It is believed that the concept of Corporate Social Responsibility (CSR) as we know it today is as old as TRADE itself. Whatever the case, we have seen in the last 60-70 years CSR being more and more accepted by corporate senior managers.
More specifically, we saw in the 1950s corporations begun to place more emphasis on their businesses’ responsibility to their society by getting involved in community affairs through ‘Philanthropy’. The 1960’s and 1970’s was period of social change and unrest, focusing on social rights, workers’ rights, racial discrimination and to some extent pollution. All these developments were reflected in corporate policy and in some cases affecting the composition of a corporation’s management.
From the 1980’s through to the 1990’s, corporations became more responsive to their stakeholders making CSR an integral part of corporate strategy. This continued after 2000 with more and more business adopting a CSR policy.
Since the 1950s different names have been used for what we call today CSR. For example we have seen names like “Corporate Citizenship”, “Social Responsibility” and “Responsible Business” being used. All these names and more that have been used until today had one common thing, this being that actions taken by corporations were voluntary and aimed for a better society and a cleaner environment. These corporate voluntary actions took the form of business activities as well as social investments.
In this essay we will be discussing CSR as it is defined and practised today, that is voluntary moral and ethical actions by corporations with the goal to make society better in one way or another. These actions could be donations of money to charities or hospitals/clinics or actions within and outside the corporation that are friendly to the environment. More specifically, this essay will attempt to answer the question whether such corporate actions can produce for the corporation a competitive advantage versus their competitors. Supporters of CSR argue that the image of responsibility and ethical actions by a corporation through CSR actions can lead to a positive image from society and more specifically customers, which leads to people preferring to buy goods and services from a ‘responsible’ and ‘ethical’ corporation as opposed to a ‘less responsible’ and ‘less ethical’ corporation.
There are different types of CSR activity that can be practised. For the purpose of this essay we will focus on the following four types, these being Ethical, Philanthropic, Environmental and Economic responsibilities. Corporations practising these or any other type of CSR are required to take into account their stakeholders. These are people or groups of people that have a direct or indirect interest in the corporation, therefore, actions carried out by the corporation can affect them in one way or another. Stakeholders can be employees of the corporation, the owners of the corporation, the investors, the customers, the corporation’s suppliers, trade unions, local authorities, the country’s government, the media and many others. The corporation cannot ignore them.
If we take employees, a corporation has an Ethical Responsibility for their welfare and it can do this by making sure that fair labour practices are applied for them as well as the employees of their suppliers. This is where respect for Gender, Race and Religion and equal pay for the same jobs – doing what is right, fair and just. A very good example of a corporation practicing this is Google which we can see from the high job satisfaction from their employees.
Corporations that donate their time, their money and their resources to charities and other organizations practice Philanthropic Responsibility. This concept stems from the Greek “to serve humanity” and focuses on helping people who need to survive – being a good corporate citizen. This help usually goes to cases where human rights are violated, to people and areas after a natural disaster or a manmade disaster such as war. Great philanthropists include Bill Gates (Microsoft), Mark Zuckerberg (Facebook) and many others.
Another type of CSR has been coined Environmental Responsibility is practiced aiming to limit pollution and reduce greenhouse gases. Corporations have no choice but to ensure their actions are environmentally friendly simply because consumers expect this from them. A very good example is IKEA which not only has applied this to their products but also across their entire operations. Other examples include Unilever and electronics producer Panasonic. There are many other examples, however, I have to also mention Tesla cars that set a trend for cars that run on clean energy and not petrol or diesel that produce CO2 emissions.
The fourth type of CSR is the one that tries to balance between the above three this being Economic Responsibility. We are all aware that corporations need to maximise sales and profit and to minimise costs in order to keep their investors happy. Corporations practising Economic Responsibility need ensure that while they are maximising their profits they are at the same time contributing to the economy. A very simple example is corporations paying their taxes which directly helps the economy. If the corporation stops being profitable it will not be able to practice its CSR let alone not exist. There is also the Legal Responsibility which requires the corporation to obey the laws and regulations.
