social responsibility of business organizations

8/8/2019 Social Responsibility of Business Organizations

http://slidepdf.com/reader/full/social-responsibility-of-business-organizations 1/12

Business Ethics Social Responsibility of

Business OrganizationsCorporate social responsibility ("CSR" for short, and also called corporate

conscience, citizenship, social performance, or sustainable responsible business) isa form of corporate self-regulation integrated into a business model.

Mohd Imran Sherwani

MBA-8029/09

11/30/2010



1

Social Responsibility of Business Organization: By Imran Sherwani

Corporate Social Responsibility

Corporate social responsibility (CSR) is commonly described by its promoters as

aligning a company's activities with the social, economic and environmental expectations

of its "stakeholders." It has become a multi-billion dollar public relations specialty in the

business world.

CSR and public relations

With the growing popularity of CSR in the last few years, especially in Europe and more

recently in the U.S., a number of major PR firms have responded by establishing

specialist CSR practice groups within their companies.

In a review of the role of PR firms in corporate social responsibility programs, Lisa

Roner wrote in Ethical Corporationthat "many early efforts to communicate oncorporate responsibility have been high on production value and low on substance."

Citing examples such as Hill & Knowlton's role in the first Gulf War and the more recent

overbilling controversy that engulfed Fleishman-Hillard over its contracts with a Los

Angeles government agency, Roner argues, "It appears PR firms may have to clean up

their own ethics, since many corporate buyers seem to believe that a messenger with

internal issues of its own may not be best placed to deliver a credible message."

What tobacco industry documents reveal about the intent

and utilization of corporate social responsibility

When British American Tobacco was contemplating producing its first corporate social

responsibility report, their Corporate and Regulatory Affairs director, Michael Prideaux,

sketched some of the benefits of the process as being to build "credibility" and establish a

"robust platform on which to build a reputation communications campaign".

"The process will not only help BAT achieve a position of recognized responsibility but

also provide 'air cover' from criticism while improvements are being made. Essentially it provides a degree of publicly endorsed amnesty," he wrote.

A ten-page Tobacco Institute document from 1982 titled "The Development of Tobacco

Industry Strategy" indicates that the tobacco industry's early corporate social

responsibility programs were developed as part of an overall strategy to address

the tobacco industry's eroding power and credibility. The industry was facing multiple



2


challenges in areas of health, taxes, ingredients, product labeling, advertising, product

specifications and import-export. For the first time, industry adversaries were becoming

more organized and unified. The industry found that its formerly firmly committed

supporters were diminishing in federal and state legislative bodies, and the playing field

was "being defined and drawn too often by our adversaries." To address these challenges,

the Institute proposed that the industry become more involved in public service and social

affairs as a way "To receive broad recognition for responsible public service, i.e. to offset

the notion that we place profitability above public welfare."

The potential positive outcomes of adopting programs of this nature," wrote the Institute,

"may be increased goodwill and reputation of the tobacco industry; strengthening of

social and economic systems in which the industry operates; the ability to affect the

problem areas that most concern the tobacco industry and simultaneously obtain tax

benefits; a more sophisticated understanding by government regulators of the

needs/behaviors of industry. For example, a program to discourage teens from smoking(an adult decision) might prevent or delay further regulation of the tobacco industry."

The paper further states the expectation of a return on their investment in such programs.

An October 13, 1999 article by Bill Pecoriello of the "global wealth management"

company Sanford C. Bernstein, Pecoriello discussed the testimony of PM Chief

Executive Officer Michael E. Szymanczyk in the then-ongoing U.S. Department of

Justice's (DOJ) civil racketeering lawsuit. U.S. Attorney Sharon Eubanks asked Mr.

Szymanczyk about Philip Morris' corporate social responsibility makeover program

called "PM-21," which had been made visible to the public through the company's youth

smoking prevention television commercials, the publicizing of PM's support for domestic

violence shelters and feeding the hungry, and the cutting of some cigarette advertising

from youth-oriented publications. Szymanczyk told the court that PM started the PM-21

program to bring the company into alignment with society's expectations of a responsible

company and thus boost the company's stock value. U.S. attorney Eubanks questioned

whether the PM-21 program wasn't actually a publicity ploy instead, aimed at mitigating

public anger at the company and minimizing the potential for large jury awards in court

cases. To back this up, Ms. Eubanks presented a 1999 memo written by Steven C.

Parrish, (Vice President and General Counsel for PM) and sent to all PM employees. In

the memo, Mr. Parrish introduced 11 pages of comments from financial analysts about

the newly launched PM-21 program. Many of the comments focused on the effect the

PM-21 program was expected to have on potential jury awards:



3


"In the long term, we feel that a campaign such as this will help mitigate the need on the

part of juries to further punish tobacco companies for past behavior..."

