Literature Review What Is Corporate Social Responsibility Management Essay

Literature Review What Is Corporate Social Responsibility Management Essay CSR  is the concept in which companies consider the interests of society by taking responsibility for the impact of their activities on customers, suppliers, employees, shareholders, communities and the environment in all aspects of their operations.  This obligation is seen to extend beyond the statutory obligation to comply with legislation and sees companies voluntarily taking further steps to improve the quality of life for employees and their families, as well as for the local community and society at large. According to Eric Orts of the University of Pennsylvania, Corporate social responsibility (CSR) has gained more interest in the past decades but it dates back to the 1930s. Just before World War II, German industrialist Walter Rathenau claimed that business corporations had become very large and that they had grown to be a significant part of the society. According to Rathenau, even though fundamentally a corporations intent is the pursuit of private interests and profits for owners of the company, they are increasingly bearing the marks of an undertaking and, to an increasing degree, have been serving the public interest (Kessler, 1930). Further, philosophers John Dewey and James H. Tufts, in their book ethics (1908), raised the concept that it is not sufficient to view companies as purely economic machines and that companies should be involved in public duty as well. Then 65 years later Davis in 1973 stated that, Corporate Social Responsibility of the firm is the firms consideratio ns of, and response to, issues beyond the narrow economic, technical, and legal requirements of the firm to accomplish social and environmental benefits along with the traditional economic gains which the firm seeks. In 2004, Sir Stephen Timms, U.K. Minister for CSR, Royal Institute for International Affairs suggested that Economic progress through a fair and open world trading system is essential to tackle poverty and ensure a safer more secure world for everyone now and for future generations. The challenges remain of ensuring that the benefits of that progress reach all sectors in all countries and are not at the expense of the environment. According to Hamann, 2006 the restructuring of the role of business in the quest of sustainable development has been an objective since the mid1990s. He also stated that businesses had to respond to this changing societal expectation by increasingly redefining and justifying their involvement in developmental issues in terms of corporate social responsibility. Regardless of whether one accepts or rejects CSR premise, the idea of CSR presupposes that businesses have obligations towards the society that go beyond profit-making to include helping to solve social and ecological problems. In the November of 2007, the Irish President Mary McAleese used the occasion of her address to the Annual Dinner of the Institute of Chartered Accountants in Ireland to air some questions about the nature of corporate social responsibility in Ireland. She said corporate responsibility is about mainstreaming the best social and environmental practice right through the length and breadth of business operations. It is difficult to see how it can be described as anything other than good news for society. In June of 2007, an online survey was published in the magazine Accountancy Ireland and in the words of one of the respondent from the Institute of Chartered Accountants, Ireland the Corporate social responsibility is simply about giving a damn, or to quote another statement by one of the members CSR means ensuring that through the activities of the company, society in its broadest sense is treated with the respect that you as an individual would expect to be treated. In the words of Ludescher and Mahsud, 2010, corporate social responsibility (CSR) refers to any activity that promotes the welfare of any stakeholder of a business corporation. Sometimes CSR refers to philanthropic programs targeting communities or employees. Other times it refers to commitments to promote the welfare of suppliers. It also refers to a variety of activities designed to enhance environmental stewardship or environmental sustainability. More generally, it refers to the vague intention to better society or corporate citizenship. When used very loosely, the term can be conflated with general ethical practices with regard to customers, investors, or any other stakeholder. In short, the term has a variety of meanings and applications. As it is used today, it can be applied to every business in all industries. According to Responsible Business Guide, 2010 at its core CSR is equal to a responsible business. It states that good business have always been about being socially responsible. Like quality, integrity, honest dealing and long term trust balanced by stewardship of resources, fair profits and public accountability. The guide also clearly mentions that a business must certainly fulfill basic social responsibilities in any case and for which charity cannot be used as a substitute. Anita Roddick, founder of The Body Shop states, There is no more powerful institution in society than business and the business of