2009/12/01

Corporate Social Responsibility - Academic, Journal references ''Done by the Blogger''

Introduction

Corporate Social Responsibility (CSR) is a concern and an ever growing factor in the expectations of stakeholders. CSR is a fundamental addition to stakeholder’s criteria for judging organizations and evaluating organizations’ brand and reputation management (Lewis 2003). The purpose of this essay is to discuss the research essay question that “CSR is a marketing strategy and it has nothing to do with ethics”. This paper discusses the issues of advantages and disadvantages of CSR, how CSR conducted by organizations is related to stakeholders and shareholders and empirical evidences to show whether there is a relationship between CSR and performance. It will further discuss marketing strategy with ethics and the problems of lagging in CSR.

Define CSR

CSR has been defined in the literature as voluntary corporate actions designed to improve social conditions (Mackey, Mackey & Barney 2007). The Carroll’s four-part definition of CSR focuses on the types of social responsibilities it might be argued that business has. It attempts to place economic and legal expectations of business in context by relating them to more socially-oriented concerns. The four parts of CSR are economic responsibilities, legal responsibilities, ethical responsibilities and philanthropic responsibilities, being economic responsible is to make profit, maximize sales and provide investors with sufficient and attractive returns on their investment, being legal responsible is to obey all laws and adhere to all regulations, being ethical responsible is to avoid questionable practices and do what is right, fast and just, being philanthropic responsible is to be a good corporate citizen and make corporate contributions (Carroll & Buchloltz 2006). Within the stakeholder perspective, the success of an organization depends on its ability to balance the conflicting demands of its various stakeholders. Freeman (1984, p.46) defines ‘stakeholder as any group or individual who can affect or is affected by the achievement of the organization's objectives’. The concept of stakeholder group includes not only equity investors and creditors, but also employees, customers, suppliers, analysts, business contacts, the government and the public (Dellaportas et al. 2005). Shareholder can also be viewed as a stakeholder group (Mallin 2007). Shareholders are the most important stakeholders and without shareholders, an organization can not be set up.

Advantages and disadvantages of CSR

There are three advantages that an organization can benefits from CSR. Firstly, one of the most widespread arguments of business is the long term profitability. There is a win-win perspective on the relationship between CSR and long term profitability. It can be seemed that the more an organization benefits from CSR, the more it would integrate CSR as a strategic decision making (Ven 2008). In addition, CSR has benefited organizations from direct or indirect economic efficiencies. One of the benefits is that employees tend to choose to work for ethical organizations (Smith 2003).

Secondly, CSR can improve public image and reputation by effective communication to stakeholders which in terms of increase market opportunities. The idea of public image is closely associated with long term self-interest. Each individual organization seeks to enhance public image so that it may gain more customers, better employees, and other benefits (Davis 1973). In fact, CSR has become such an integral component of an organization’s reputation that the debate over CSR has started to move beyond whether an organization should make CSR commitments to protect reputation (Smith 2003). Nowadays, managers are increasingly being encouraged to integrate CSR into their business vision and brand management (Lewis 2003). Consequently, CSR is one of the fastest growing and least understood areas of reputation management (Fombrun et al. 2000).

Last but not least, CSR can build customer loyalty based on distinctive ethical values in order to gain more market shares. Studies also show there is a growing desire of customers to buy based on other value-based criteria, such environmental friendly products because consumers are demanding more than product from their favorite brands (Smith 2003). An organization which has a good reputation, environmentally and socially responsible will also gain trust among its customers and attain loyalty.

Although conducting CSR has the three main advantages, there are three disadvantages of putting CSR into practice. Firstly, the most widespread argument against CSR is the cost to implement CSR and the consideration of profit maximization (Davis 1973). Friedman argued that the social responsibility of business is to increase its profits and that increasing shareholder value is the only thing that matters (Dubria, Dalglish & Miller 2006). The reason is that a manager is the agent of shareholders and all of his decisions should maximize profits.

Secondly, CSR places individual organization at a competitive disadvantage, if they take action that costs money when others do not (Dubria, Dalglish & Miller 2006). There is a potential for organizations to increase costs for training of how to conduct CSR, stakeholder focus group session and CSR reporting. In addition, an organization might be placing it in a dangerous position in terms of global competition. The increase in the cost of products caused by social considerations, the organization might necessary raise the prices of products which make them less competitive in the global market (Carroll & Buchloltz 2006).

Last but not least, an additional reason against assuming social responsibility goals is that many businessmen may lack the perceptions and skills to do CSR. It is said that their outlook is primarily economic, and their skills are the same (Davis 1973). In addition, they might have implementing difficulties such as human resources and lack of time.

Theoretical foundation shareholder versus stakeholder

Shareholders are interested to have potential for capital gains, higher dividends and profit maximization of organizations. However, stakeholders are vital to the survival and success of business. Stakeholder theory explains that there is more just a relationship between an agent who has fiduciary responsibility to principle, there are also third parties to whom the corporation owes morally significant non-fiduciary obligations. The duties exist because, like shareholders, these other stakeholders also make investments in enterprises: employees invest their time and intellectual capital, and customers invest their trust (Graces, Waddock & Kelly 2001). There is a concern for the macro-level outcome of business decisions in ways that goes beyond the agent’s argument that a manager’s duty is solely to serve the employer loyally by contributing to profit maximization. Now, it is suggested that stewardship of society’s resources to more broadly serve society. Business was said to have stewardship responsibilities not just to shareholders but also to stakeholders (Lantos 2001).