"We believe that over time the [PM21] program should moderate public anger against the

company and the tobacco industry; reduce the risk of large-scale punitive damage awards

in individual smokers claim..."

"We reiterate our initial assessment of the image campaign as a long-term positive for the

company based on its ability to mitigate 'jury anger."

"...we feel that the company's 'admission', particularly over time, will actually strengthen

the company's legal defense and reduce the risk of large scale punitive damage awards in

individual smoker cases..."

"Leaving the 'flat-earth' society should moderate juror anger, a key factor in the juries'

willingness to punish Philip Morris...The company's revised position, in our opinion, will be viewed as far more reasonable and will likely help moderate potential juror anger."

The analysts also praised PM for avoiding offering an apology to the public for the

company's decades of wrongdoing, for carefully wording its public statements to preserve

its current liability defenses, and for continuing to sidestep any direct admission about the

link between smoking and disease.

CSR and regulation

CSR is often used to promote voluntary corporate initiatives, as an alternative toadditional or existing mandatory regulations. The International Chamber of

Commerce has aggressively promoted a standards-free concept of "corporate

responsibility" that enables companies to proclaim their "responsibility" without

necessitating companies to meet minimum standards.

Accordingly, many non-governmental organizations are suspicious of the CSR

"movement" as corporate PR or regulation-dodging. "The burgeoning industry known

as corporate social responsibility - or CSR ... is now seen as a vital tool in promoting and

improving the public image of some of the world's largest companies and

corporations," Christian Aid stated, in its report scrutinizing the record of several major

companies. "The image of multinational companies working hard to make the world a

better place is often just that - an image ... What's needed are new laws to make

businesses responsible for protecting human rights and the environment wherever they

work," Christian Aid argued.



4


CSR and sales

People's consumption patterns are influenced by corporate social responsibility efforts,

according to a 2004 survey of more than 400 "opinion elites" (members of the top 10

percent of society, with regard to media consumption, civic engagement, and interest in

public policy issues) in 10 countries, by APCO Worldwide. "Positive CSR informationhas led 72% of the respondents to purchase a company's product or services and 61% to

recommend the company to others. Conversely, negative CSR news has led 60% to a

boycott a company's products and services," reported PR Week.

Based on its survey, APCO suggested that companies "shape the opinion environment"

by touting their own CSR efforts, although "91 percent of respondents found CSR more

credible when verified by a third-party such as a non-governmental organization or local

government."

The UN's Global Compact

The meaning and practical effect of one international CSR program, the Global

Compact of the United Nations, has been debated. "Some companies are using it for

public relations," admitted consultant Scott Greathead, but it fosters "dialogue between

companies and their civil society critics" and "lends the stature of the Secretary

General to the concept of corporate responsibility." Consultant John Elkington contends,

"More attention should be paid to the extent to which corporate lobbying by Global

Compact members align - or don't align - with their stated commitment." Also, the lack of

enforcement "raises real concerns about the longer-term risk to the UN's reputation," hewarns, according to Business Week.

The four myths of CSR

Deborah Doane, the chair of the Britain-based organization CORE Coalition (for

"COrporate REsponsibility"), wrote an article for the Fall 2005 issue of the Stanford

Social Innovation Reviewwhere she listed and debunked what she called "the four key

myths of CSR." Those myths are:

1. "The market can deliver both short-term financial returns and long-term social benefits." According to Doane, not only are the interests of profit-seeking

corporations and broader society often at odds, but socially reponsible investments

by corporations "are particularly unlikely to pay off in the two- to four-year time

horizon that public companies, through demands of the stock market, often seem

to require."



5


2. "The ethical consumer will drive change." Doane writes, "Most surveys show that

consumers are more concerned about things like price, taste, or sell-by date than

ethics. Wal-Mart¶s success certainly is a case in point."

3. "There will be a competitive 'race to the top' over ethics amongst businesses."

While CSR efforts often "offer good PR," which companies of course like, "in

some cases businesses may be able to capitalize on well-intentioned efforts, say by

signing the U.N. Global Compact [see below], without necessarily having to

actually change their behavior."

4. "In the global economy, countries will compete to have the best ethical practices."

Although companies often claim that their presence in "developing" countries will

improve health, environmental and labor conditions, Doane counters, "companies

often fail to uphold voluntary standards of behavior in developing countries,

arguing instead that they operate within the law of the countries in which they are

working. In fact, competitive pressure for foreign investment among developing

countries has actually led to governments limiting their insistence on stringent

compliance with human rights or environmental standards, in order to attract

investment."

Business and conservative opposition to CSR

"The Business Council of Australia has come out against Government plans to create

legislation forcing directors to meet certain levels of corporate social responsibility

(CSR)," reportsThe Age.

