Corporate Social Responsibility: Ethics and Business Strategy

Introduction to Corporate Social Responsibility

Many organizations strive to increase their profit margins by doing everything possible—including engaging in unethical practices—to increase their revenues. Nevertheless, the past three decades have seen some organizations embracing Corporate Social Responsibility (CSR). This idea has become significantly important to almost every organization that seeks to increase revenues. Corporate social responsibility is also referred to as community responsibility, stewardship, corporate sustainability, corporate responsibility, accountability, and corporate ethics, among other terms. In essence, CSR enables organizations to incorporate people and the environment into their decisions, strategies, and plans (Anyango Ooko, 2014).

In this paper, the term "corporate social responsibility" refers to a set of actions by enterprises that are geared toward meeting the legal, ethical, economic, and discretionary responsibilities that stakeholders expect them to fulfill. Organizations should undertake the economic obligation of producing profits and meeting the consumption requirements of the people; legally, they are expected to fulfill their economic duties and mission within legal boundaries; firms' ethical obligations are to follow the moral standards of good conduct that define behavior in society; while discretionary concerns are non-mandatory actions expected by stakeholders (Anyango Ooko, 2014). The foundation of CSR is compliance with the laws and regulations that demonstrate an organization's commitments and duties. The values, strategy, operations, and decision-making of an organization must incorporate the environmental, social, and economic concerns of the public and its various stakeholders. The organization must be transparent and accountable while creating wealth, improving community well-being, and enhancing public health (Anyango Ooko, 2014).

The CSR and Corporate Governance (CG) management system aims at defining, understanding, and improving the balance between ethical practice and business. Organizations must demonstrate their competence to both stakeholders and investors. They are also required to comply with the requirements of emerging CSR and CG agendas. Moreover, managers and directors should operate their enterprises in a profitable manner while remaining responsible for their decisions. The greatest challenge for most organizations is to find solutions that sustainably address their Triple Bottom Line (TBL)—that is, the environmental, economic, and social aspects of their performance—based on discussions with their stakeholders (Castka, Bamber, & Sharp, 2005).

Holding Businesses Responsible for CSR

Many companies do not implement CSR simply because they consider it a waste of money and resources. Additionally, organizations that claim to follow CSR principles often treat it as a burden, investing minimal financial resources merely to satisfy government requirements. Nevertheless, certain environmental pressures may compel organizations to venture into CSR activities in order to survive in the competitive business world and remain relevant. Furthermore, failure to comply with CSR expectations increases the risk of business disruption (Anyango Ooko, 2014).

The environment within which an organization operates is interrelated. It comprises governments, investors, employees, insurers, shareholders, and financial institutions, among others. It is therefore fair for a business to give back to the public in the communities where it operates—this is the core objective of CSR. The need to conduct environmental assessments forces businesses to initiate CSR projects. Opportunities and threats are appraised against indicators of strengths and weaknesses in the global business arena, with the CSR framework forming the basis for this assessment. A firm that focuses solely on increasing its profit margins will not achieve the same level of success as organizations that contribute to society's well-being and build their prosperity by aligning their organizational strategies with environmental, ethical, economic, and social sustainability. Organizations with strong CSR policies are ultimately the ones that survive the challenges of the business world (Anyango Ooko, 2014).

Factors That Affect CSR Implementation

Many studies have been conducted on the importance of CSR to the economic stability of organizations. However, scholars have increasingly shifted their attention to corporate governance (CG) stakeholders, ethics, trust, and CSR accountability in economic conduct. Many experts argue that not enough research has been conducted to investigate why a company would act in a socially irresponsible manner. Moreover, most existing studies only investigate the link between financial performance and CSR, showing how CSR impacts financial performance rather than identifying the drivers of corporate governance and CSR adoption (Anyango Ooko, 2014).

There remains room to research the reasons why CSR adoption differs from country to country, rather than focusing mainly on what shapes CSR in general. CSR has gained significant attention from multinational and multidivisional managers and chief executives across the globe. The demands of stakeholders, the standards and norms of business, and the requirements of regulatory bodies for CSR also differ across nations. Stakeholders—including communities and societies—demand ethical, economic, legal, and discretionary responsibilities from firms. Communities and societies have general expectations of social legitimacy from governments (Anyango Ooko, 2014).