In the long term, both shareholders and stakeholders benefit from CSR to have long term profitability due to the brand image, reputation, sales and customer loyalty. However, there is a reverse side of consideration in the short term such as one year, the more money spent for stakeholders such as higher bonus to employees and charity, the less the money left to pay dividends for shareholders. Although, stakeholder theory assumes that in order for corporate entities in a society to survive and prosper over a period of time; those entities must have good relationships with its critical stakeholders (Idowu & Papasolomou 2007). As a result of different interests between shareholders and stakeholders, CSR should be a balancing act: business must balance economic performance, ethical performance, and social performance, and the balance must be achieved among various stakeholders (Lantos 2001).

CSR is a marketing strategy and it is related to ethic

Ethics is the discipline that examines one’s moral standards or the moral standards of a society. Business ethics is a specialized of moral right and wrong that concentrates on moral standards as they apply to business institutions, organizations and behavior (Velasquez 2006).

Marketing strategy which is defined as the combination of product, price, distribution and promotion most suited to a particular group of customers (Neal, Quester, & Hawkins 2007). Marketing strategy in CSR is believed to create value not only for stakeholders of the organization, but also for an organization itself (Ven 2008). The marketing strategy for CSR is also called Cause Related Marketing (CRM) which is a strategy that aims to communicate a company’s striving for corporate social responsibility and to improve brand image (Baghi, Rubaltelli & Tedeschi 2007).

Most organizations choose what to conduct on CSR of the Socially Responsible Investment (SRI) to select suitable investment. The SRI involves considering the ethical, social, and environmental performances of companies selected for investment as well as their financial performance (Mallin 2007)

Although, organizations benefit themselves from CRM and SRI as a marketing strategy, stakeholders are also benefited by those activities. Personally, CSR is a marketing strategy and it is also related to ethics because organizations conduct ethical and social performance through CSR. This marketing strategy of social concern matches with the Carroll’s four components of CSR, organizations conducts CSR to be economic responsible to make profit, maximize sales and provide investors with adequate and attractive returns on their investment, be legal responsible to abide all laws and regulations, be ethical responsible to follow standards of acceptable behavior judged by stakeholders (Carroll & Buchloltz 2006). As a result, CSR creates win-win situation in which both corporation and one or more stakeholder groups are benefited. For an organization to success, it must conduct CSR as a marketing strategy with ethics for the long term profitability.

Empirical evidences of cost and better performance

Every social action is accompanied by costs of one kind or another. Money paid for CSR could have been paid to shareholders as dividends. Business can not always afford to be so generous, but executing CSR practices do not necessarily rule out making a reasonable profit (Handy 2002).

There are three academic literature has found some support for the premise that CSR makes financial sense. Firstly, drawing from the influence of CSR on loyalty in the social identity theory, the results show that CSR initiatives are linked to stronger loyalty because consumers have a more positive organization evaluation (Marin, Ruiz & Rubio 2008). From the surveys reviewed, a substantial number of consumers express a willingness to pay more for products and services associated with acceptable environmental and labour conditions of production. When price and quality of CSR and non-CSR products are the same, consumers choose to purchase CSR products increase (Fliess, Dubreuil & Agatiello 2007). Secondly, Margolis and Walsh (2001) found that nearly 100 studies examined the relationship between corporate social performance (CSP) and corporate financial performance (CFP) over the last 30 years. Most studies point to a positive relationship between CSP and CFP. Not surprisingly, it is generally inferred that CSR does produce financial dividends for organizations. Last but not least, most of studies have compared the performance of portfolios of firms with high CSR to benchmark portfolios such as the S&P 500. The Domini 400 Social Index, which has met certain standards of social and environmental excellence, has outperformed the benchmark S&P 500 firms over the entire period; the Domini 400 has increased an annual rate of 12.09%. However, S&P 500 has raised an annual rate of 11.45% (Lougee & Wallace 2008). As a result, CSR as a marketing strategy can benefit organizations to have better performance.

Lagging in CSR

There is a need for organizations to conduct CSR because organizations and stakeholders take joint responsibility for creating and sustaining an ethical business context. However, some organizations face serious challenges as a result of lagging behind CSR. Organizations and stakeholders are not able to work together to create regimes of responsibility that limit moral failures and promote ethical behavior. This is because stakeholders provide a powerful reorientation about business ethics (Goodstein & Wicks 2007). Furthermore, an organization that is lagging behind CSR may be in threat of losing its investors and shareholders. The evidence from a survey done by Hill & Knowlton showed that nearly three quarters of people now consider CSR issues when making their investment decisions, 12% of whom would purchase CSR shares even if it led to a lower return on investment (Editorial Staff 2001).