"Mandating CSR through legislative intervention runs the risk of stifling the innovation

and creative approaches to CSR that are being adopted by Australian companies," claims

the lobby group, in a submission to a Parliamentary inquiry. The submission stresses,

"The greatest social contribution made by corporations is through employment, the goods

and services they create and the wealth these produce." It also highlights the existing

CSR efforts of Council members. The chair of Morgan Stanley Australia says

government mandates would result in less meaningful CSR: "People would invent a bit of

jargon, for example 'societally appropriate value maximisation,' as a way of asserting that

they were doing whatever Canberra thought it was causing them to do."

In March 2006, Competitive Enterprise Institute analyst Isaac Post wrote, "Though CSR

was labeled by free-market icon Milton Friedman as a 'subversive doctrine,' much of the

business community has embraced it, arguing that it is simply 'good for our business.'

Opponents of CSR have naturally argued the contrary, emphasizing the economic costs

of following such a 'misguided virtue' as CSR. But little attention has been paid to the



7


cappuccino, but does it really help them to refuse to give them money? For many families

around the world, the children need to work to avoid starvation. Declaring ourselves

righteous and hiring only adults doesn¶t fix the problem."

Progressive opposition to CSR

In a press release, Body Shop founder and early proponent of socially-responsible

business practices Dame Anita Roddick is quoted as saying, "I don¶t think Corporate

Social Responsibility is working. I think it¶s been taken over by the big management

houses, marketing houses, been taken over by the big groups. It¶s a huge money building

operation now."

Labor activist Jeff Ballinger dismisses CSR as cost-effective public relations. He told

the Corporate Crime Reporter: "The CSR cost for Nike is about $10 million to $12

million a year, just for the CSR staff and expenses, to go to these sustainability meetings

all over the world. ... They have two or three Nike people at every meeting. That¶s part of

the CSR game. ... I figure 75 cents per pair of shoes to the worker would fix the problem.

If Nike instead paid workers 75 cents more per pair of shoes, do you know what that

would cost Nike compared to the CSR cost? That would cost them $210 million a year."

Criticisms and concerns

Critics of CSR as well as proponents debate a number of concerns related to it. These

include CSR's relationship to the fundamental purpose and nature of business and

questionable motives for engaging in CSR, including concerns about insincerity andhypocrisy.

Nature of business

Milton Friedman and others have argued that a corporation's purpose is to maximize

returns to its shareholders, and that since only people can have social responsibilities,

corporations are only responsible to their shareholders and not to society as a whole.

Although they accept that corporations should obey the laws of the countries within

which they work, they assert that corporations have no other obligation to society. Some

people perceive CSR as incongruent with the very nature and purpose of business, andindeed a hindrance to free trade. Those who assert that CSR is contrasting

with capitalism and are in favor of neoliberalism argue that improvements in

health, longevity and/or infant mortality have been created by economic growth attributed

to free enterprise.



8


Critics of this argument perceive neoliberalism as opposed to the well-being of society

and a hindrance to human freedom. They claim that the type of capitalism practiced in

many developing countries is a form of economic and cultural imperialism, noting that

these countries usually have fewer labour protections, and thus their citizens are at a

higher risk of exploitation by multinational corporations.

A wide variety of individuals and organizations operate in between these poles. For

example, the REALeadership Alliance asserts that the business of leadership (be it

corporate or otherwise) is to change the world for the better. Many religious and cultural

traditions hold that the economy exists to serve human beings, so all economic entities

have an obligation to society (see for example Economic Justice for All). Moreover, as

discussed above, many CSR proponents point out that CSR can significantly improve

long-term corporate profitability because it reduces risks and inefficiencies while offering

a host of potential benefits such as enhanced brand reputation and employee engagement.

Ethical consumerism

The rise in popularity of ethical consumerism over the last two decades can be linked to

the rise of CSR. As global population increases, so does the pressure on limited natural

resources required to meet rising consumer demand (Grace and Cohen 2005, 147).

Industrialization, in many developing countries, is booming as a result of both technology

and globalization. Consumers are becoming more aware of the environmental and social

implications of their day-to-day consumer decisions and are therefore beginning to make

purchasing decisions related to their environmental and ethical concerns. However, this

practice is far from consistent or universal.

Globalization and market forces

As corporations pursue growth through globalization, they have encountered new

challenges that impose limits to their growth and potential profits. Government

regulations, tariffs, environmental restrictions and varying standards of what constitutes

"labor exploitation" are problems that can cost organizations millions of dollars. Some

view ethical issues as simply a costly hindrance, while some companies use CSR

methodologies as a strategic tactic to gain public support for their presence in globalmarkets, helping them sustain a competitive advantage by using their social contributions

to provide a subconscious level of advertising. (Fry, Keim, Meiners 1986, 105) Global

competition places a particular pressure on multinational corporations to examine not

only their own labor practices, but those of their entire supply chain, from a CSR

perspective.



