the most famous promoters of this perspective is Milton Friedman, a 1976 Nobel Prize winner. He has proposed that the companies are only responsible to their shareholders (Friedman, 1970). Adam Smith, the father of the classical economical theory, favours this ideology as well. He has argued that an efficient market mechanism will guarantee that what is good for the company is also good for the society. According to this point of view, the society determines its demands through the market and the companies then respond to those demands. (Carroll 1996, 29–32.)
Stakeholder perspective highlights the bonds between the companies and the society. According to this idea morale should be involved in company’s decision making. The main obligation for the company is defined as securing the long-term profits and growth, which requires socially responsible way of action. (Takala 2000, 11.)
The broad perspective supposes that those companies only seeking for profits and profitability will start to lose their competitiveness in the future. The profits are seen only as means to achieve the companies’ primary goal, helping to improve the welfare of their society. Justification for the existence of a company is granted if it is able to take care of its social responsibilities. The broad perspective is seen quite popularly as a very unrealistic model. (Takala 2000, 13–14.) The difference between broad and stakeholder perspective is that stakeholder perspective derives from company’s needs achieved in a socially responsible way, whereas the broad perspective derives from the society’s needs that the company fulfils.
Stakeholder perspective seems to be nowadays the most approved ideology and it will be the ground of this paper. Stakeholder is defined as “any group or individual who can affect or is affected by the achievement of the firm’s objectives” (Freeman 1984, 25). The groups presented below are examples of the stakeholder categories.
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Figure 1 Stakeholder view of the firm (Modified from Freeman 1984, 25)
According to the stakeholder perspective on CSR, a company has to act responsibly against all its stakeholders. For example, the company has to treat its employees right, obey the laws given by the government, act ecologically enough to please the environmentalists and yet make enough profit to keep its owners satisfied.
Corporate social performance (CSP) is the most common term when discussing company’s role in a society - expectations it faces and activities it performs. Also the question of how all the previous mentioned is evaluated by stakeholders who actually set the expectations is included in the concept. How a company meets or even exceeds these expectations defines how high its social performance will be evaluated. (Husted 2000, 24–25.) Whereas CSR answers only to question, what should be done, CSP also covers the company’s performance what comes to societal issues – that is, how the company finally made it.
Carroll has listed three aspects of CSP that should be researched: First of all, it should be researched what corporate social responsibilities are and what is included in them. Secondly, those issues that responsibilities exist for should be investigated. Third, social responsiveness of companies – how they react to social issues – should be researched. (Carroll 1979, 499) The second class, the issues, seems to be hard to define since all matters included are industry specific and constantly changing. Because of this it has been suggested (Watrick & Cochran 1985) that issues management should be investigated instead of issues.
Carroll has divided social responsibilities into four categories, which derive from stakeholders’ expectations: economical, juridical, ethical and discretionary or philanthropic responsibilities (Carroll 1996, 40). The responsibilities are shown in table 1 below.
Table 1 Company’s social responsibilities and society expectations (Modified from Carroll 1996)
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Economical responsibility is the ground of all other responsibilities and it means that a company must be economically profitable. According to this view companies’ responsibility is to produce their goods and services and sell them with profit. A company acts as a fundamental economical unit of a society. The society expects and demands the company to take care of this responsibility as well as its juridical responsibility, which means that the company obeys the laws and rules of the society. Ethical responsibility means that the company does the “right thing”, involves in “fair play” and avoids causing trouble. Discretionary or philanthropic responsibilities involve good corporate citizenship. It means that the company voluntarily helps the society and tries to raise citizens’ standard of living. The society doesn’t require this although it hopes for it. In that sense the last category seems not to be a responsibility for company. (Carroll 1996.)
Social responsiveness is about company’s reacts towards the social expectations, demands and wishes. It is not referring to managers’ morale or attitudes towards social responsibilities but simply describes how a company reacts in front of these requirements. (Carroll 1979, 501) Below a form called reactive–proactive –continuum, combined from several theories by Carroll.
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Figure 2 The reactive–proactive –continuum (Carroll 1979, 501)
At the lowest level of the continuum a reactive company does nothing and tries to resist its responsibilities. It tries to do less than what’s expected. Next level company is defensive and does the minimum that’s required. The company accepts its responsibilities but it acts defensively and reacts only on issues it has to. An adaptive company tries to be progressive and it meets all the requirements its fronted with. A proactive company is usually a leader of the industry. It meets and likes to exceed all its expectations and seeks actively new ways to create goodwill. (Carroll 1996; Wartrick & Cochran 1985)
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