The different aspects of corporate social responsibility (CSR) have been the topic of considerable debate since the last decades of the twentieth century. Main factor for the increased interest on the part of stakeholders in this topic are the increased public awareness and interest in the corporate social responsibility following the Information Revolution. This essay will assess the dangers and benefits of the business ethics for most of the stakeholders – employees, organizations, society, shareholders and the environment.
It will also explore specific examples of corporate social responsibility in different large corporations and will make a comparison between two large companies’ ethical policies. The position that I will defend is that people behind corporations are the ones who can be philanthropic but enterprises themselves can only be driven by the laws of market (which in the modern economic reality in most Western countries demands an increasing attention to business ethics).
According to Boddy (2008) some entrepreneurs like Titus Salt, Jeremiah Coleman and George Cadbury developed their enterprises with social responsibility and philanthropy from the start of the Industrial Revolution. However until the last decades of the twentieth century the dominant view was that the profit making organization’s responsibility to its shareholders should be set above all other responsibilities.
Buchanan and Huczynski (2010) argue that the significance of corporate social responsibility has increased dramatically in the last decades because of two main reasons: the number of high profile corporate scandals (significant examples could be found in the fate of the United States’ giant corporations Enron and Worldcom) and the increased media scrutiny of organization practices. As Rollinson (2008) argues, the organizational responsibility to the wider society is provoked by the increased public interest and is stimulated by government legislature in the last half century.
The corporate social responsibility has been variously defined as “the view that organizations should act ethically, in ways that contribute to economic development, the environment, quality of working life, local communities, and the wider society” (Buchanan and Huczynski, 2010); and as “the awareness, acceptance and management of the wider implications of corporate decisions” (Boddy, 2008). The authors also distinguish different types of business ethics. Daft (2008) argues that there are three domains of corporate social responsibility.
Their role is to distinguish whether an action is ethical or not compared to: the legal standards, the social standards and the personal standards. In the first domain people agree that an action is ethical if it is not illegal according to the operative legislation in the given country. The second domain, of social standards, considers the socially accepted principles and values about what kind of human behaviour is legal and ethical according to the society. The third domain is the one of free choice.
In this domain actions are judged by the personal moral values of the individual, which might be different from the socially accepted principles of behaviour. Linstead et al. (2004) list five objections to business ethics: psychological egotism; Machiavellian; legal-moral; agency arguments; and cultural relativism. Psychological egotists claim that “taking other people’s interest into account runs contrary to good business” (Linstead et al. , 2004). However Linstead et al. (2004) argue that this theory is refuted by any action of genuine altruism.
The Machiavellian theory states that achieving a certain goal justifies the ways, through which it has been achieved. The same author also refutes that theory by arguing that “if it is OK for business to develop their own brand of ethics implies that business does not impact on wider society”. The legal-moral objection to business ethics implies the belief that the law is a complete substitute to ethical sensitivity. That is rather a pragmatic belief. In reality written law defines only the minimum of ethical behaviour that should be observed.
The view that one can violate the “unwritten law”, or ethics, is wrong because the market tendencies are for an increase in the “punishment” in the terms of lower sales. In my opinion the fourth objection, the agency arguments, is the most significant of all the objections to business ethics stated above. According to that theory the market is “the key arbitrator” and it should be determining what the corporate social responsibility of the company needs to be. This is also a very flexible method to deliver the welfares the society wants.
For example if a person wants to influence the government policy concerning the preservation of environment, she needs to wait for another four or even five years and vote for a party, which offers such policy. Instead, by buying a certain product of a company that promotes the wanted policy, the person could “cast his vote”. Boddy (2008) distinguishes four criteria of corporate social performance: economic, legal, ethical and discretionary. The economic responsibility is predominantly concerned with the short-run shareholders’ interests.
This means that the company is not concerned with problems of many of the other stakeholders. A classical example for the damaged interests of employees is the outsourcing: In October 2010 the Italian automobile giant FIAT announced that because of the reduced profitability of their factories in Italia, the company is going to have to close all of the remaining factories in the country and outsource its entire production to other countries, leading to the unemployment of thousands of workers.
The action is both economically and legally responsible but it might be considered irresponsible from ethical point of view. I am rather sceptical about the discretionary company performance and as stated in the introduction, I support the idea that companies are driven by their interests in profit and only individuals could be honestly philanthropic. There are many examples of short-run profit-maximising companies, whose irresponsible actions or lack of actions result in severe damage for the environment.
