CSR- CORPORATE SOCIAL RESPONSIBILITY
Organizations and business enterprises are mandated with an obligation of giving back to the society though various activities commonly termed as CSR activities. This article aims at explaining what CSR is, the concept of CSR in relation to the commercial reality, international laws regarding CSR, effectiveness of these laws, corporate legislation in Australia relating to CSR and Milton Friedman’s quote on CSR.
The name CSR was coined with the publication of Bowen in 1953 that questioned the responsibility business people to the society (Mullerat, R. 2010, 11). It can be interchangeably used with terms such as socially responsible business, responsible business conduct, responsible entrepreneurship, voluntary corporate initiatives, corporate citizenship, corporate accountability, corporate sustainability, and contribution to sustainable development. The definition of CSR has since time immemorial lacked a specific definition for various reasons ranging from the fact that CSR is rapidly evolving to the underlying principle that companies that take up CSR activities are different in terms of size, culture, composition, products and services (Mullerat, R. 2010, 13 and Horrigan, B. (2010, 34). However, Mullerat, R. (2010, 14) explores the common ground often reached when defining CSR as a company’s obligation to manage its activities and protect the interests of all its stakeholders while contributing to a cleaner environment and a better society through an active interaction with all. The business organization aims to address economic, social, and environmental factors in ways that benefit the people, communities, and society.
The concept of CSR has varied opinions when relating it to commercial reality that face business. There are two contradicting positions; one states that the spending of business resources on any activity other than economic goals are an illegitimate waste of resources due to the fact that they are contradictory to a firm’s responsibility to its shareholders and therefore even to the very function of business in modern societies. Proponents argue that CSR comes with certain benefits that outweigh the costs. They see CSR as a necessity for business not least for the sake of its own economic interest (Schreck, P. 2009, 1). If CSR and profit maximizing interests could be shown to go hand in hand, two conflicts could be resolved. Economists’ arguments that CSR is an illegitimate expenditure would lose their basis and two conflicting positions would eventually be united. Manager in practice could justify CSR expenses to the shareholders not only due to their moral quality but also with reference to their economic benefits. In addition, investors would not have to worry about a trade-off between their hope for maximum return on their investment on one hand and their ethical considerations on the other.
In a study conducted by Banerjee, S. B. (2007, 51), he adopts Henry Ford’s response in saying that corporations are sophisticated instruments designed to serve economic needs of society and not well equipped to serve social needs unrelated to the business operations. Later on, William Clay Ford Junior emphasized that corporations should be responsible for solving social and environmental problems in the 21st century since it is the best thing to do achieve profitable, sustainable growth. From his opinion, we learn that CSR is advantageous to businesses in that it enables the management to amass maximum profits. This may be particularly attributed to the fact that CSR provides good publicity for the company, encourages and motivates the employees at the same time increases their loyalty, increases customer loyalty and boosts the market base (Mullerat, R. 2010, 1). The chairperson of AT&T stated that business profits and responsible behavior enhance each other. Insufficient profits hinder corporations’ efforts at being fully responsible to social needs while on the other hand the failure of a business to accept its proper social responsibilities can endanger the investors; take in the enterprise.
There are no international laws that can be explicitly be defined as CSR laws. This is because CSR is ethical, voluntary, and non-enforceable principles. Rather, CSR principles and ethics are founded on labor infringements, environmental sustainability, and human rights. The ethical principles of CSR are commonly metamorphosed into legal rules (Mullerat, R., & Brennan, D. (2011, 4).According to Amao, O. (2011, 1), multinational corporations operate in what has been described as a vacuum between ineffective national laws and non-existent or unenforceable international laws. The national laws are inadequate in the governance of multinational corporations due to the presence of territorial limitations.
Under international laws, the multinational corporations are not recognized and generally not directly bound by international law. Attempts to fill the vacuum in which MNCs operate have resorted to soft laws and /or self-regulation. To date these approaches have not yielded satisfactory results thus many MNCs have adopted corporate Responsibility to fill the vacuum (Amao, O. 2011, 1). This strategy generally lacks formal state power of sanction and instead seeks normative authority from international law. Significantly, human rights issues are included; for example in corporate assessments mentioning human rights compliance, sustainability, reports touting, compliance with international human rights standards and corporate codes of conduct. The CSR philosophy is convenient for corporations as the approach shifts focus away from regulation (Amao, O. 2011, 1).
Banerjee, S. B. (2007, 60) explains that the theories and concepts of CSR and corporate citizenship suffer from a fundamental limitation; the absence of a clear political and legal framework for coordinating citizenship rights and responsibilities. Descriptive theories describe the citizenship activities and responsibilities of corporations but do not provide the basis for monitoring accountability. For this reason, it would lead to situations whereby corporations are responsible for everything but accountable for nothing.