business should not be about money, it should be about responsibility. It should be about public good and not private greed (Responsible Business Guide, 2010). Also, Stephen Frost, CSR Asia said that the lesson is simple: if companies dont pay enough attention to what people say about them or act quickly, then there is a real chance that information can be potentially harmful. The China State-Owned Assets Supervision and Administration Commission, believes that the Corporate Social Responsibility (CSR) is an idea that enterprises can and should take responsibility for their impacts on society and environment as they pursue profits. The concept has been variously defined, and is also used interchangeably with terms such as corporate citizenship, business in society and business and sustainable development. Each has a slightly different flavor and history. Fulfilling social responsibility requires central enterprises to be human-oriented, stick to scientific development, and be responsible to stakeholders and environment, so as to achieve the harmony between enterprises growth, society and environment. The Draft ISO26000 guidelines define CSR as, The responsibility of a company for the impacts of its decisions and activities on society and the environment, through transparent and ethical behavior that contributes to the sustainable development, health and the welfare of society; takes into account the expectations of stakeholders; is in compliance with applicable law; is consistent with international norms of behavior; and is integrated throughout the company. Also, according to the World Business Council for Sustainable Development Corporate Social Responsibility means, The continuing commitment by business to behave ethically and contribute to economic development, while improving the quality of life of the workforce and their families as well as of the local community and society at large. Well, CSR is no silver bullet for social change. The author states that collaborative action and partnership with the voluntary, community and public sectors are needed to see signi ¬Ã‚ cant and sustainable change. Expectations of CSR should, however, be realistic yet ambitious. (Staples, 2004) Different authors and agencies have different takes on explaining the meaning of Corporate Social Responsibility (CSR) in their own words. Their basic stand is the same difference visible is that they keep adding new views to it. 1.2 Evolution of CSR In the last 15 years or so the idea of CSR has become an integral part of any business organization. In this period through consolidation and specialization had emerged the three waves of CSR, which are different but coinciding. The first wave began in the beginning of 1990s called the compliance wave. During this time international agencies promoted a number of CSR reporting standards to assure the consumers that the supply chain of various branded products was clean. This wave on the world wide basis started a drive for certification for quality and a third party verification of factory claims about labour standards, social and environmental performance. A number of verifiable corporate social responsibility standards evolved during this wave. The second wave began in the mid-1990s and it was termed as the triple bottom line wave. During this wave all the attention was focused on organizations way of running the business in relation to the environmental, social and financial impact on the society. This wave influenced organizations to come up with a number of articles convincing the businessmen that triple bottom line was a fruitful investment that would pay back through an enhanced marketing image and cost savings. This idea of the TPL being helpful gave birth to an entire industry which prepared the organizations for TBL. This wave made the companies conscious of their image and made them take up projects which were pro-environment and pro-society. The concept of triple bottom line successfully developed the phenomenon that CSR is a driver of any business and described various ways of measuring the impact of the business on both the environment and the society. This wave overlapped the first wave for about five years. The third wave emerged in the mid-2000s and it was termed as the responsible competitiveness wave. Organizations entered this wave with an understanding that in any way CSR does not state that the business should lose out on its profits and the responsible behaviour of an organization can yield concrete rewards. In other words any business that was following responsible practices, the market would systematically and comprehensively reward that business. On the other hand any organization was punished if they showed any kind of disregard to the social and environmental expectations. In Pakistan an industry wide research was conducted in the year 2004 and in almost all the cases it was evident that financial performance of businesses increased with increase in social performance. Responsibly competitive markets presume a society that is both aware of its rights as consumers and carefully uses its purchasing power to regulate corporate behaviour. The wave uses powerful communication too ls and the media of the information age to react quickly to the professed corporate behaviour, good or bad. Evidence