ch#6: corporate social responsibility

TOPICS

1. Concept of social responsibility

2. Ethical leadership

3. Ethical decision making in organizations

4. Corporate citizenship

5. Philanthropy and social initiatives

6. Social screening of investments

7. Corporate greenwashing

According to various authors cited by Biore, et al,

▪Corporate social responsibility (CSR) has attained a high profile in the academe according to many research findings.

▪Many considered it as absolute necessity for organizations to define their role in society and apply social, ethical, legal and responsible standards to their business.

▪CSR has achieved business prominence due to the activities of pressure groups

▪The emergence of “market for virtues” such as socially responsible investments also created further pressures to adopt CSR initiatives.

CSR

has spread geographically from its original US setting to become a global concept, becoming well established in Europe.

▪ From a CSR perspectives, organizations are seen as key drivers in the process of constructing a better world and are therefore under increasing pressure to demonstrate good and accountable corporate responsibility

Organizations

are frequently subject to wider stakeholder interests, not just to deliver profits to shareholder, and the need to demonstrate balance perspective.

▪ As a result, organizations are developing their programs and policies, and trying to measure their social and environmental performance.

The pressures are tangible as industry leaders, Exxon, Nestle, Nike and Pfizer

has encountered severe setbacks to their reputation because of their failure to maintain quality, ethical and other socially responsible standards.

Other organizations such as The Body Shop and Ben & Jerry's have based their entire business model explicitly on ethical foundations.

▪ Global leaders, such as J&J, HP, and Shell have publicly acknowledged their social and environmental responsibilities and inform their stakeholders. ▪ It has moved from ideology to reality and is now acknowledges as an important dimension of contemporary business practices.

▪ Business leaders give increasing importance to this topic, recognizing that CSR is an important component of business survival and success in the 21st century.

The concept of CSR

is relatively a new one. The phrase has only been in wide use since the 1960s.

▪ It is probably accurate to say that all societies at all points in time have had some degree of expectation that organizations should act responsibly.

18th century – Adam Smith

classical economic model of business

The industrial revolution

more efficient production of goods and services

Beginning of 20th century

backlash against large corporations – social groups, labor movement

Between 1900 and 1960

the business world to accept responsibilities other than making a profit and obeying the law.

1960s and 1970s

the civil rights movement, consumerism, and environmentalism affected society’s expectations of business.

▪Based on the general idea that those with great power have great responsibility, many called for the business world to be more proactive in 1. Ceasing to cause social problems, and 2. Starting to participate in solving societal problems.

Society

began to expect business to voluntarily participate in solving societal problems whether they have caused it or not.

▪The view that corporations should go beyond their economic and legal responsibilities and accept responsibilities related to the betterment of society. This is the prevailing view of corporate social responsibility in much of the world today.

CSR

is the long-term vow of business to perform within the bounds of ethics and to contribute to economic advancement

▪ improving the quality of life of the workforce and their families, local community, and the society at large;

▪ positive involvement on society and environment through its operations, products or services; and

▪ through its relations with key stakeholders, such as employees, customers, investors, communities, and suppliers.

▪ Integration of social and environmental concerns –in business operations and interaction with stakeholders—on a voluntary basis.

Corporate social responsibility (CSR)

“the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time” (Carroll and Buchholtz (2003), as cited by Biore, et al)

▪ The concept of CSR means that organizations have moral, ethical, and philanthropic responsibilities in addition to their responsibilities to earn a fair return for investors.

CSR is the integration of social and environmental concerns

in business operations and interaction with stakeholders—on a voluntary basis.

▪Alignment of business values and behavior with the expectations and needs of stakeholders—not only to customers and investors, but also employees, suppliers, public, government, special interest groups, and society as a whole.

▪It shows commitment to be answerable to its stakeholders.

CSR

refers to a company linking itself with ethical values, transparency, employee relations, compliance with legal requirements and overall respect for the communities in which they operate.

▪ CSR upholds a vision of business accountability to all.

▪ Environmental protection,

▪ employees’ welfare,

▪ the community, and

▪ civil society in general, for the present but more importantly for the future.

Areas of concern include:

▪ The idea of CSR is attached to the idea that corporation can no longer act as an economic entity isolated and operating in complete detach from the society.

“Economic” argument

Against CSR…

based on Milton Friedman, who argued that the primary responsibility of business is to make a profit for its owners, provided it is complying with law. If the free market cannot solve a social problem, the government, not business, should solve it.

