Positive Effects of CSR

Corporate social responsibility and business ethics have become the focus of an increasing amount of attention from the business sector and academicians following the scandal-ridden era of Enron and others during the 1990s. Although the findings from the research to date are mixed, there is a growing body of research in this area that has lent support to the notion that ethical business practices and corporate social responsibility initiatives have a positive impact on companies in terms of profitability as well as other less quantifiable areas.

This review of literature examines these issues systematically to identify current trends and to describe the positive impacts that ethical business practices and corporate social responsibility programs can have for companies of all sizes and types. The Positive Impact of Business Ethics and Corporate Social Responsibility on an Organization To act in a socially responsible way requires organizational leaders to consider the effect of their decisions on the well-being of society; thus, managers must ask themselves what their actions do to society and what their actions do for society.

-- Ronald Sims (2003, p. 66) Chapter Two: Review of Literature The epigraph above makes it clear that today, there is a growing recognition among the business community that they have a fundamental responsibility to "give back" to the communities in which they compete, but this concern is certainly not new.

The informal concern for social responsibility dates to antiquity, but formal concerns emerged during the late 1930s and early 1940s following the publication of Chester Barnard's book, Functions of the Executive, and Theodore Krep's, Measurement of the Social Performance of Business which outlined the social responsibilities of executives and businesses (Kumar & Sabharwal, 2013).

The origins of the modern era of corporate social responsibility date to the mid-1950s following the publication of Howard Bowen's book, Social Responsibilities of the Businessman, which was the source of the term "corporate social responsibility" (Kumar & Sabharwal, 2013).

In his book, Bowen asked: "What responsibilities to society can business people be reasonably expected to assume?" And offered an early definition for corporate social responsibility which he said "refers to the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society" (cited in Kumar & Subharwal, 2013, p. 70). More recently, corporate social responsibility (hereinafter alternatively "CSR") has been defined in various ways, emphasizing its different aspects and intended outcomes.

For instance, CSR has been alternatively described as "a function that transcends but includes making profits, creating jobs and producing goods and services" and "the positive actions that a company takes to help discharge its responsibilities to external stakeholders" (Smith & Langford, 2009, p. 97). Although there is no universally agreed upon definition for CSR, some of the activities that have been associated with corporate social responsibility include the following: 1. Minimizing harm that the company's operations might have on society or the environment, 1.

Creating a positive impact on the community, the environment, employees, customers, and vendors; 1. Initiatives to mitigate harmful environmental impacts, 1. Reclaiming packaging material, 1. Support for local suppliers, and 1. Infrastructure investments for the public benefit (Jones & Jonas, 2011, p. 66). Based on these definitions and activities, a number of different practices have been included under the corporate social responsibility umbrella, including sponsoring charitable events, cause-related marketing, making charitable donations, offering employee volunteerism programs, utilizing environmental initiatives and demonstrating a commitment to health and safety issues (Smith & Langford, 2009).

In addition, there has been a four-part conceptualization of corporate social responsibility that includes economic, legal, ethical and philanthropic components (Smith & Langford, 2009). This model's focus holds that all business responsibilities are dependent on an organization's economic responsibility to remain viable, a responsibility that includes maximizing profitability and maintaining a strong competitive position (Smith & Langford, 2009). There are also legal responsibilities that are associated with corporate social responsibility, such as complying with all relevant laws and regulations (Smith & Langford, 2009).

Likewise, the ethical responsibilities of organizations extend to societal standards, expectations and norms that are not specifically covered by relevant legislation (Smith & Langford, 2009). Finally, an organization's philanthropic responsibilities include actions that aligned with social expectations that companies should be good corporate citizens and "give back" to the communities in which they compete and more generally to simply "do the right thing" (Smith & Langford, 2009).

According to Smith and Langford, philanthropic responsibilities are "distinguished from ethical responsibilities in that they are of a charitable nature and, as such, a company is not considered unethical if it does not provide them" (2009, p. 98). Taken together, the origins of corporate social responsibility and the foregoing definitions provide a useful framework in which to evaluate the sources of and implications for practitioners today.

The four-part conceptualization of corporate social responsibility can also be viewed as a hierarchy, with the satisfaction of economic component being a prerequisite for achieving the legal; ethical and philanthropic aspects as depicted in Figure 1 below. Figure 1. The Corporate Social Responsibility Pyramid Source: http://research-methodology.net/wp-content/uploads/2013/10/New-Picture-11.png Just as the origins of social responsibility date to antiquity, so too do the origins of business ethics in general. In this regard, Marcoux (2006) reports that, "Business ethics is either ancient or very new.