indicates that organizations who impose their image as a responsible business would gain an advantage of altering societys expectations from them. (Responsible Business Guide: A Toolkit for Winning Companies, 2010) 1.3 Who does CSR? With industrialization, the impacts of business on society and the environment assumed an entirely new dimension. The corporate paternalists of the late nineteenth and early twentieth centuries used some of their wealth to support philanthropic ventures. By the 1920s discussions about the social responsibilities of business had evolved into what we can recognize as the beginnings of the modern CSR movement. In 1929, the Dean of Harvard Business School, Wallace B. Donham, commented within an address delivered at Northwestern University: Business started long centuries before the dawn of history, but business as we now know it is new new in its broadening scope, new in its social significance. Business has not learned how to handle these changes, nor does it recognize the magnitude of its responsibilities for the future of civilization. http://www.brass.cf.ac.uk/uploads/History_L3.pdf Historians of corporate social responsibility generally agree that the concept emerged in the 1930s and 1940s. It became formalized in 1953 with the publication of Social Responsibilities of the Businessman, a book by Howard Bowen. (Dick Jones Communications, 2010) CSR has now found its way in almost every country. The difference visible is the magnitude on which it is followed and used to ones benefit. CSR was religiously followed by developed countries like United Kingdom and United States of America; they are two the developed countries where it is quite popular and now it is steadily growing in a large number of developing countries. CSR reporting is being followed by not only big multinational companies but also SMEs. The number of companies reporting on CSR has been increasing at a fair pace. In practice, much of the business activity that has so far been labeled CSR has been driven by the concerns of investors, companies, campaign groups and consumers based in the worlds richest countries such as United States of America, United Kingdom, France, Australia, Germany among others. National CSR agendas in middle and low-income countries have been less visible internationally, and have often not been labeled CSR. The result has been CSR practices that are largely framed in rich countries, then internationalized and transferred to other businesses and social settings through international trade, investment, and development assistance. The strategic challenge for governments at national and local levels is how best to shape an agenda that has been largely market-driven and responsive to concerns of rich country stakeholders. Over the past five years or so, governments, companies and NGOs in many middle-and-low-income countries have accelerated a process of adaptation of the dev eloped-country-driven CSR agenda through greater direct engagement. CSR movements and initiatives have emerged in countries such as China, India, South Africa, the Philippines and Brazil, among others. (CSR and Developing Countries, 2007) Moving on from countries that follow CSR to companies that follow CSR, Europes top 100 companies have significantly increased the level of ethical reporting in their annual statements. In 1992 only 12 percent of Europes top firms included a statement of ethical policy in their annual reports, compared with 80 percent in 2003. Also, 96 percent of UK companies say that environmental and social transparency is as important as transparency in economic and businesses issues; non-financial reporting is still widely seen as a PR or marketing tool. (Financial Management, 2003) In 2005, 360 different CSR-related shareholder resolutions were filed on issues ranging from labor conditions to global warming. Government regulation increasingly mandates social responsibility reporting. These pressures clearly demonstrate the extent to which external stakeholders are seeking to hold companies accountable for social issues and highlight the potentially large financial risks for any firm whose conduct is deemed unacceptable. Of the 250 largest multinational corporations in the world, 64% published CSR reports in 2005, either within their annual report or, for most, in separate sustainability reports supporting a new cottage industry of report writers. (Porter Kramer, 2006) According to a recent KPMG study (2005), CSR reporting has changed from purely environmental to concentrating on sustainability and has now become mainstream practice among the top 250 companies of the Fortune 500. In addition to CSR reporting, more than 1000 corporations in Europe and the US have developed or signed codes of conduct governing their social, environmental and ethical practices, and more than 2000 corporations now report on these practices. (Money Schepers, 2007) It also matters a lot for the global economy to what extent small businesses decide to engage in CSR activities. Although it is much more complex to identify, investigate and communicate CSR in the small business, the author believes this area deserves more attention due to its potential impact on the global economy. The grand impact of small businesses CSR engagement on state and civil society has been