Introduction
Corporate Social Responsibility (CSR) has been one of the top areas of discussion in the last few decades, depicting the struggle that firms underwent in an attempt to balance their profitability concerns with their social and environmental concerns. The motives for engaging in CSR activities for firms are several in nature, both internally and externally driven. Since the area has been under discussion and limelight for a long time, it could be assumed that it would be much formalized and refined by now. However, the area of CSR continues to have large gaps in terms of motives of CSR, contrast between the actual and covert operations of firms, measurement of the impact of CSR activities and the reporting of these activities. Firms operated amidst a wide set of stakeholders, each with its own area of interest. They need to balance the interest of these stakeholders in a manner that the profitability is achieved while remaining ethical, sustainable and socially and environmentally responsible (Du et al. 2010).
The essay below discusses the current state of CSR, the pressures that firms find themselves while attempting to balance profitability with responsibility using theories in the field and examples from existing corporations.
Discussion
Kendrick (2016) has defined Corporate Social Responsibility (CSR) as “the obligation of an organisation’s management to make decisions and take actions that will enhance the welfare and interests of society as well as the organisation”. The concept of CSR is no longer a new one. The last two decades have been spent in an attempt to define CSR, defend CSR and justify the motive of firms to engage in it. Firms have also been pressed to find the right balance between their CSR engagements and the profitability of their operations. Corporate social responsibility in essence refers to the activities that a firm undertakes for the benefit and betterment of the community, environment and society that it operates in. These activities are beyond its usual business and may also require investment and cost that may not translate into any immediate sales.
The investment in non core business activities by a firm actually refer to a shift in the purview of responsibility that firms adopted for themselves. This is also a marked shift from the Friedmanian concept of responsibility only to the shareholders of the firm. According to Friedman, the sole responsibility of a firm and its managers was towards its shareholders (New York Times, 1970). This meant that the eventual aim of the business was sole maximization of the profits from the operations. However, since the 1970s, there has been a paradigm shift in the approach of organizations towards the stakeholders. The dominance of the shareholder as the one supreme stakeholder has been diluted (Gilbert et al. 2011). The list of stakeholders has been expanded to include other parties such as the government, community, policy and pressure groups etc. Depending on the power and interest of these stakeholders, an organization is expected to fulfill their expectations from the business.
According to Bennerjee (2008), the rise of CSR can be attributed to the expansion in the stakeholder base. In order to satisfy the expectations of the non-shareholder stakeholders such as the government and community, firms engage in activities which creates a positive image in the industry. They engage in activities which aim at benefitting either the society or the environment around them asma common good. This can be done by providing livelihood training, loans, education and health facilities to the community. For the environment, tree plantation, recycling and reduction of waste are areas where most organizations are found to work at.
Extensive research has been conducted on the motives of a firm to engage in CSR and several theories have come up. One of the most prominent of the theories linked to CSR is the legitimacy theory. The legitimacy theory refers to attempt by any individual or institution to create a place for himself or herself in the society that he/she works in. In order to create this place, the individual or institution has to invest in the betterment of the society and community in order to be able to justify or legitimize the use of the common resources and maintaining operations there. Therefore, the non-core CSR activities which may not have a direct sales impact help the earn legitimacy in their markets (Fernando & Lawrence, 2014).
With the legitimacy theory and the stakeholder view, it may appear that firms engage in CSR at the cost of their shareholder interests as they are making investments which do not have any direct business impact. Some researchers have disagreed with this. According to Bennerjee(2008), firms also engage in CSR in an attempt to build a positive brand image and brand equity. When they develop something a positive brand image in the society through CSR activities, their sales are also boosted and they develop a higher equity than their monetary value. Customers see them as a responsible brand with a long term interest in their market and start owning them. Civil society and rights bodies loosen their scrutiny of their activities as they observe them engaged in CSR activities. The government may also offer them tax breaks in some areas. The positive image in the society also means that they become a preferred employer for the talented workforce due to their reputation. Since all these activities eventually lead to material gain for the business in the long term, at least in principal, this points back to the Friedman shareholder theory from 1970s (Cooper & Owen, 2007). All these activities may be directed at other stakeholders but eventually benefit the principal shareholders. This is also the stance adopted by most organizations around the world as they attempt to defend the business case of engaging in CSR and the cost associated with it.