Capability argument

Against CSR…

addressing social issues will be a cost to a business. If business will bear the costs of socially responsible actions, they will hurt their competitive position relative to other businesses.

In Favor of CSR

Since large corporations create many social problems, they should attempt to address and solve them. Those who hold this view criticize the production, marketing, accounting, and environmental practices of corporations. They suggest that corporations can do a better job of producing quality, safe products and in conducting their operations in an open and honest manner.

“Self-interest” argument

In favor of CSR…

a long-term perspective that suggests corporations should conduct themselves in such a way in the present so as to assure themselves of a favorable operating environment in the future. This view holds that investments in society today will reap them benefits tomorrow. Furthermore, it may be for corporate world’s best interest because by doing socially responsible activities, they may forestall governmental intervention in the form of new legislation and regulations, according to Carroll and Buchholtz.

In Favor of CSR

▪ Some businesses should assume social responsibilities because they are among the few private entities that have the resources to do so. The corporate world has some of the brightest minds in the world, and it possesses tremendous financial resources . Thus businesses should utilize their financial and human capital in order to “make the world a better place for all the stakeholders.”

Business leaders

understand that long-term company value is based on the capability of the enterprise to respond to society’s changing needs.

Consumers

search for products and services of companies they believe are doing the “right thing” in terms of consumer protection, human rights and the environment.

Employees

have a preference to work for companies whom they share similar mission and values, and where they can make a contribution to society

Investors

look for companies that recognize and manage their risks, and are entrepreneurial in terms of attitude in identifying emerging and promising business opportunities

Local communities

want to know that businesses are being good citizens.

Media

expose some examples of best or worst practices to spotlight, in this way companies with good practices are given incentive in the form of free mileage, companies performing worst practices are given disincentive through exposure.

NGOs

expose these examples of irresponsible corporate and campaign for greater corporate accountability and transparency.

Regulators

want to make certain that business activities not only generate opportunities, jobs and economic growth but also help solve serious problems such as climate change and environment.

WHAT ARE THE TRENDS THAT MADE CSR BECOME MORE RELEVANT?

▪ Changing social expectations - What are the consumers and general public expect?

▪ Competitive labor markets - What concerns more the employees nowadays, aside from take home pay and benefits?

▪ Disclosure demands by stakeholders - Aside from knowing their roles and rights what other right do stakeholders demand?

▪ Dwindling government role - Why is there such thing so called as “the government disconnection” or failure of regulations?

WHAT ARE THE TRENDS THAT MADE CSR BECOME MORE RELEVANT?

▪ Globalization - What can borderless transactions and social media do that should be seriously considered?

▪ Pressure from investors - Ethical conduct is part of assessing company’s performance by investors.

▪ Suppliers relations - What are the requisites that suppliers has to meet before their customers establish their business relation?

▪ Wealth and vulnerabilities - In developing and developed countries, consumers can afford to be choosy on the products they buy, corporations therefore has to consider this consumer tendencies. How about in underdeveloped countries in need jobs that can be answered by inward investments?

Ethical leadership

is a leadership that is concerned in leading in a manner that respects the rights, dignity and stake of others.

• In business and political context, ethical leadership focuses on how leaders employ their business and political power in the decisions they make and actions they engage into.

LEADERS WHO ARE ETHICAL…

▪ Demonstrate a level of integrity that is essential for stimulating a culture of honesty and accountability

▪ They make ethical decisions

▪ They are stakeholder oriented

▪ They are conscious of how their decision affect others

▪ They use their power to serve the greater good instead of self-serving interests.

▪ For corporate leaders, they consider how their decisions impact the internal stakeholders, the industry, customers and ultimately to the public.

Warren Buffet, Chairman, Berkshire Hathaway Business Nightly Interview, May 2005

“Right now we know there are misdeeds going on somewhere in our company. We just hope it is small and we find it.”

Ethics in an organization

refers to system, values, philosophies and principles that govern the behavior of organizational members which are the consequences of organizational pronouncement.

Ethical decision making

is the process of trying to establish organizational values from which ethical decisions will be based from.

When confronted with any instance that requires decision, part of the requisite of ethical decision making is answering the following questions.

