Corporate scandals in business world have been more and more common, which damages the interest and profits of stakeholders, employers, community or society. The corporate scandals pull the public to focus on the ethic of managers and the firm itself. Comparing to the past, customers are focusing more and more on the reputation of the firms and they prefer to select the brands that are environmentally friendly and socially responsible when they buy products or service.
This change pushes firms to maintain their reputations with more efforts. Corporate social responsibility has been a hot topic in business world today, which is an important part of building brand image while brand image is a value for firms. This essay holds the statement that business should always be ethically and socially responsible. Firstly, it gives the several definitions of business ethic and corporate social responsibility briefly. Subsequently, it outlines the pros and coins for addressing corporate social responsibility.
Following this, it discusses the negative effects caused by corporate scandals with several real cases likeToyota, Bernard Madoff and Enron. Finally it discusses the benefits when business is ethically and socially responsible with the examples of Procter & Gamble and Li Ka-shing. Definitions of business ethics and Corporate Social Responsibility Ethics is the code of values and principles to govern people’s behaviours to verdict what is right or wrong. Business ethic is the application of personal moral in commercial enterprise.
Comparing to the vague definition of business ethics, the definition of corporate social responsibility (CSR) is clearer. As stated by The World Business Council for Sustainable Development(2014), corporate social responsibility is the commitment of business to contribute to the economic development and the welfare of employees and the family, the community and the whole society. European Commission (2014) defines this concept as follow: the firms integrate concerns of social and environment with stakeholders in the economic decisions and actions voluntarily.
The definitions of business ethics and corporate social responsibility state that business firms are acting ethically and socially responsible means in the economic operations they should consider the interests of stakeholders, environment and society and they should concern the welfare of employees and the family instead of concerning only the profits of firms and personal interest. The proponents of CSR include the moral obligation, license to operate, sustainability and reputation (Porter, 2004).
According to Lahovnik (2008), there are three levels of corporate social responsibility. The first level is the obligation to meet the material for shareholders, employees, customers, creditorsand suppliers. The second level is the responsibility to benefit the human resource of community and avoid the damage to environment. The last one is the responsibility to the society. Even though there is not clear definition how far firms should address the social responsibility, there is indeed a fact that firms should take the social responsibility in their economic operations.
Against and For Corporate Social Responsibility There is a hot debating on whether firms should address their corporate social responsibility or not. For the objectors, business is just business that maximize profits is the economic responsibility of management instead of being the social role in society. The social problems should not be resolved by firms and firms are not designed to handle these issues. Corporate social responsibility could be an important tool wielded by firms.
Stated by The Wall Street Journal, the addressing of CSR may be anillusion and a dangerous one because when there is a conflict between private profit and social interest; firms tend to select the former one (Karnani,2010). Even though the firms say they are doing the projects with charity purposes, the investment or cost of these projects may be owned by other ways, which may harm the interest of environment or society. Different from the objectors, there are a variety of reasons to support the idea that firms should address the corporate social responsibility and be ethical.
The first reason is that the human and social problems are largely led by industrialization and business firms own the social resource that business has the obligation to reduce and solve these issues. Firms have been important parts of the society and they own a huge resource, which means they also carry the obligation to solve the problems in the society especially these problems led by their economic operations. The second reason is that business firms can get benefits from addressing corporate social responsibility.
CSR directly benefits the financial bottom line and improve the competitiveness of firms. CSR can enhance reputation and brand image of firms. The survey of PWC 2002 showed that 90% of respondents said that corporate social responsibility can enhance the corporate reputation. The 2002 Cone Corporate Citizenship Study also showed that 84 percent of American would change brands to those with good reputation in the similar price and quality (Kotler and Lee 2005).
When companies address corporate social responsibility, it will bring positive impacts on retention, recruitment and motivations of employees for the firms. For example, Timberland is always encouraging its employees to offer community service called Path of Service, which has been ranked by Fortune and Timberland is named as one of the 100 Best Companies to Work For (Provictus, 2012). The third reason is the social benefits brought by business firms when they address corporate social responsibility and act ethically.
When business firms act ethically, the firms can reduce the negative impacts on stakeholders, employees, customers and the society, which will be discussed below with real cases. When business firms performance well in CSR, they can bring huge benefits to the investors, stakeholders, customers, community and society, which will be discussed below with examples as well. Negative Effects of Corporate Scandals When business firms or managers of firms act unethically and ignore their corporate social responsibility, the negative effects can outburst internally and externally.
The negative effects of corporate scandals can influence the reputation of firms, the interests of stakeholders, employees, customers, environment and society. In 2009, Toyota recalled over 9 million cars over the world in two separate recalls because of the quality issue, which led to billions of dollars in operating losses andcharges. The reputation of top quality in car industry faced a heavy hit globally. Even though Toyota would not collapse completely, the reputation was threatened, which has been built through decades (Connor, 2010).