Construed broadly as moral reflection on commerce, business ethics is probably as old as trade itself" (p. 51). For instance, the Code of Hammurabi (c. 1700 BCE) established prices, tariffs, and rules of commerce that carried severe penalties for noncompliance (Marcoux, 2006). In addition, Aristotle's Politics (c. 300 BCE) outlined the general moral aspects of commerce and the scriptural texts of the world's mainstream religions include moral rules for commercial activities (Marcoux, 2006). Modern business ethics focus on organizational life in general and organizational life within the business in particular (Marcoux, 2006).

According to Marcoux, "This focus on the organization and its management is evident in what is widely regarded among business ethicists as the most significant theoretical construct in their discipline, stakeholder theory" (2006, p. 51). Stakeholder theory holds that a business should be operated in a fashion that attains a viable balance between the various interests of everyone who has a substantial relationship with the business who are termed its stakeholders (Marcoux, 2006).

Clearly, the definition of a business's stakeholders can extend to include its stockholders, employees, supply chain partners, as well as consumers and even the population at large, especially when the enterprise's activities have an environmental impact. This conceptualization is congruent with the findings of a study by Popa and Salante (2014) that showed, "Corporate social responsibility can be viewed as an organization's attempts to achieve a balance between the economic, environmental and social imperatives without foregoing the expectations of shareholders, and give something back to the wider community" (p. 139).

From a strictly pragmatic perspective, corporate social responsibility would appear to be naturally in a company's best interests because it contributes to the welfare of the communities in which they compete. As Fisher (2007) points out, "Business and community are one and the same; we inhabit a common space and access common resources. Communities house our employees and their families, our company stakeholders, and our neighbors who are dependent on access to pooled resources" (p. 11).

Even in highly developed and industrialized nations, though, there are communities that have been marginalized which require a significant redistribution of wealth in order to achieve parity with the mainstream societies in which they exist and this is one area where corporate social responsibility can play an important role. In this regard, Fisher notes that, "Access to resources is not always equal or balanced. CSR ultimately requires consideration of, and positive actions towards balancing that access to key resources across communities" (p. 11).

Notwithstanding the growing recognition of the need for corporate social responsibility, there has not necessarily been a corresponding increase in the business ethics that support the process. For instance, Jewe (2008) cites the erosion of ethical practices in recent years as epitomized by Enron et al., and argues that, "The challenge in coming years will be to create corporate cultures that encourage and reward integrity as much as creativity and entrepreneurship. Executives need to start at the top, becoming exemplary managers [and] the moral compasses for the company" (p. 2).

The results of the limited amount of research in this area to date indicate that business leaders who model ethical behaviors reduce misconduct in the workplace compared to business leaders who do not (Jewe, 2008). Although quantifying the specific contributions of a reduction in workplace misconduct is difficult, it is reasonable to suggest that the impact will be positive.

In fact, based on the research to date, Jewe concludes that, "It would appear that the integrity of those leading organizations, and the ethical behavior of such leaders in the workplace, can have a positive impact on their employees and the organization as a whole" (2008, p. 3). These findings are in sharp contrast to the corporate culture that existed in the not-too-distant past that placed a higher priority on firm performance than the company's impact on its stakeholders.

In this regard, Creel (2011) points out that: Many corporations now routinely engage in socially responsible behavior as a part of their business operations. A generation or two ago, this was virtually unheard of in the United States. In fact, Americans were more likely to hear of what 'Big Business' was doing to spoil the environment rather than repair it" (p. 23) Indeed, Upton Sinclair's The Jungle and other reformist efforts resulted in a wholesale revision in the way businesses operated that included practices that could be viewed as socially responsible today.

Given the increasingly competitive nature of the global marketplace, though, selling business leaders on the idea that sometimes-costly corporate social responsibility initiatives are in their best financial interests may be challenging, especially when all of the business's stakeholders are taken into account. For example, Murtaza and Aktar (2014) report that, "Corporate social responsibility are actions that result in further social good, these social goods are beyond the interest of the firm" (p. 1914).

Although more research in this area is needed, many of the studies to date have found that there is a direct positive relationship between corporate social responsibility and financial performance (Murtaza & Aktar, 2014). Because profitability is a key determinant of business survival, business leaders would be malfeasant if they ignored this need, but profitability is not the only measure of business success today.