1. On the managerial side, did the leader provide leadership and oversight?

2. On the human side, did the leader nurture individuals by providing responsibility and accountability?

3. In the operational corporate context, will it facilitate improvements more especially in compliance requirements?

▪ Decision making is defined as choosing between choices or options.

Withdraw

Step back first before you look at it objectively, there must be fairness

Be an archivist

Review how previous situations were handled; this would reduce the risks of making horrendous mistakes

The option of doing nothing

Gather the facts from all available standpoints. Doing nothing in times of real emergency can be catastrophic, but for an incredibly large number of circumstances doing nothing is the only truly wise way.

Be conscious of long-term effects

Realize the long-term consequences.

Consider legalities and ethics

There might be parties or stakeholders inside and outside of the firm that might be affected by your decision, it is basic to check the law first.

Ask around

Consult with people, more importantly to the ones you consider crucial. Get out from your close circle; be conscious, you are not looking for a friendly advice that is most of the time bias and comforting

Be comprehensively sensitive

Be concern about the effect as deeply as possible. Any business decision big or small will have an effect in one or another directly or indirectly to stakeholders

Do not be a dangerous “Alpha Male”

Decision-makers should defy the illusion and arrogance that power and authority tends to be associated. A good number of unethical decisions are products of arrogance and delusion.

Find a win-win solution

Decision makers should detach themselves from the different partialities of the issue for him to arrive at an objective decision. Find a Solomonic decision, if possible.

Not true

Being ethical is easy

1. From the business standpoint, being ethical is not easy considering that business conduct most of the time has to be beyond the minimum legal requirement.

2. There is no such thing as cost-free compliance effort.

3. Being ethical could mean being a bee flying towards a huge web of unethical entities that can easily overwhelm the company.

▪ It is hard to withstand the pressure when almost everybody deviates and their deviation is already part of the system.

False

Being ethical is not part of doing business.

Being ethical is part and parcel of doing business. It should be something that comes with the existence of the enterprise. When the state grants the authority to operate, it is implied that along with the mandate comes the responsibility to comply with ethical standards.

Not true

Being ethical brings no benefit….

▪ It is not true that being ethical has no reward. Arguably, the only investment without any loss is being ethical. Ethical companies are standouts. They have confidence of the investors, support of the community and other stakeholders, and the trust of their members.

Ethics is not the same as feelings

Many people feel good even though they are doing something wrong.

Ethics is not religion

Many people are not religious but ethics applies to everyone. Most religion do advocate high ethical standards but do not address all the types of problems we face.

Ethics is not just following the laws

A good system of laws does incorporate many ethical standards but law can deviate from what is ethical. Law may have a difficult time designing or enforcing standards in some important areas and may be slow to address new problems

Ethics is not following culturally accepted norms

Some cultures are quite ethical but others become corrupt or blind to certain ethical concerns (as the US was to slavery before the Civil War). “When in Rome, do as the Romans do” is not satisfactory ethical standard

Ethics is not science

Social and natural science can provide important data to help us to make better ethical choices. But, science alone does not tell us what we ought to do. Science may provide an explanation for what humans are like. But ethics provides reasons for how human ought to act. And just because something is scientifically or technologically possible, it may not be ethical to do it.

Corporate citizenship

r.efers to the acceptance by business of a conscious effort in focusing and in satisfying the economic, legal, ethical, philanthropic and social responsibilities and other acts expected from the corporation to do to its stakeholders.

This focus covers the areas of:

▪ business ethics,

▪ social responsibility,

▪ corporate volunteerism,

▪ religious compliance, and

▪ reputation management

Corporate citizenship

▪ recognizes that an organization is not isolated and should not act in separate of the community/ties within which it operates.

▪ Organizations worldwide recognizes the benefits of attaining a balance between organization goals and important social and environmental responsibilities.

▪ Many model organizations are recognizing it as an undeniable factor for their long-term success and stability.

▪ Striving to become a good corporate citizen is now considered a responsible and legitimate business objective, a trend most now considered and proudly declaring as one of their best practices.

CORPORATE CITIZENSHIP HAS THE FOLLOWING KEY ELEMENTS

▪ Commitment to quality

▪ Ethical legal compliance

▪ Stewardship and governance

▪ Superior employee relation

▪ Social advocacy

▪ Environmental advocacy

▪ Community involvement

Philanthropy

is the practice of giving money and time to help make life better for other people.

▪ What does it show?

▪ It is a manifestation of love for mankind.