severely underestimated by researchers and policy-makers. SMEs are motivated, challenged and engaged in CSR issues in many very different ways compared with large  ¬Ã‚ rms. However, the author states that more research is needed to understand in detail the conditions and strategies for SMEs to adopt CSR practices. Research shows that an improved understanding of current CSR practices in SMEs has the potential of stimulating a high impact for the global economy and society as well as for the SMEs themselves. Beyond multinational companies, which pioneered in this  ¬Ã‚ eld with conspicuous efforts, SMEs are developing new tools and approaches to manage social and environmental issues within the scope of their strategic and competitive activities. (Morsing Perrini, 2009) 1.4 Why is it done? In the 21st century marketplace the organizations are becoming more conscious of their overall image and how the world looks at them. The organizations are conscious of human rights and of being economically, socially and environmentally active and responsible. The organizations are being pressurized from different directions to follow ethical practices in business an example being the Companies Act 2006 enshrining in law the concept of enlightened shareholder value, a form of corporate social responsibility, in place of a directors traditional common law duty of loyalty. Researchers have found a strong correlation between social performance and financial performance of a business and it can be proved by stating that now days consumers are well aware of the companies who are socially and environmentally more responsible, especially in the developed countries consumers are placing more importance on the social responsibility of firms. However, the scale and nature of the benefits of c orporate social responsibility (CSR) go beyond the financial ones and can include benefits such as improved perceptions of the company, proactive management of risk, building loyalty-based customers on account of distinctive ethical values etc. Concerns about corporate social responsibility have grown significantly during the last two decades. Not only has the issue become commonplace in the business press and among business and political leaders but a body of academic literature has also emerged around it. Nevertheless, little theoretical attention has been paid to understanding why or why not corporations act in socially responsible ways. (Campbell, 2007) Governments, activists, and the media have become adept at holding companies to account for the social consequences of their activities. Myriad organizations rank companies on the performance of their corporate social responsibility (CSR), and, despite sometimes questionable methodologies, these rankings attract considerable publicity. As a result, CSR has emerged as an inescapable priority for business leaders in every country. Many companies awoke to it only after being surprised by public responses to issues they had not previously thought were part of their business responsibilities. Nike, for example, faced an extensive consumer boycott after the New York Times and other media outlets reported abusive labor practices at some of its Indonesian suppliers in the early 1990s. Shell Oils decision to sink the Brent Spar, an obsolete oil rig, in the North Sea led to Greenpeace protests in 1995 and to international headlines. Pharmaceutical companies discovered that they were expected t o respond to the AIDS pandemic in Africa even though it was far removed from their primary product lines and markets. Fast-food and packaged food companies are now being held responsible for obesity and poor nutrition. Activist organizations of all kinds, both on the right and the left, have grown much more aggressive and effective in bringing public pressure to bear on corporations. Activists may target the most visible or successful companies merely to draw attention to an issue, even if those corporations actually have had little impact on the problem at hand. Nestlà ©, for example, the worlds largest purveyor of bottled water, has become a major target in the global debate about access to fresh water, despite the fact that Nestlà ©s bottled water sales consume just 0.0008% of the worlds fresh water supply. The inefficiency of agricultural irrigation, which uses 70% of the worlds supply annually, is a far more pressing issue, but it offers no equally convenient multinational co rporation to target. Debates about CSR have moved all the way into corporate boardrooms. In 2005, 360 different CSR-related shareholder resolutions were filed on issues ranging from labor conditions to global warming. Government regulation increasingly mandates social responsibility reporting. Pending legislation in the UK, for example, would require every publicly listed company to disclose ethical, social, and environmental risks in its annual report. These pressures clearly demonstrate the extent to which external stakeholders are seeking to hold companies accountable for social issues and highlight the potentially large financial risks for any firm whose conduct is deemed unacceptable. (Porter Kramer, 2006) According to G.K. Kanji and P.K. Chopra (2010), there are various factors responsible for the steep rise in the number of corporations adopting CSR. First, consumers