Like all other business concepts, CSR has comes with its advantages and disadvantages. Let us first cover the main disadvantages.
It is argued that a CSR policy pushes corporations away from their profit maximizing objective. As was stated earlier, corporations practising CSR may end up not focusing enough on bringing in the required income to make a profit and instead they give out more money for the welfare of society.
Another argument against CSR is that a corporation that informs the public of a defect in their product can take a serious hit. There are many examples from the car manufacturing industry where this has happened with announcements for recalling certain models after finding serious problems with them. A very recent example is the emissions scandal linked to Volkswagen cars where VW took a serious financial and image hit.
It is also argued that CSR programs may lead to a big increase in a corporation’s costs. If the corporations decides to correct this by increasing the price of their product then the customers who were supposed to benefit from the CSR programs end up by paying a higher price.
The above are the main negatives that critics of CSR mention. CSR programs have shown that they have advantages, bringing many benefits to a corporation which do need to be financial, they can also be non-financial benefits. These benefits are not enjoyed only by large corporations such as P&G, Unilever, Coca Cola, VW and Microsoft, small and medium size corporations can also enjoy benefits, like for example good Public Relations. Below is a list of the main advantages of CSR.
Good practices through a CSR program can lead to an increase in the ‘value’ of the corporation and what it offers. This can lead to increased demand for the product that the corporation is selling because of its good and clean image. In addition, other corporations will show interest to do business and be linked with this corporation. This can lead to an increase in the corporation’s prestige and consumers to view the corporation as a provider of reliable products and at the same time a provider of good to the community.
Linked to the above is the attraction that can be created for attracting employees as well as not losing current employees. It is natural for people wanting to work for corporations that care about the well-being of employees and providing good working conditions.
The good image of a corporation not only attract employees it also attracts investors which is the oxygen that keeps the corporation going. Investments can come from outside the country as well as from inside. Moreover, a well-run CSR program can provide positive publicity acting as an advertisement for the company.
Last but not least, a good CSR can place a corporation apart from other corporations that are producing and selling a similar product at the same or even at a lower price.
This brings us to the question that this essay is attempting to answer, whether a corporation can achieve a Competitive Advantage by practising CSR policy. We have already touched on the answer to this question quite a few times earlier in this essay when benefits from CSR were listed, however, the answer to this question is NOT a straight forward one, simply because with CSR a corporation can definitely get benefits but a CSR policy can also backfire on the corporation if it is not managed properly.
A better way to answer this question is probably to say that CSR activities by a corporation ideally should lead to a competitive advantage for that corporation or if a corporation is already enjoying a competitive advantage by practising a CSR policy this competitive advantage can be increased further. In both cases the corporation will need to manage its CSR activities to sustain the corporate advantage that it has since getting the advantage is the easy part – keeping it is the hard part.
The success or the failure of a CSR policy depends on how the CSR policy is planned, executed and monitored by the corporation’s management as well as how the policy is linked with the corporation’s strategic plan. In addition, management needs to check how the corporation’s stakeholder interests are served or not served by the CSR policy being practised. If any of the above are not done then the CSR policy will not lead to the goals set by the corporation and in turn competitive advantage will not be achieved.
A CSR policy needs to be treated as an investment decision by the corporation, for example it is the same like taking a decision to invest millions of GBP in new machinery in order to replace old and high maintenance machinery. By choosing to invest in new machinery that is low on energy consumption, low on emissions, faster production, more reliable and made up of components that are recyclable, then it is very easy to see how many stakeholders will be happy. This will lead to strengthening the reputation of the corporation and its image. Consumers will prefer purchasing products from such a corporation instead of similar products made by machinery that is technologically outdated and not friendly to the environmentally.
In conclusion, Corporate Social Responsibility practices by corporations in today’s world where globalisation has changed the way markets work, need to be well balanced between the impact on society, the impact on the environment and the impact on the corporation’s financials so that they can succeed.
What is success? Success means, making profits, keeping stakeholders happy and taking care of society and the environment at the same time. For all of this to happen and to be sustained, the CSR policy needs to part of the corporation’s Strategic Plan.