Corporate philanthropy

refers to the giving of the company’s profit directly to charitable organizations or to individual in need with the intention of helping and improving the quality of life of the different corporate stakeholders.

▪ It is a key component of a corporation’s broader social responsibilities.

▪ In what forms are they? Cash, product donations or employee volunteerism

▪ CP is a major link between the corporation and the communities it serves.

Benefits to business

▪ Enhances corporate reputation

▪ Improves relations with the government, the community, and the key stakeholders

▪ Supports a company’s strategic business goals

Benefits to Stakeholders

▪ Build employee morale and engagements

▪ Enlarges sense of community and social obligations

▪ Develops future workforce contributing to a sustainable company

Benefits to the community:

▪ Improves quality of life of the community members

▪ Provides human and capital resources to non-profit organization

“Scare-off from” strategy

SOCIAL SCREENING OF INVESTMENTS:
It can be characterized by hard policies such as no investment to those companies with questionable environmental records, those engaged in child labor, discrimination, those who use animals in product testing and many other anti-earth or anti-green policies.

Impact mitigation

SOCIAL SCREENING OF INVESTMENTS:

Using the strategy of balance with benefit, which is founded on the idea that for everything the company does there is always an impact to stakeholders. For example, some fishermen were alternative livelihood by companies doing seismic testing and oil drilling in their fishing area

Whoever is the best

SOCIAL SCREENING OF INVESTMENTS:
This strategy involves a kind of free market where companies within the same industries compete with one another for the best records on a variety of social issues. For example, environmental awareness and best social practices like best records for the recruitment, training and promotion of women, and family friendly practices. Lamoiyan Corporation and Human Nature, receiving these kinds of awards or recognition.

Main or derivative connections

SOCIAL SCREENING OF INVESTMENTS:
This strategy requires investors to decide whether or not they are concerned if an investment has a secondary involvement with a social problem.

Greenwashing

refers to the practice of companies characterized by deceptively making it appear that their products, services and policies are environmentally friendly by projecting costs cuts as reduction in use of resources or investments in “green concerns” like in areas of ecology and environment.

▪ It is the business of telling the whole world that they are for “mother earth”.

“green marketing tactics”

which refer to the deceiving use of green PR to win the hearts of consumer for the purpose of improving image, building up goodwill and eventually, drawing more revenues.

GREENWASHING SINS

An environmental marketing firm TerraChoice released the following in December 2007:

▪ 99% of 1,018 common consumer products surveyed were guilty of greenwashing.

▪ 1,753 products with at least one environmental claim; some have more than one claims.

▪ Out of 1,018 products, only one product was found not guilty of false or misleading “green marketing claim.”

Sin of the hidden trade-off

▪ “Energy-efficient” electronics that contain hazardous materials, 998 products and 57% of environmental claims committed this sin

▪ Candies, drinks, beverages, and other sweets with “no sugar” label

▪ Electric cars for zero emission but forget that these need recharging

Sin of no proof

▪ Shampoos claiming to be “certified organic: but with no verifiable certification, 454 products and 26% of environmental claims committed this sin.

Sin of vagueness

▪ Products claiming to be 100% natural when many naturally-occurring substances are hazardous like arsenic and formaldehyde; seen in 196 products or 11% of environmental claims.

Sin of irrelevance

▪ Products claiming to be CFC-free even though CFCs were banned 20 years ago. This sin was seen in 78 products and 4% of environmental claims

Sin of fibbing

▪ Products falsely claiming to be certified by an internationally recognized environmental standard like Ecologo, Energy Star or Green Seal. Found in 10 products or less than 1% of environmental claims.

Sin of lesser of two evils

▪ Organic cigarettes of “environmentally friendly” pesticides. This occurs in 17 products or 1% of environmental claims.

The sin of worshipping false labels

▪ This is perpetrated by a product wherein by either words or images, gives the impression of third-party endorsement while in fact and in reality, no such endorsement actually happened.

WAYS ON HOW TO SPOT GREENWASHING

▪ Poor use of scientific facts or the lack of any common scientific knowledge and facts.

▪ The use of buzz words like “carbon intensity,” “sustainable development,” “carbon offsets” and “clean technology.”

▪ Look at the environmental label on the product.

▪ Never abandon common sense.

▪ Look out for negligible green claims, mainly when a company focuses on one small green attribute when the rest of the company or product is not green.