In the view of results of lagging behind CSR, CSR practices are essential for organizations to be more ethical and avoid social problems.

Conclusion

Indeed, organizations can benefit from CSR as stated like, long term profitability, enhanced brand image and reputation and increased sales and customer loyalty. These three advantages are powerful and useful to attract shareholders and stakeholders to invest and purchase the products from those organizations. However, the disadvantages of cost of implementation and the consideration of profit maximization, competitive disadvantage and lack of social skills places threat in an organization. Although an organization has the risk of conducting CSR, organizations often engage in CSR precisely and wisely.

Shareholders and stakeholders have different interests but both of them can benefit CSR in the long term perspective this is because CSR can be considered as marketing strategy and it is related to ethics. In addition, evidences have showed that CSR enhanced better performance. Organizations also need to conduct CSR in order to avoid serious challenges as corporate social irresponsibility may occur.

References

Book

Carroll, B & Buchloltz, A, K 2006, Business and Society: Ethics and Stakeholder Management, 6th edn, Thomson

Dellaportas, S, Gibson, K, Alagiah, R, Hutchinson M, Leaug P, & Homrigh, D, B 2005, Ethics, governance &accountability, John Wiley & Sons Australia, Australia

Dubria A, J, Dalglish, C, & Miller, P 2006,’Leadership: 2nd Asia-pacific edition’, John Wiley & Sons Australia, Australia

Freeman, R.E 1984,’Strategic Management: A Stakeholder Approach’, Pitman Publishing, Boston, MA.

Joshua D. Margolis and James P. Walsh 2001, People and Profits, Lawrence Erlbaum, New Jersey

Mallin, C, H 2007, Corporate governance, 2nd edn, Oxford university press, Oxford.

Neal, C, Quester, P & Hawkins, D 2007, Consumer Behavior: Implications for Marketing Strategy , 5th edn, McGraw Hill Irwin, Australia.

Velasquez, G, M 2006, Business and ethics: concepts and cases, Person Education Inc, New Jersey.

Journals

Baghi, I, Rubaltelli, E & Tedeschi M 2007,’A Strategy to Communicate Corporate Social Responsibility: Cause Related Marketing and its Dark Side’, Corporate Social Responsibility and Environmental Management, vol. 16, issue, 1, pp. 15-26.

Davis, K 1973, ‘The Case for and Against Business Assumption of Social Responsibilities’, Academy of Management Journal, Jun, vol. 16, issue 2, pp. 312-322

Editorial, Staff 2001,’Comapany fail social investors ’, Investor Relations Business, vol. 6, issue, 16, pp.1-2

Fombrun , C, J, Gardberg, N, A, & Barnett , M, L, 2000,’Opportunity platforms and safety nets:Corporate citizenship and reputational risk ’ , Business and Society Review, vol. 105, issue, 1, pp. 85-106.

Fliess, B, Lee, H, J, Dubreuil, O, L &Agatiello, O 2007, ‘CSR and trade: informating consumers about social and environment conditions of globalised production’, OECD Papers, vol. 7, issue, 1, pp. 1-69

Goodstein, J, D & Wicks, A, C 2007,’ Corporate and stakeholder responsibility: making business ethics a two-way conversation’, Business Ethics Quarterly, vol. 17, issue, 3, pp. 375-398

Graces, S, P, Waddock, S & Kelly, M 2001, ‘How do you measure corporate citizenship?’ Business ethics, vol. 15, no. 2, pp. 17

Handy, C 2002, ‘What's a Business For? Harvard Business Review, vol. 80, issue, 12, pp. 49-56.

Idowu, S, O & Papasolomou, I 2007, ‘Are the corporate social responsibility matters based on good intentions or false pretences? An empirical study of the motivations behind the issuing of CSR reports by UK companies’, Corporate Governance, vol. 7, issue, 2, pp. 136-147

Lantos, G, P 2001, ‘The boundaries of strategic corporate social responsibility’, Journal of consumer marketing, vol. 18, issue, 7, pp. 595-632

Lewis, S 2003, ‘Reputation and corporate responsibility’, Journal of Communication Management, vol. 7, issue, 4, pp. 356-364.

Lougee, B & Wallace, J 2008,’ The Corporate Social Responsibility (CSR) Trend’,

Journal of Applied Corporate Finance, vol. 20, issue, 1, pp. 96-108.

Mackey A, Mackey T, B, Barney J, B 2007, ‘Corporate social responsibility and firm performance: investor preferences and corporate strategies’. Academy of

Management Review, vol. 32, issue, 3, pp. 817-835.

Marin, L, Ruiz, S & Rubio A 2008,’ The Role of Identity Salience in the Effects of Corporate Social Responsibility on Consumer Behavior’, Journal of Business Ethics, vol. 84, pp. 65-78.

Smith, C. N 2003, ‘Corporate social responsibility: Whether or how? ’, California Management Review, vol. 45, issue, 4, pp. 52-76.

Ven, B, V, D 2008, ‘An Ethical Framework for the Marketing of Corporate Social Responsibility’, Journal of Business Ethics, December, vol. 82, pp. 339-352.

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