There are also differences in the nature of CSR that firms engage in. Some engage in CSR activities which are not directly related to their nature or operations such as an oil firm opening a health clinic. This may benefit the community that it draws its employees from making sense in the long run. However, on the surface, these kind of activities have little relevance to the actual supply chain of the business. Some firms have been able to completely integrate their CSR activities within their supply chain and their operations. One such example is Starbucks. Starbucks faced serious issues with continuity and sustainability of coffee beans supply throughout the year. It sourced its beans through different contractors. In order to reduce this vulnerability, it stepped in the process and started working with the farmers directly. Starbucks trained them and provided them loans. It also supported by providing a fair wage to the farmers so that they are motivated to keep farming coffee. Starbucks is also a strong vocal advocate of fair trade in the coffee industry. This entire program is covered under the Starbucks CSR and responsibility section. It is a successful example of how a firm is able to craft together its CSR activities with its actual business operations and supply chain. Furthermore, it shows how organizations are able to combine their profitability with their social and ethical responsibilities (Lii & Lee, 2012).
The case of Starbucks also points out to another motive of CSR and that is sustainability. Firms all around the world are dependent on some element in the society be it labor and the environment such as natural resources for their operations. The continued availability of these resources is important for the sustainability of their operations. Firms with long term futuristic approach understand this and therefore, undertake activities which can ensure that the raw materials required by them are preserved. These firms are then internally driven to engage in CSR and in fact, become partners in the process instead of using it as a face card (Baumgartner, 2014).
While the motive of firms to engage in CSR is indeed a controversial area of research and discussion, even more is the nature of the activities and its reporting done by the firms. Research and literature in the area is a hot bed of different perspectives. One area that is highlighted the most is the use of CSR activities to whitewash the harmful nature of firm operations. Firms whose supply chain processes are not exactly environmentally and socially friendly may also be engaged in external CSR instead of internal improvements. The contrast is most clear in the case of firms in inherently controversial industries such as tobacco and oil and gas. There could be two motives for firms in these industries to be involved in CSR: to neutralize the negative perception that comes with operating in this industry or to whitewash the attention given to their harmful activities in some other part. There could also be a contrast between their official and their actual activities. Exxon, one of the largest players in the oil and gas industry has been found to be part of several environmentally harmful incidents such as oil spills. On the surface, it maintains a dedicated page for CSR on its website which outlines is extensive activities in the field. At the back, it has also been accused of backing and supporting lobbyists on the congress who are against climate change regulations. Such regulations may limit companies like Exon and their operations or place higher taxations due to the nature of the industry (The Guardian, 2015).
Due to episodes such as Exxon, CSR has developed into a negative phenomenon instead of a positive one. Firms have to defend their motive and choice of CSR and its reporting to the external users. The absence of a proper and widely accepted and followed CSR framework or reporting mechanism has also contributed to weakening this area. Firms are not bound by any structure to report their CSR initiatives in a certain way. This leaves them at a luxury to choose their way of reporting as well as the measurement of the impact that their activities have. The absence of a monitoring body means that they can inflate the positives and deflate the negative impact of their operations on the environment and society. Some choose to report on CSR as part of their annual statements while others issue separate CSR reports on their websites just like financial reports. However, unlike financial statements of a firm, the CSR disclosures are not audited independently leaving the firm room for manipulation (Michelon et al. 2015).
The GRI framework and the triple bottom reporting are two areas which raise hopes for better measurement and reporting of corporate ethics and responsibility in the future. The triple bottom line combines social and environmental elements of the operations along with the financial ones. This way, it gives them equal importance in measuring the success of a firm instead of treating them as complementary elements which is the norm currently (Goel, 2010). This also helps in introducing a second feasibility check before embarking on a new project or introducing a new product. The brand and product managers have to evaluate the environmental and social impact of the product along with the financial one. Currently, the feasibility studies only focus on the financial aspect of projects which needs to be changed to include the environmental and social aspects as well. Combining this with the GRI framework which helps report on the environmental and social activities of firms can help in developing a more sophisticated shape of CSR. The future lies in integration of the CSR activities with the actual profit making ones so that users of the reports receive a comprehensive and complete view of a firm’s activities and impact (Gilbert, 2011).
Conclusion
The essay has discussed the grey areas that exist in CSR mainly in the motives of engaging in CSR from a stakeholder perspective. The essay has evaluated whether the shift to CSR has come due to the inclusion of new stakeholders such as the community and government in addition to shareholders. It appears that while CSR has indeed been impacted by the change in purview of stakeholders, it still continues to benefit the original supreme stakeholders i.e. shareholders as all the positive benefits from the CSR also lead to wealth maximization for the shareholders. The essay has also discussed some positive examples of CSR by firms such as Starbucks which have integrated it with their supply chain as well as sustainability concerns. The case of firms engaged in contrasting activities in public and in private has also been discussed. The true challenge for CSR lies in its audit, measurement and reporting, which currently is the weakest area. Adopting the triple bottom line approaching and integrating the GRI framework can help firms move towards a more sophisticated version of CSR.
References
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