across the globe are becoming more and more aware of the environmental and social implications of their purchases and hence they take these issues into consideration when making their decisions. Second, globalization has given rise to new challenges for corporations in terms of government regulations, tariffs, varying standards, ethical issues, environmental restrictions, labor exploitation, and so on. These issues can be very costly for corporations, and hence corporations have to use socially responsible policies. There are several possible explanations for this increased attention in the UK to CSR issues. There are three speci ¬Ã‚ c ones: a general increase in concerns about ethics in British society; heightened awareness of risk and risk management; and the growth in media exposure concerning CSR. Aguilera et al., (2006) According to Dawkins Ngunjiri, 2008 evidence suggests that consumers and other stakeholders prefer companies that embrace social responsibility there for; reporting social and environmental impacts along with financial results has become routine practice for companies. Unlike highly regulated financial reporting, corporate social responsibility reporting (CSRR) is generally left to the companies discretion. As a result, companies have adopted varying forms of reporting such as triple bottom line or conformed to the standards of nongovernmental organizations (NGOs) such as the Global Reporting Initiative or Social Accountability International. There is an emerging stream of research examining how companies use CSRR to highlight their commitment to corporate social responsibility. To date, the research on CSRR has been focused primarily on Europe and the United States, but the emerging market economies that can quickly become corporate social responsibility (CSR) flashpoints are garne ring increased attention from researchers as well. Not only is it important for companies to engage in favorable CSR but also that they report those activities. KPMG published an International Survey of Corporate Sustainability Reporting to document the extent of company involvement in this practice. Clearly, company disclosures can lead to favorable perceptions of corporate governance, and investors use this information to make decisions. Outside of regulatory considerations, companies engage in CSRR for three primary reasons: (a) to maintain and enhance perceptions of legitimacy, (b) to manage the perceptions of key stakeholders, and (c) as a reflection of their corporate values. Legitimacy is a generalized perception that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, and beliefs. Consequently stakeholders, consumers, local communities, and NGOs can influence corporate behavior by arguing that a given practice does not conform to societal expectations or lacks legitimacy. Disclosures about CSR are one way that companies demonstrate their legitimacy to stakeholders. For instance, found that companies increased their environmental disclosures when their legitimacy was questioned due to environmental mishaps. According to Timothy M. Devinney (2009), there is an ongoing debate on the idea that what are the real costs and benefits of CSR reporting and this is due to the fact that very little evidence is available on this topic, for those with a narrow conception of CSR, the corporation has little, if any, obligation to the society other than the creation of economic rents that can accrue to the stakeholders with recognized rights to those rents. For those with an expansive view of CSR, the corporation should serve as an instrument of public policy by other means. For those seeking a compromise, CSR is something in between these two extremes. Although it is still contested whether corporations have social responsibilities beyond their wealth-generating function, there exists today increasing internal and external pressures on business organizations to fulfill broader social goals. The author further states that because business organizations are embedded in different national systems they experience divergent degrees of internal and external pressures to engage in social responsibility initiatives. The author further states that Orlitzky, Schmidt, and Rynes in 2003 provided a breakthrough in the CSR literature with meta-analytic evidence showing a significant positive effect of corporate social/environmental performance on corporate financial performance, and Mackey, and Barney in 2005 theorize with a supply and demand model that investing in socially responsible initiatives will maximize the market value of the firm. These studies should bring some closure on the long-running debate about whether it is in an organization s financial best interest to engage in CSR. Therefore, an important new line of inquiry within this field is no longer whether CSR works but, rather, what catalyzes organizations to engage in increasingly robust CSR initiatives and consequently impart social change. Aguilera et al., (2007) One persistent feature of debates about CSR is a deep skepticism about the intentions of companies. There is a recurrent suggestion that CSR activity is just window-dressing aimed at distracting attention from the real problems. The author asked this question to a number of the board directors working in various organizations and they all rejected this criticism. They claimed to be sincere in their desire to ensure that their companies behave responsibly in addressing the major social and environmental impacts associated with their business activities. (Mackenzie, 2007) There is an ongoing debate on the idea that do companies really report their activities to make a difference by presenting the various changes they make in the name of CSR or is it just a calculated effort to improve their image. It is very difficult to come to a conclusion on this debate as both in favor and against the above mentioned point have some strong arguments that they put forward. 