Therefore, otherwise-profitable businesses can be motivated to pursue corporate social responsibility initiatives for other reasons that may be unrelated to their bottom line but which nevertheless tend to cumulative improve their financial performance. For example, a study by Peters and Mullen (2009) found that although a majority of American business leaders agree that corporate social responsibility is an important consideration for them and their stakeholders, there is less agreement concerning the specific motivations that should drive these initiatives.

Because most of the studies to date have focused on the short-term impact of CSR initiatives, the long-term cumulative effects of these efforts have not been adequately analyzed. Based on their analysis of 81 of the top 100 companies in the Fortune 500, Peters and Mullen concluded that, "While cross-sectional analyses of CSR have produced ambiguous results, our analysis provide evidence that time-based, cumulative effects of CSR on firm financial performance are positive and strengthen over time" (2009, p. 3).

These findings indicate that, at least over the long-term, corporate social responsibility has a positive impact on a business's profitability as well as on its stakeholders (Peters & Mullen, 2009). The overwhelming majority of businesses in the United States, though, are not on the level of the top 100 companies in the Fortune 500 (or even the "Fortune One Million") and the overwhelming majority of small businesses fail within their first year of operation.

In this regard, a study by Jones and Jonas (2011) found that, "Not surprisingly, CSR activities have been largely conducted by large multinational companies. [Eighty percent[ of the global Fortune 250 (G250) companies issue CSR reports and 45% of the largest 100 companies in 22 countries issue CSR reports" (p. 67). Therefore, most businesses do not enjoy the luxury of waiting for the long-term cumulative effects of corporate social responsibility to boost their profitability, and even successful small businesses do not have the deep pockets of their larger counterparts to participate in CSR initiatives.

For these businesses, CSR may appear to be a luxury they cannot afford. For example, Mohr and Webb emphasize that: Corporations often struggle in deciding how to reconcile these social demands with those of shareholders for profit maximization. Although the majority of studies on the topic have found a significant positive relationship between corporate social responsibility and financial performance, the payoff from socially responsible programs is not guaranteed and may take time. For this reason, many managers still view CSR as an expense rather than an investment. (p.

122) Even though this perspective is shared by many SMEs, it is becoming increasingly clear that many companies regardless of size or type have embraced corporate social responsibility because it is in their best interests. The importance of CSR as part of a company's business model can be seen in Popa and Salante's finding that, "Although only large corporations used it at first, today CSR is part of the business strategy of many small and medium size companies also" (2014, p. 137).

Likewise, Jones and Jonas (2011) emphasize that, "The [CSR] concept is just as valid for small and medium-sized entities" (p. 67). The validity of the CSR concept for small and medium-sized enterprises relates to its win-win qualities for the company as well as its extended stakeholders. For instance, Jonas and Jones conclude that, "If increased CSR were demonstrated to lead to increased sales, however, companies would be encouraged to become more socially responsible.

To the extent that increased CSR results in improved communities, consumers who live in those communities would clearly benefit" (2011, p. 68). Therefore, the growing trend for SMEs to engage in CSR activities can be attributed, at least in part, to the fact that studies have found that consumers have a more positive image of businesses that support a cause and would be more likely to purchase from them (Popa & Salante, 2014).

Likewise, Mohr and Webb (2009) report that, "Cause marketing has grown to become a widely accepted business practice as it has simultaneously evolved from a short-term sales-enhancement tactic to a means for improving brand equity and corporate image" (p. 122). Cause marketing is a high-profile activity that can generate significant consumer interest, just as community-oriented activities can provide companies with substantial consumer interest, making them the CSR alternative of choice for many businesses.

For instance, May and Cheney (2007) report that, "Community-oriented activities may be preferred by corporations because of their ability to generate better publicity and garner public goodwill" (p. 127). Some indication of the growing popularity of community-oriented activities in the retail sector can be discerned from the CSR efforts used by a number of U.S. corporations in recent years as set forth in Table 1 below.

Table 1 Major retailers' community-based CSR activities Retailer Description of CSR activities Walmart In 2009, Walmart donated more than 127 million pounds of food to Feeding America; achieved a 60% increase in its vehicles' fuel efficiency since 2005. Costco Implemented an energy management system across the entire company that reduced energy usage; in addition, by the end of 2008, the company had 19 stores in Hawaii and California with operating solar power systems.

