Introduction however, its activities have a strong impact

Introduction

Corporate Social
Responsibility is a topic that has been discussed for few decades. The main
questions that could be raised when someone starts studying this topic are: “Do
businesses exist to make a profit or to serve a purpose? Do businesses exist to
care about shareholders wealth or to improve the wellbeing of all the
stakeholders?”. Obviously, every company is an economic unit, however, its activities
have a strong impact on society and environment at the whole. On the other
hand, the existence and success of a company depend on how useful it is found
by society and if society accepts it or not. Hence, Corporate Social
Responsibility of business activities provides a great opportunity to look at the
relationship between corporations and society and how it helps the companies to
achieve their goals.

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1.    
Understanding Corporate Social
Responsibility.

Nowadays there are a
lot of discussions going about Corporate Social Responsibility. As each corporation
is a part of society, it definitely has an impact on society’s development.

Basically, the main reason
for businesses to exist is that all of them trying to continuously grow and
expand returns on the investments of shareholders. However, in the race for the
better and bigger “piece of pie”, which represents market share, profit etc.,
these members of society should not forget about the way they reach their goals.
How do they use the environmental sources, labor force, do they obey
governmental laws and regulations, what impact has their activities on the
environment and society, which methods they use to achieve their targets? All
these questions are the main concerns of Corporate Social Responsibility.  

A lot of specialists
who wrote their works on Corporate Social Responsibility recommended reporting
about companies’ social performance and its effect on the external environment
to be one of the main tasks of accounting. However, the opinions about social
responsibility of the businesses were divided to those who think that the
decisions and activities of companies should play a significant role in
society’s welfare and at the same time, a lot of debates took place about the
businesses’ willingness to contribute to social non-profit activities, because
obviously, these activities reduce either shareholders’ dividends or market
performance of the stocks. (David
Growther, 2008, p. 11)

Some economists such as
Milton Friedman were convinced that social responsibility of the companies
applies as long as the companies’ activities in achieving their goals comply
with the rules of the game in a fair competition free of fraud. Peter Drucker
was more cynical in his point of view, stating that companies transform social
problems into new business opportunities and benefits, improving productive
capacity, increasing human competence, creating new well-paid jobs and
increasing wealth. (David
Growther, 2008, p. 12)

Apparently,
organizational decisions and activities impact businesses themselves as well as
have an effect on the external environment, which includes the business
environment in whole, local social environment and wider global environment.
The following companies’ activities play a significant role in changes in the external
environment:

–      
The
usage of natural recourses

–      
Participation
in competition for the market share

–      
Providing
new vacancies on the job market or massive layoffs

–      
Distribution
of the created wealth by the company to shareholders and employees (through
dividends and salaries respectively)

–      
Extraction
of raw materials and waste products storage, which have an impact on a
landscape

–      
The
emission of greenhouse gases, which aggravate climate change

In different
circumstances, these activities can be advantages as well as disadvantages. (David Growther, 2008, p. 13)

There are a lot of
definitions of Corporate Social Responsibility. According to the EU Commission,
“Corporate Social Responsibility is a concept whereby companies integrate
social and environmental concerns in their business operations and in their
interaction with their stakeholders on a voluntary basis.” (Commission of the European
Communities, 2002, p. 5)

The World Business Council for Sustainable
Development in its publication Making Good Business Sense by Lord Holme and
Richard Watts, used the following definition “Corporate Social Responsibility
is 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”. (Fontaine, 2013, p. 112)

Generally speaking, in a
global context, the main solicitude of Corporate Social Responsibility is the
way that global businesses should build their relationship with governments and
societies, as well as have a positive influence on the environment. Thus, the
Corporate Social Responsibility should have a positive effect on three main
dimensions – economy, society and ecology.

In the context of the
Corporate Social Responsibility, these three dimensions refer to the term the Triple
Bottom Line, which first was introduced in 1994 by John Elkington, who was the
founder of British consultancy. The Triple Bottom line also known as “3 Ps”
which stay for Profit, People and Planet. The Triple bottom line represents
company’s measurements in terms of its economic, social and environmental
performance. The first bottom line is company’s common measurement – profit and
loss account, the second bottom line is company’s “people account” or its
social performance, which shows if the company was socially responsible in its
activities and finally, the third bottom line represents company’s “planet
account”, which shows if company’s operations in general had been eco-friendly
and responsible towards environment. (The Economist, 2009, p. 1st paragraph)

Nowadays every global
corporation implements a policy concerning Corporate Social Responsibility and
annually presents a report about its performance.