9


Social awareness and education

The role among corporate stakeholders is to work collectively to pressure corporations

that are changing. Shareholders and investors themselves, through socially responsible

investing are exerting pressure on corporations to behave responsibly. Non-governmental

organizations are also taking an increasing role, leveraging the power of the media andthe Internet to increase their scrutiny and collective activism around corporate behavior.

Through education and dialogue, the development of community in holding businesses

responsible for their actions is growing (Roux 2007).

Laws and regulation

Another driver of CSR is the role of independent mediators, particularly the government,

in ensuring that corporations are prevented from harming the broader social good,

including people and the environment. CSR critics such as Robert Reich argue that

governments should set the agenda for social responsibility by the way of laws andregulation that will allow a business to conduct themselves responsibly.

The issues surrounding government regulation pose several problems. Regulation in itself

is unable to cover every aspect in detail of a corporation's operations. This leads to

burdensome legal processes bogged down in interpretations of the law and debatable grey

areas (Sacconi 2004). For example, General Electric failed to clean up the Hudson

River after contaminating it with organic pollutants. The company continues to argue via

the legal process on assignment of liability, while the cleanup remains stagnant. (Sullivan

& Schiafo 2005).

The second issue is the financial burden that regulation can place on a nation's economy.

This view shared by Bulkeley, who cites the Australian federal government's actions to

avoid compliance with the Kyoto Protocol in 1997, on the concerns of economic loss and

national interest. The Australian government took the position that signing the Kyoto

Pact would have caused more significant economic losses for Australia than for any other

OECD nation (Bulkeley 2001, pg 436). On the change of government following the

election in November 2007, Prime Minister Kevin Rudd signed the ratification

immediately after assuming office on 3 December 2007, just before the meeting of the

UN Framework Convention on Climate Change. Critics of CSR also point out that

organisations pay taxes to government to ensure that society and the environment are not

adversely affected by business activities.

Denmark has a law on CSR. On 16 December 2008, the Danish parliament adopted a bill

making it mandatory for the 1100 largest Danish companies, investors and state-owned



10


companies to include information on corporate social responsibility (CSR) in their annual

financial reports. The reporting requirements became effective on 1 January 2009. The

required information includes:

information on the companies¶ policies for CSR or socially responsible

investments (SRI)

information on how such policies are implemented in practice, and

information on what results have been obtained so far and managements

expectations for the future with regard to CSR/SRI.

CSR/SRI is still voluntary in Denmark, but if a company has no policy on this it must

state its positioning on CSR in their annual financial report. More on the Danish law can

be found at CSRgov.dk

Crises and their consequences

Often it takes a crisis to precipitate attention to CSR. One of the most active stands

against environmental management is the CERES Principles that resulted after the Exxon

Valdez incident in Alaska in 1989 (Grace and Cohen 2006). Other examples include

the lead poisoning paint used by toy giant Mattel, which required a recall of millions of

toys globally and caused the company to initiate new risk management and quality

control processes. In another example, Magellan Metals in the West Australian town of

Esperance was responsible for lead contamination killing thousands of birds in the area.

The company had to cease business immediately and work with independent regulatory bodies to execute a cleanup. Odwalla also experienced a crisis with sales dropping 90%,

and the company's stock price dropping 34% due to several cases of E. Coli spread

through Odwalla apple juice. The company ordered a recall of all apple or carrot juice

products and introduced a new process called "flash pasteurization" as well as

maintaining lines of communication constantly open with customers.

Stakeholder priorities

Increasingly, corporations are motivated to become more socially responsible because

their most important stakeholders expect them to understand and address the social and

community issues that are relevant to them. Understanding what causes are important to

employees is usually the first priority because of the many interrelated business benefits

that can be derived from increased employee engagement (i.e. more loyalty, improved

recruitment, increased retention, higher productivity, and so on). Key external

stakeholders include customers, consumers, investors (particularly institutional



11


investors), communities in the areas where the corporation operates its facilities,

regulators, academics, and the media.

Efforts to implement CSR

A very large number of social and voluntary organizations are contributing to the field of Corporate social responsibility by making it an important agenda where they clearly harp

for all the corporate bodies to adhere to the morns of CSR at all costs. In fact, these

voluntary organizations always go on devising newer and more pragmatic/stringent

norms of application of the requirements of Corporate social responsibility. A few of

them are:

Examples:- (lead partner Equal) Community Action Dacorum (lead partner IiC

Hertfordshire) Council for Voluntary Service St Albans District BITC - Business In the

Community CSR (India)- a subsidiary of IRDS, a Lucknow based Voluntary

organization.

social responsibility of business organizations

Documents