There have arisen debates as to whether corporate legislation in Australia should recognize a form of Corporate Social Responsibility. This too has had varied opinions as to why such a move with either be viable or not. According to Mullerat, R., & Brennan, D. (2011, 4), some people consider that CSR should remain voluntary and not legislated and allege important points for this. It is solely an organization’s decision to engage in whatever kind of CSR activities so long as they fulfill the role of giving back to the society. Others think that many refutable practices cannot be truly eradicated unless imposed by legally enforceable rules. For example, they believe that environmental damaging emissions of carbon dioxide cannot be stopped unless international agreements were put in place and that the fraudulent corporate behaviors in the US would continue, was it not for the Sarbanes-Oxley Act.
While this rule seems viable, it is impossible to completely replace ethical principles with legal principles. Both voluntary and mandatory rules are necessary and may coexist to regulate specific matter depending on the different sectors areas and objectives. Establishing a legal framework makes it possible to avoid substantive issues by approaching responsibility as a process concept.
The law may recognize and provide for a level of protection, and possibly participation of such constituencies in realtion to the company and its operations. One could cite regulations relating to the basic worker protection, equality and health and safety laws in relation to the workforce, rules on product safety requirements for the benefit of the consumers and environmental protection measure with regards to the wider community (Macmillan, F. 2003, 125).
A famous quote when referring to CSR is one made by Milton Friedman stating that the business of business is business. This statement disregards the importance of CSR with the opinion that businesses should particularly focus on maximizing profits that are owed to the shareholders as opposed to attending to environmental and societal issues (Macmillan, F. 2003, 125). The concept of CSR recognizes the larger stakeholder groups such as the employees, customers, consumers and communities that Milton Friedman does not support.
Freeman, R. E. (2010,11) counters Friedman’s opinion by explaining that in order to maximize profits, companies need great products and services that customers want, solid relationships with suppliers that keep operations on the cutting edge, inspired employees who stand for the company mission and push the company to become better and supportive communities that allow business to flourish. He proposes that the best way Friedman should have presented his argument is by stating that, businesses should make sure that the products and services rendered actually do what the businesses promise they will do. Participate in business transactions with suppliers who want to make them better, having employees who are engaged in their work, and being good citizens in the community. According to Freeman, R. E. (2010), all these principles will be in the long run or short run interest of a corporation. Having stakeholder interests at the heart of the business is good management and will lead to maximizing profits (Ay, S., Cheney, G., & Roper, J. 2007, 450).
According to Jeurissen, R., & Rijst, M. W. V. D. (2007, 94-95), Friedman fails to prove why managers spending money on CSR would mean he is betraying his shareholder’s trust. Managers have been given the mandate to spend money and sometimes the costs can be linked to expected revenue which is not always the case. Shareholders have certain margin of tolerance with regard to the spending patterns managers display. It is not clear why precisely all costs involving CSR should fall outside that margin. Why would moral justification of costs be unacceptable to shareholders? An adoption of Donaldson’s objection to Friedman’s claim says that there is an implicit social contract between business and society in which the freedom of enterprise is subject to the condition that society profits in the end (Jeurissen, R., & Rijst, M. W. V. D. (2007, 94-95). In Donaldson’s view, this implies particular social responsibility for a business, which can outweigh the responsibility to generate maximum profits for the shareholder’s. A manager is not only an agent to the shareholder’s principle but to all stakeholders of business. Therefore, businesses are not only entitled to the interests of the shareholders but also to the interests of the interests of other parties.
In a study conducted by Cheers, Z. (2011, 14-15), he backs up Friedman by adopting the shareholder theory. He explains that firms should maximize the profits presently of all future cash flows. He suggests that it is unnecessary to spend shareholder money for unprofitable social businesses. The shareholders invested massively and depend on the firm to get returns. The management authorized by the shareholders was not mandated to become charity organizations or the government; rather they were employed to make money for the shareholders. He adopts several other professors who claim that CSR has not delivered on its promise to create a good society therefore it has failed and should be forsaken. CSR promotes societal incompetence by mandating organization with the responsibility of to improve the society. Moreover, these businesses lack sufficient expertise regarding individuals and the community at large to alleviate social problems.
Friedman, J. (2013, n.p) writes an article where he argues that Milton Friedman was wrong in particularly stating that a corporation’s business is to maximize profits. He says that if any business wants to be sustained overtime, it must maximize its profits in a manner that meets the needs of the stakeholders who make the business enterprise viable. When the needs of the stakeholders change, the business has the responsibility of adapting to the changes accordingly so that it may survive. The desires of the stakeholders are different therefore; the corporations should seek to adapting means and ways that are accommodative to all these stakeholders.
In conclusion, the concept of CSR is satisfactory in maintaining a balance in society especially in the 21st century. As much as these business enterprises are mandated to maximizing their profits, a slight inclination to giving back to the society is not too much to ask for. It is important to note that the unavailability of the stakeholders will guarantee a tremendous downfall to these corporations if stakeholder interests are ignored. Furthermore, legislation of CSR laws should not firmly bind corporations to particular rules; rather legislation should be more flexible and considerate of the fact that there exist ethical guidelines that dictate the principles of CSR. On the contrary, environmental issues such as emission of poisonous gases and recognition of human rights should have specific legislated laws.
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