CSR can be examined at three levels—individual, societal, and organizational—and through two broad approaches. At the individual level, the focus is on ethical attitudes, ethical decision-making, and individual values and attitudes toward environmental and social stewardship. At the organizational level, the focus is on decision-making, leadership and strategy, corporate governance, organizational behavior, and stakeholder management. The most significant aspects of business ethics and CSR literature include ethical culture, codes of good conduct, the type of business, sanctions, the size of the organization, and reward systems. At the societal level, issues relate to community growth and development, human rights, policy and regulations, social sustainability, public concern and well-being, as well as culture and humanity (Anyango Ooko, 2014).

The two approaches applied to CSR and business ethics are normative and prescriptive. The normative approach outlines philosophically based moral duties and rules and prioritizes moral values, while the empirical approach describes and demonstrates how behaviors influence the process of ethical decision-making (Anyango Ooko, 2014).

There is significant pressure on executives to engage in social responsibility without compromising their duties to enhance shareholder value. Executives whose primary focus is profit maximization face strong criticism as they attempt to overcome hostile and antagonistic protests (Pearce & Doh, 2005). The following are key factors that affect CSR.

Stakeholders' concerns about a firm depend largely on the firm's size, which also affects the level of association between the firm and its stakeholders. Large companies—such as smelting and chemical production industries—are closely monitored by stakeholders since they are considered more dangerous to the environment and natural resources. In contrast, small businesses have generally not been held to the same standard regarding social responsibility. The size of the organization therefore defines the extent of its CSR involvement (Anyango Ooko, 2014).

Risk levels, share price performance, and profitability are directly influenced by a superior environmental record. Public companies are required to report on social risk assessment and their plans for incorporating environmental considerations into their investment strategies. With this transparency in place, customers and stakeholders feel encouraged to continue partnering with the company as it pursues its goals and objectives (Anyango Ooko, 2014).

Organizational ethics have a great impact on CSR because the morality of a business is tied to its ethical values in the way it conducts operations. Society expects a firm to demonstrate certain characteristics reflecting moral behavior in carrying out business. The firm should listen to its stakeholders whenever there is a complaint concerning immoral labor practices or environmental policies. Ethical motivation also guides organizations to do the right thing independently, without pressure from customers or government (Anyango Ooko, 2014).

The values, beliefs, and norms of an organization connect it to the environment in which it operates. Corporate ethics influence an organization's CSR activities and serve as a major motivator for CSR engagement. The implication is that an organization's own business ethics and moral obligations drive it to give back to its stakeholders (Anyango Ooko, 2014).

Conversely, some studies assert that a company will only adopt CSR principles if doing so is commercially profitable and socially aligned with its agenda. Conforming to the social performance expectations of a given society can lead to the achievement of social responsibility. The nature of the organization or its management may also influence a firm to engage in CSR, since CSR activities are often perceived as charitable and optional. Sometimes an organization may choose to take proactive action on ethical issues without external pressure, precisely because it has the flexibility to do so (Anyango Ooko, 2014).

Additionally, the culture of the firm—that is, the assumptions, values, and beliefs held by its members—is a significant element. These values can be used to gauge how responsible or irresponsible a firm is toward its business operations. The behavior shaped by a firm's culture will determine its ethical standards in areas such as product and service quality, customer and workforce engagement, and advertising. The type of organizational culture may affect CSR either positively or negatively (Sabir & Malik, 2012).

Communication is the bridge that connects an organization to its stakeholders—information is acquired and feedback relayed. While technology has eased the way information is exchanged, advances in communication technology have also changed the form and content of stakeholder communication, enabling closer monitoring of organizational activities. An organization's blog and social media accounts play a major role in ensuring that the required information reaches target audiences via the internet. The public will therefore view an organization positively or negatively depending on its CSR stance. CSR also builds the overall image of the company (Anyango Ooko, 2014).