1.5 Legitimacy and Stakeholder Theory in the case of CSR Legitimacy theory posits that organizations continually seek to ensure that they operate within the bounds and norms of their respective societies. These bounds and norms are not fixed, but change across time, thereby requiring the organization to be responsive. In a sense, there is a social contract between the organization and those affected by the organizations operations. The organization is expected to comply with the terms of this contract, and these expressed or implied terms are not static. An event study incorporating legitimacy theory was conducted by Patten (1992). Patten focused upon the change in the extent of environmental disclosures made by North American oil companies, other than Exxon Oil Company, both before and after the Exxon Valdez incident in Alaska in 1989. He argued that if the Alaskan oil spill resulted in a threat to legitimacy of the petroleum industry, and not just to Exxon, then legitimacy theory would suggest that companies operating within that industry would respond by increasing the amount of environmental disclosures in their annual reports. Pattens results indicate that there were increased environmental disclosures by the petroleum companies for the post-1989 period, consistent with a legitimation perspective. This disclosure reaction took place across the industry, even though the incident itself was primarily related to one oil company. Deegan and Gordon (1996) reviewed annual report corporate environmental disclosures made by Australian companies across the years from 1980 to 1991. They investigated the objectivity of corporate environmental disclosure practices and trends in environmental disclosures across time. They also sought to determine if environmental disclosures are related to concerns held by environmental groups about particular industries environmental performance. The results derived by their study confirm, among other findings, that; (1) increases in corporate environmental disclosures across time are positively associated with increases in the levels of environmental group membership; (2) Australian corporate environmental disclosures are overwhelmingly self-laudatory: and (3) there is a positive correlation between the environmental sensitivity of the industry to which the corporation belongs and the level of corporate environmental disclosure. Deegan and Gordon argue that the levels of corporate e nvironmental disclosures are associated with the legitimation process, whereby companies seek to attain the status of legitimacy. (Deegan Brown, 1998) Banks with a higher visibility among consumers seem to exhibit greater concern to improve the  corporate  image through  social  responsibility  information disclosure.  Results thus suggest that legitimacy  theory  may be an explanation of  social  responsibility  disclosure by Portuguese banks.   (Branco Rodrigues, 2006) Stakeholder theory is a theory of organizational management and ethics. Indeed all theories of strategic management have some moral content, though it is often implicit. This is not to say that all such theories are moral, as opposed to immoral. Moral content in this case means that the subject matter of the theories are inherently moral topics (i.e., they are not amoral). Stakeholder theory is distinct because it addresses morals and values explicitly as a central feature of managing organizations. The ends of cooperative activity and the means of achieving these ends are critically examined in stakeholder theory in a way that they are not in many theories of strategic management. Stakeholder theory is conceived in terms that are explicitly and unabashedly moral. Managing for stakeholders involves attention to more than simply maximizing shareholder wealth. Attention to the interests and well-being of those who can assist or hinder the achievement of the organizations objectives is the central admonition of the theory. (Phillips et al., 2003) The social responsibility of business has become a major issue in recent years and the reporting of such activity is becoming more prevalent. Companies are attuning to the benefits of being seen as socially responsibly and many industries are jumping on the bandwagon of reporting CSR and using different media to communicate their activities in this arena to their stakeholders. Companies are attuning to the benefits of being seen as socially responsibly and many industries are jumping on the bandwagon of reporting CSR and using different media to communicate their activities in this arena to their stakeholders. The article considers the content of one type of such communications, the annual report,