The share price dropped down and customers distrusted Toyota in quality. The unethical action of Toyota to produce unsafe cars pulled Toyota in a dangerous place that it brought side effects on the reputation globally, which definitely reduced its market share and sales globally. In June 2009, the unethical behavior of Bernard Madoff damaged the interest of investors by using the Ponzi scheme. The similar case with Bernard Madoff exist more in business world, which brings huge side effects to investors. As a top audit firm, Enron met the corporate scandal.
Enron lied about the profits and the success of Enron was brought by creative accounting. In 2013, the building collapse of Rana Plaza killed more than 1,100 people and this event involved many famous clothes brands into corporate scandals. Wal-Mart is one of them because it received clothes from Banned Bangladesh Factories, which has been defined as unethical operation (Grabell, 2013). The unethical behaviours of Wal-Mart damaged the interest of workers in Banned Bangladesh Factories. Meanwhile, Wal-Mart’s brand image has been affected because Wal-Mart is treated as a firm with social responsibility.
In 2010, BAE Systems plc (BAES) pleaded guilty for overseas corruption (The United States Department of Justice, 2010). The real cases that business firms or managers act unethically without corporate social responsibility are more than these mentioned above over the world. The side effects of these corporate scandals are widely spread. The corporate scandals can hurt the reputation of firms, the interests of investors and stakeholders, welfare of employees, the life damage or property losses of customers and the damage of environment.
The side effects are so great that the society urges that the business should always be ethically and socially responsible. Positive Effects of Acting Ethically and Socially Responsible The positive effects of acting ethically and socially responsible support the statement that business should always be ethically and socially responsible. Just like this essay stated above, there are various benefits firms and the whole society can get when firms address the corporate social responsibility and act ethically.
Procter & Gamble is an excellent case of multinational firms that address corporate social responsibility well. There are few corporate scandals of Procter & Gamble in business world. Instead, there are many pieces of news on how Procter & Gamble is an excellent citizen in business world that addresses corporate social responsibility well. For example, Procter & Gamble provides PUR technology to purify dirty water for people in Africa and helps kids to live and get education (Procter &Gamble, 2013).
G Children’s Safe Drinking Water Program (CSDW) has reached over 70 countries to save tens of thousands of lives (Procter & Gamble, 2014a). Apart from this;Procter & Gamble (2013) donated money and encouraged employees to help the poor kids to get education in China. To protect environment, Procter & Gamble(2014b) is committed to design recycled products with innovation. Procter & Gamble (2014c) is also trying to make zero waste a reality from manufacturing and designing. There is no report on how Procter & Gamble benefit from addressing its corporate social responsibility.
However, Procter & Gamble build its great reputation in business world globally. The reputation enhances the brand image of Procter & Gamble and meanwhile it increases the sales of Procter & Gamble the cohesion of employees in the firm. The investors may tend to join in Procter & Gamble because Procter & Gamblehas great corporate citizenship. In addition to Procter & Gamble, Coca Cola, Pepsi and other multinational firms are doing greatly in addressing the corporate social responsibility and get benefits from it even though it takes some cost.
The money used in corporate social responsibility is another form of investment, which will come out profits with intangible asset. In China, there is a famous rich person called Li Ka-shing, who is always acting ethically and socially responsible. Because of his ethical business behavior and good morality, Li Ka-shing built his reputation and the reputation of his firm in business world, which has contributed a lot to his success. Meanwhile, the ethical behavior of Li Ka-shing avoided the side effects on the stakeholders, employees, customers and society.
From the real case of Procter & Gamble and Li Ka-shing, it shows that when business firms or businessmen act ethically and socially responsible, they get payback with good reputation and brand image, which will be switched to products sales and intangible asset. This supports the idea that why business should always be ethically and socially responsible. Conclusion In conclusion, business should always be ethically and socially responsible because the negative efforts of corporate scandals can hurt the interest of society while the impact of acting ethically and socially responsible can be positive to the society.
The essay provides the definition of business ethics and corporate social responsibility to outline how firms and managers are acting ethically and socially responsible. Subsequently, it offers two sides for the argument whether firms should address corporate social responsibility to support the thesis of this essay. The real cases of corporate scandals show the results and side effects when firms behave unethically in economic operations to urge the need to be ethically and socially responsible.
Meanwhile, the real cases of Procter & Gamble and Li Ka-shing show that when firms or businessmen behave ethically and socially responsible, they can get payback in economy as well and the address corporate society will benefit the investors, employees, community, customers and environment. The negative impacts of acting unethically and the positive impacts of firms’ acting ethically and socially responsible to the firms, community and environment finally support the idea that business should always be ethically and socially responsible.