Employees as Benefactors of Corporate Philanthropy Corporate Social Responsibility

The Case for Employees as Benefactors of Corporate Philanthropy

The Case for Employees as Benefactors of Corporate Philanthropy

A United Auto Workers unionization vote recently made the news, in part because the vote was taking place in the Southeastern United States where conservative state legislators have historically treated organized labor with hostility, but what seemed to be most newsworthy about this event was that the corporation, Volkswagen, decided to take a neutral position (Paresh, 2014). The vote took place last week and workers at the Chattanooga, Tennessee plant decided to reject union membership by a narrow margin. The national news media also took note when several conservative Tennessee politicians remained true to their anti-union ideology by threatening to end subsidies for Volkswagen and to push production of a new vehicle to Mexico. Experts in labor law believed these threats were coercive enough to have influenced the vote and the UAW agreed. Just days after the vote, UAW leaders filed a complaint with the National Labor Relations Board (NLRB) in an effort to get the vote set aside.

The neutral position taken by Volkswagen, especially after being threatened by Tennessee politicians, stands out because Americans assume corporations will take a confrontational position when faced with union contract negotiations or labor organizing activity. The shareholder-stakeholder divide is so ingrained in the American psyche that Volkswagen's neutral stance came as a bit of a shock. This essay will examine why Volkswagen made this choice and whether employees truly enjoys stakeholder status within U.S. corporate social responsibility (CSR) paradigms.

Organization-Stakeholder Relations

The primary stakeholders for any commercial enterprise, aside from the entrepreneur(s), are the creditors, employees, local community, and environment (Ho, 2010). Within a capitalist society, friction between business owners and stakeholders has always existed and the balance of power has almost always favored large corporations. The main remedies for this imbalance of power have been organized labor on behalf of employees and government agencies and non-profits on behalf of the environment. Within the United States at least, a kind of 'cold war' seems to exist between these factions and open hostility occasionally bursts into public consciousness when something out of the ordinary occurs.

The need for collective bargaining or the threat of unionization will probably never be rendered obsolete in a capitalist system. This sentiment was captured by a quote cited by Marens (2008) as the opening salvo in his thesis on early CSR scholars. The cited quote is: "I have come to the view, however, that corporate power is so potent and so pervasive that voluntary social responsibility cannot be relied on as a significant form of control of business" (p. 55). Ho (2010) admits to a similar limitation when considering the influence that activist shareholders and institutional investors have on corporate relations with stakeholders, but rather than take a skeptical perspective she offers a more optimistic view of future trends, one that suggests shareholders and institutional investors are gradually emphasizing the influence of stakeholder interests on the bottom line. In other words, profits remain the core mission of any commercial enterprise, but taking into consideration the interests of stakeholders is increasingly viewed as simply good business practice.

Profitability is also the primary concern of small business owners (SBOs); however, SBOs tend to be more sensitive to the needs of stakeholders (Fassin, Van Rossem, & Buelens, 2010). When Fassin and colleagues (2010) interviewed SBOs about the concepts of CSR, including business ethics, sustainability, and profit, many remarked that ethics is something personal, even private, but CSR and sustainability is intimately linked to a business' public persona. These concepts were not viewed by SBOs as mutually exclusive, but overlapping and complementary. Philanthropy was also viewed by some SBOs as a private affair and should never be used as a centerpiece for marketing campaigns, which at least one interviewee remarked is often the case with major corporations.

The sentiment that philanthropy should not be used as part of a marketing campaign or corporate image was reiterated by Barnett (2007), with the inclusion of several quotes in his article on stakeholder influence. Some of the cited examples included Philip Morris donating water to flood victims and McDonalds adding salads to their menu. These examples were contrasted with the philanthropic activities of a few major corporations that have made a long-term commitment to the local communities they serve. The SBOs interviewed by Fassin and colleagues (2010) commented on this difference as an...

One of the examples given by an interviewee was the difference in philosophy between major international oil corporations and local distributors. The major oil corporations emphasize the need for safety, but when discussing safety with local distributors the emphasis is on low-cost safety. From the perspective of SBOs, who live within the communities they serve, safety is not negotiable, even when the economy is struggling; however, this position was moderated a bit by one SBO who felt that safety regulations sometimes go too far given the fact that risk is inherent to any business enterprise.
From the SBOs' perspective, the relationship between stakeholders and shareholders is a bit more nuanced than what is observed for major corporations (Fassin, Van Rossem, & Buelens, 2010). One SBO interviewee described an employee relations policy that kept aging or disabled employees within the ranks of the firm, rather than downsize them to the ranks of the unemployed. Shareholders, however, were considered essential to the enterprise's success and the ability of SBOs to engage in CSR and sustainability. This sentiment was also moderated a bit by one SBO, who noted that any business operating in the red will naturally pay less attention to CSR and sustainability.

Based on the above discussion, the relationship between entrepreneurs and stakeholders differs in significant ways when comparing major corporations with SBOs. Entrepreneurs view themselves as intimately connected to the communities where they live and work, so they tend to place a greater emphasis on CSR, ethics, and sustainability as long as the business is profitable. By comparison, some major corporations have made CSR a prominent edifice of their public image, while privately focusing on short-term profits and cost-cutting measures that may increase the risk of harm to employees and local communities. The organization-stakeholder relationship therefore differs in significant ways between small businesses and major corporations, although this is nothing more than a generalization that may or may not apply to any given business.

Financial Impact of CSR and Business Ethics

Barnett (2007) lays out the arguments for and against CSR. One of the examples he gives to flesh out this argument is the claim that close to $2 million dollars each week is donated to local charities by the big box chain Target. CSR opponents argue that this money would be better spent on increasing corporate efficiency and shareholder earnings, especially in a highly competitive market like big-box stores. The anti-CSR argument does not stop there, but goes further with the claim that even if the funding of CSR was not a significant expenditure in terms of efficiency, profits, or maintaining a competitive edge, it is a redistribution of wealth from shareholders to the local community and therefore a form of robbery. A more concise expression of this argument is that CSR is for personal gain at the expense of shareholders and therefore represents an 'agency loss.' Barnett (2007) mentions a definition of agency loss that seems to capture the sentiment of most CSR opponents, which states that CSR is never in the best interests of a firm and should only be engaged in when required by law.

The pro-CSR argument presented by Barnett (2007) is based on stakeholder theory, which holds that the firm's relationship with all stakeholders impacts the bottom line. Instrumental stakeholder theory, with its emphasis on the interests of the primary stakeholders, proposes that profitability is determined in part by how well owners relate to employees and the wider community. From this perspective, a firm's perceived 'trustworthiness' is determined in part by the philanthropic endeavors engaged in, which in turn increases an employee's pride in their employer and thus job satisfaction. CSR proponents argue that this has a significant positive impact on the enterprise's operating costs, efficiency, and brand image, and therefore profitability. For example, a portion of the increased profitability would come from lower employee turnover, less interest in unionization, and retention of more experienced workers. A strong record of CSR activities also tends to buffer a corporation's good public image against a transient scandal, thereby preserving profit margins.

The pro-CSR argument presented by Barnett (2007) fails to acknowledge the more nuanced perspective presented by Fassin and colleagues (2010), which suggests that how a corporation conducts CSR will determine how stakeholders will judge philanthropic acts. As discussed above, a knee-jerk philanthropic act will have little impact on the public image, but a long-term commitment will. A glance at Target's 2012 CSR statement (2013) reveals…