Home Depot Donated more than $1 million to relief efforts in the Gulf Coast region after Hurricane Katrina; donated building products to historically black colleges and universities for construction projects. Target Donates 5% of its net income each week to support its local communities; company has both cardboard and electronics recycling programs.

Lowe's Groups of Lowe's employees, known as "Lowe's Heroes," participate in more than 1,000 volunteer projects across the nation; the company donated more than $1 million in materials to support these projects; in addition, the company's "Toolbox for Education" program assisted almost 900 public schools across the United States. Best Buy Collected 74 million pounds of electronics for recycling; 69% of stores built in 2010 were LEED-certified or attempting to achieve LEED certification Staples Energy-reduction plan established in stores; recycling programs for ink and toner cartridges. T.J.

Maxx Donates money and collects customer donations to support Save the Children, Autism Speaks, and the Joslin Diabetes Center. J.C. Penney Donated $250,000 to the American Red Cross; during 2009, stores recycled 89,000 tons of cardboard, 5,000 tons of plastic, and 8,700 tons of plastic hangers Office Depot Company foundation donated more than 300,000 backpacks to school children in 2009; the company also offers a limited number of free resume copies and faxes for the unemployed. Source: Adapted from Creel, 2011, p.

23 The CSR initiatives described in Table 1 above will clearly not be reproducible for small business owners, but the major theme that emerges from these efforts is that these retailers are leveraging their position in the community in ways that are not only socially responsible, but they are socially responsible in highly visible ways. In many of these instances, these companies were achieving major contributions with little real investment in terms of out-of-pocket expenses.

Certainly, any cost-effective marketing initiative that causes consumers to increase their interest in a company will make business owners take notice, and it is therefore not surprising that growing numbers of small- to medium-sized enterprises are also using corporate social responsibility in strategic ways to grow their market share. Just as the effects of ethical business practices are difficult to quantify, though, so too are the net effects of corporate social responsibility.

For example, May and Cheney (2007) point out that, "While corporate executives might believe that CSR has a positive impact on financial performance, it might be difficult for corporations to actually measure the impact and link the two variables conclusively" (p. 127). The potential for a company to be highly regarded by its consumers and society through its corporate social responsibility actions, the potential for a company to go bankrupt as a result of these activities is also a possibility.

As Jones and Jonas (2011) point out, "Although in practice many CSR actions potentially benefit a company, they do so in ways that tend to be long-term and difficult to quantify" (p. 66). In contrast to the more clearly defined CSR activities that are engaged in by larger companies, the types of corporate social responsibility practices used by SMEs may be less evident, but just as important to their long-term success as their larger counterparts.

For instance, Jones and Jonas point out that, "SMEs may not refer to CSR activities as such, but they too practice CSR by: providing excellent goods and services; being great employers; engaging with their employees and other stakeholders; and being alert to health and safety issues in the workplace and for customers" (2011, p. 66). In addition, SMEs practice CSR activities when they operate in a sustainable fashion while reducing their impact on the environment.

According to Jones and Jonas, "All these activities are examples of socially responsible behavior, even if they are not always labeled as such" (2011, p. 67). Many SME owners would likely be gratified to learn that the manner of doing business in an ethical fashion with concern for all their stakeholders are regarded on the same level as the CSR activities used by the Fortune 500, but they may remained unconvinced that CSR in general is in their best interests.

Therefore, it should be noted that despite the increasing popularity of CSR initiatives as part of the business sector's marketing strategy, there have been some authorities who have been critical of corporate social responsibility despite its demonstrated long-term benefits (Popa & Salante, 2014). In this regard, Popa and Salante report that, "There are still certain authors that are against CSR practices, naming them harmful both at the level of the individual and in relation to the economy as a whole" (2014, p. 139).

Some of the factors that have been cited as being harmful aspects of CSR include: (a) costs incurred by investing in different social programs (which limit profit maximization), (b) the lack of knowledge or of skilled human resources to best handle CSR, and (c) lack of consistent legal regulations concerning social actions (Popa & Salante, 2014, p. 139).

Beyond these constraints, there is also the issue of corporate image and consumer goodwill that must be taken into account when launching a CSR initiative because canceling support for these programs can result in serious backlash. For example, Thuije (2009) emphasizes that, "Some organizations have already integrated CSR into their strategies and made a commitment to both people and the planet. Initiatives were set up, responsibilities taken. These organizations.