2.     The
principles of Corporate Social Responsibility.

There is no unified definition
of the Corporate Social Responsibility, therefore it is easier to understand
the whole concept of the Corporate Social Responsibility through its
principles. The principles are Sustainability, Accountability and Transparency.

Sustainability, in
context of the environment, is concerned how present operations of businesses will
impact on the future. Because the sources are limited in their nature, the one
we use now might be no longer available in the future, especially if we talk
about natural resources. In the future, we may need some other options, but in
some points, in the nearest future the cost of consumption of reducing in
quantity resources has a tendency to increase, consequently, the operational
costs of companies will rise. A good example might be a paper producing
industry, which has a policy of replanting harvested trees. Replanting
increases the industry’s costs in the present. Sustainability concerns about
misusage of the right amount of resources, which should not exceed the amount
of the same resources which could be regenerated. Thus, as corporations are a
part of society and ecosystem, the effects that their actions have on the environment
must be taken into consideration. Also, it is obvious, that sustainability
should not be understood only in the context of the present, but the future as
well. The sustainability could be measured by the relation of the rate of
utilized resources to the rate of regenerated recourses. The sustainability may
be achieved by finding the most efficient way of utilization of recourses. (David Growther, 2008, p. 15)

Accountability is concerned
with an ability of a company to realize that it is a part of a global
environment and its operations have an impact on the environment as well as an
ability of the company to take responsibility for their activities and their
influence on the environment. Thus, this includes regularly reporting to the external
stakeholders about the effects of organizational activities and how the stakeholders
will be affected by those activities. This means, that the businesses take the
responsibility for their activities and its impact on society, at the same time
this means that the companies understand that society has an ability to
influence the decision-making process about the activities of the company which
affect those external parties. Accountability contributes to the development of
measures of company’s performance in terms of the environment, reporting this
to the stakeholders. Obviously, this causes additional expenditures for the organization
on developing, recording and reporting such performance and the advantages
should transcend the costs. The fundamentals of these reports are:

–      
The
reporting should be understood by all the stakeholders

–      
The
information should be relevant to those who are provided with these reports

–      
The
measurements should be accurate, representation of effects of actions free from
bias, in general reporting should be reliable

–      
The
information should be comparable between different businesses and over a period
of time

Depending on the
individual values and priorities of stakeholders, such a reporting could be
assessed differently. Also, because of the lack of ability fully understand the
effects aggravated by the fact of judgmental nature of impacts creates a few
standards of measurements, which creates a limitation for inter-organizational
comparison of reporting information. Nevertheless, this motivates the
management team of organizations to perform better. (David Growther, 2008, pp. 15-16)

Transparency can be
seen as a part of sustainability and accountability principles, it actually
emerges from those principles. Moreover, this principle also accepts
responsibility for the effects of operations on the environment and it empowers
the external stakeholders. Therefore, it is very important for the external
users of information, because they have fewer knowledge in comparison to the
internal users who have the background details. (David Growther, 2008, p. 16)

3.     Corporate
Social Responsibility, Ethics and Corporate Behavior.

In regard to all the
interested parties, or stakeholders, Corporate Behavior is a very important
notion because it is beneficial for society as it has to be formed in the ethical,
legal and responsible way. The components of Corporate Behavior actually are
Corporate Social responsibility, ethics and law. Thus, Corporate Social
responsibility is built upon this platform which is shown in Figure 1 below. (David Growther, 2008, pp. 60-61)

                                    Figure 1.

At the same time, Corporate
Social Responsibility is one of the components of the Corporate Behavior,
because it is based on the ethical and moral codes, legal rules and Corporate
Social Responsibility. Corporate Behavior effects entire economy, that is why
the importance of the corporations to show ethical and socially responsible
performance, which leads to sustainability of the corporation, is very high. (David Growther, 2008, p. 59)