A popular example is the based in the United Kingdom oil corporation British Petroleum which has achieved fast growth in the last two decades but its reputation has suffered badly following a number of oil spills in Alaska, Texas, and the biggest one, in the Gulf of Mexico. Those disasters have severely damaged not only the environment but also the company long-term interests because of the tremendous fines that the company has to pay and the ruined company reputation.
Another particularly interesting instance is the one concerning the social responsibility of the Japanese automobile giant Toyota, which is trying to establish a reputation of a socially responsible company. Unlike the Ford Company in the 1970s, which decided not to recall and alter the model of the Pinto (Boddy, 2008), Toyota made the decision to recall a total of over 10 million of its cars in 2010 for repairs. They also claim to be concerned about the environment and have put on the market their electric car model, the Prius.
It is powered by electricity and is claimed to be a “carbon-neutral” car. Calculations however show that carbon emissions are only cut by 20 per cent as the car itself does not produce greenhouse gases but generating the electricity does (The Economist, 09. 10. 2010). A thorough analysis shows that money invested for stimulating the “carbon-neutral” cars’ production could be invested with higher efficiency for a change in power generators. The problem with the recycling of the car batteries is also not solved.
That is a strong example of what the dangers of the corporate social responsibility might be for consumers and what the benefits might be for the producer. The consumers might be misled by the socially responsible position of Toyota concerning the environment and the company generates high profitability. The Innocent Drinks Company has an intriguing innovative strategy. They promote the views that business should be done ethically and responsibly and work on reducing and offsetting their carbon emissions, recycling and other ecologically friendly policies.
The company also donates a total of 10 per cent of its profits to charity. Its success could be expressed by using a quotation of Viktor Hugo: “there is nothing better than an idea, whose time has come”. Their strategy is ingenious and profitable because their target group of consumers consists of people, who are concerned about their health and who are willing to pay a higher price for a product that is of higher quality. One might say that this group is more likely to be interested in the company’s social responsibility policy.
Of course, the company’s “sustainable business” policy consumes some of the company’s profits but I personally seriously doubt that their turnover would have been the same if they did not have that ethical corporate behaviour. It is also interesting to look at the corporate social responsibility policy of some of the companies, which form most of the modern market, and which do not rely on CSR strategy as much as Innocent Drinks do. The Central and East European hypermarkets corporation Kaufland is a good example of such a company.
They do not have a special link with or active involvement of their customers, which in the case of Innocent Drinks is of significance. The company claims to be a responsible employer and offers various ways of improving professional skills of their employees through series of professional education programmes. Kaufland also promotes environmentally friendly policies such as reducing the consumption of electricity and using recycled paper. However as a former employee of the company, my observations show that they do not always strictly follow their environmental goals, published in their website.
The company’s corporate social responsibility is developed to a degree where it would not cost too much and will not attract more “responsible” customers but it is also good enough not to get them alienated from the company. In the modern economic reality the corporate social responsibility is an integral part of each major company’s strategy. The concern of modern society for environmental problems, climate changes, labour exploitation, and social responsibility in general in the last decades has been ever growing.
And because the group of consumers and investors, who demand such a corporate behaviour and are willing to reward it, is increasing, the markets and respectively the companies have the interest and obligation to respond to those demands. The dangers involve some companies trying to exploit the people’s ethical views in order to get higher profits. A large advantage of corporate social responsibility is that it reflects social preferences. The free market is the most genius system, created by man and leaving it to represent the social needs with a little stimulation by the government would be for the best.
Boddy, D. (2008). Management: An Introduction, Prentice Hall / Financial Times, Harlow, Essex. Buchanan, D.A. and Huczynski, A.A. (2010). Organizational Behaviour, Prentice Hall / Financial Times, Harlow, Essex. Daft, R.L. (2008). New Era of Management, Thomson South Western, London. Linstead, S., Fulop, L. and Lilley, S. (2004). Management and Organization: A Critical Text, Palgrave Macmillan, Houndmills. Rollinson, D. (2008). Organizational Behaviour and Analysis: An Integrated Approach, Prentice Hall / Financial Times, Harlow. The Economist (2010). “Highly charged motoring”, The Economist, vol. 397, no. 8703, pp. 18-19.
http://www.cnn.com/ (consulted 09.10.2010)
http://www.vesti.bg/ (consulted 17.10.2010)
http://www.economist.com/ (consulted 21.10.2010)
http://www.toyota.com/ (consulted 22.10.2010)
http://www.bp.com/ (consulted 22.10.2010)
http://www.fiat.com/ (consulted 22.10.2010)
http://www.innocentdrinks.co.uk/ (consulted 25.10.2010)
http://www.kaufland.bg/ (consulted 26.10.2010)