Advances in technology also mean that organizational activities receive direct public commentary from customers, thereby influencing the company's activities and culture toward socially responsible behaviors. Public opinion on a particular organization is now considered critical, and companies respond promptly with a view to satisfying their customers. The public can also receive information about a company from various reliable and independent sources, rather than relying solely on emails, letters, brochures, and annual reports (Anyango Ooko, 2014).

The question "Responsibility to whom?" makes it difficult for many managers to come to terms with corporate social responsibility. Organizations that have adopted CSR view both the external and internal environment as part of their stakeholder landscape. Stakeholders are individuals or groups within or outside the organization who are interested in the organization's performance. Their interests are diverse, and each group responds differently to the needs of the organization. A typical example is Walmart, which is aggressive in its bargaining tactics with suppliers for the benefit of customers. Some suppliers view this as a form of CSR because it benefits customers and forces suppliers to be more efficient. Others argue that such aggressive tactics are unethical and not socially responsible because they cause American companies to retrench workers, outsource from countries with low labor costs, and in extreme cases, close factories entirely. According to one supplier, Walmart sells clothes at prices that U.S. companies could not match even if they paid nothing to their workers. Stakeholders are greatly affected by the organization's performance, and in turn, stakeholders can also significantly affect the success and performance of the organization (Daft & Marcic, 2006).

Stakeholder groups also exert significant influence over organizations. Primary stakeholders include customers, suppliers, investors, and shareholders. Without these groups, an organization may fail to thrive. Managerial productivity serves the interests of suppliers and shareholders by using available resources to generate profits. Workers should be fairly paid, properly supervised, and find satisfaction in their work; customers' primary concerns are quality, product safety, and availability of goods and services. Dissatisfaction among any group of stakeholders places the viability of the company in jeopardy (Daft & Marcic, 2006).

The community and the government are also significant stakeholders. The majority of corporations are established under legal charters and licenses that govern how they operate. They must function within the limits of environmental protection laws, safety regulations, and antitrust rules formulated by the government. The local government, the quality of life for residents, and the natural and physical environment are all part of the community stakeholder group. Special Interest Groups (SIGs)—another stakeholder category—comprise associations, consumer groups, professional associations, and political committees. Social activists recognize and exploit the power of the internet to organize stakeholders and pressure corporations to respect human rights and environmental concerns. For instance, the As You Sow (AYS) Foundation has used the internet to mobilize investors and convince shareholders to participate in social reforms (Daft & Marcic, 2006). SIGs are among the most powerful stakeholder forces that companies must contend with today, particularly on issues of environmental damage caused by business practices (Daft & Marcic, 2006).

Organizations that are socially responsible have a good understanding of how their actions affect stakeholders and therefore tend to be more philanthropic and invest for the sake of those stakeholders. For example, Bristol-Myers Squibb plays a crucial role in funding health facilities in Texas, Florida, and California, hiring peer health counselors and peer educators to help combat type 2 diabetes among the Hispanic population (Daft & Marcic, 2006). Organizations today increasingly face attacks from activists, and the activism of social and environmental associations has significant influence on a company's CSR activities. Since activists often have the support of other groups, it becomes difficult for organizations to avoid cooperating with them (Anyango Ooko, 2014).

References

Anyango Ooko, G. (2014). The environmental factors that influence implementation of corporate social responsibility (CSR) in an organization. Journal of Humanities and Social Science, 19(12), 95–102.

Castka, P., Bamber, C., & Sharp, J. (2005). Implementing effective corporate social responsibility and corporate governance: A framework. British Standards Institution.

Daft, R. L., & Marcic, D. (2006). Understanding management. Thomson/South-Western.

Pearce, J., & Doh, J. (2005). The high impact of collaborative social initiatives. MIT Sloan Management Review, 46(3), 30–38.

Sabir, H. M., & Malik, Q. A. (2012). Interdisciplinary journal of contemporary research in business. Significance, 3(10).

Zadek, S. (2007). The path to corporate responsibility. In Corporate ethics and corporate governance (pp. 159–172). Springer Berlin Heidelberg.