However, the opinions
regarding corporate social responsibility in terms of ethics and moral codes
are not the same. In 1970 the American economist Milton Friedman questioned the
social role of corporations. In his article named “The Social Responsibility of
business is to increase its profits”, he argued about the meaning of Corporate
Social Responsibilities. He has 3 main arguments, firstly, he was convinced
that only people have a moral responsibility for their actions, that is why he said
that a corporation itself cannot do so, only the people who set up there are
individually responsible for corporation’s operations. Secondly, he believed that
the only one responsibility of the managers in corporations is to multiply the
wealth of shareholders, and initially, they were hired to do specifically this
task. All the other activities considered as a “theft” from shareholders’
pockets. Thirdly, Friedman said that social problems are the issues of the
state, in this regards corporations do not decide what is the interest of
society. It is the exclusive responsibility and democratic right of the government
to set and achieve social goals. (Andrew Crane, 2010, pp. 47-48)

However, in my opinion,
the ignorance of positive effects of Corporate Social Responsibility is
completely wrong. Obviously, the efficiency of employees is higher, when they
have better working conditions, the customers are more loyal to the product if
the environmental index of companies is high. As an example, if we look at the
ten companies with the best Corporate Social Responsibility reputations in
2017, according to Forbes magazine, on the first three positions are Lego,
Microsoft and Google respectively. (Forbes, 2017) These companies hire the best
professionals, create the best conditions for them and it leads to the highest
return on companies’ “investment” if we will refer to the companies’ employees
as to the “main assets” of the company. Moreover, when the employees are happy
about their work, the staff turnover ratio is low, people do not leave the
company because they are not satisfied, they stay, they are more experienced
and efficient. It helps the company to avoid additional costs for hiring new
staff and training them.

A very good example
that may show the importance of Corporate Social Responsibility in terms of sustainability
and care about company’s employees may be American giant Costco Wholesale
Corporation. In 2012 Costco paid the living wages to their employees that were
higher than average, while its competitors such as Walmart, Best Buy, Target,
Lowe’s, The Home Depot claimed they cannot afford to pay living wages. (Jobs with justice, 2014) The Costco’s
employees do not work during major public holidays such as Thanksgiving Day,
Christmas etc. Those days are the days when the Costco’s rivals make the
highest sales and have the highest profit in a year. Nevertheless, Costco makes
billions of dollars every year and their revenues are higher than some of their
competitors. A table below shows the Sales Revenues of Costco and some of its
competitors in 5 years period.

The numbers are quite
different, but all of them shows that all these companies make billions of
dollars revenues, however not all of them care about Corporate Social
Responsibility. Also, it is noticeable that even though Costco sacrifice their
opportunities to earn more money during shopping boom time for employees’
well-being, it does not affect their revenues in general. Costco’s revenue
indeed is much lower than Walmart’s, it is also affected by the fact that the
total number of Costco stores worldwide in 2017 was 741, while Walmart operated
11965. (Statista, 2017)

4.    
Globalization and Corporate Social
Responsibility

The fast-changing
technologies, market integration, transfer of capital, knowledge and
information, growing competition are the effects that are caused by
globalization to the economy, society and environment. In the context of globalization,
the geographical borders between businesses disappear. In this highly competitive
environment, the companies are more focused on making a profit than being
socially responsible. However, ignoring Social Responsibility costs for companies
customers and damages their brand image. The best example to give is a
Starbucks coffee tax scandal in the UK. A few years ago, all the media was
reporting about Starbucks avoiding paying corporate tax. According to Margaret
Hodge’s, MP Chair UK Accounts Committee, interview for CNN, regardless the fact
that the company was making billions of pounds profit in the UK Starbucks did
not pay corporate tax about 3 years reporting losses owing to legal loopholes
and using them through offshore schemes. Margaret Hodge says that it may be
legal, but not moral and not fair. (CNN , 2012)
The brand image of Starbucks was damaged, the customers which were furious
about Starbucks’ tax avoidance shifted to Costa, a chain of local coffee shops.

Thus, globalization
affects business ethics in terms of culture, accountability and law. On the
example of Starbucks, we can see that launching their business in the UK they
faced confronted ethical demands, as soon as they entered the UK market they
faced new legal framework. Also, the society awaits corporate accountability
where business ethics meets stakeholders’ demands.

Conclusion

Corporate Social
Responsibility answers the question if businesses exist to make the profit or
to serve a purpose. However, there should be no “or” in this question. Because
as long as the companies follow the way of purpose (to improve the well-being
of their employees, to care about the environment), they will reach the “land”
of profit. Someone may believe that being socially responsible is costly for
businesses, however, these costs are just investments that will have a positive
effect on the profit of the businesses in the future. Being socially
responsible help companies to achieve their financial goals as well as
contributes to the prosperity of society.