The Negative Aspects Of Corporate Social Responsibility

Published Date: 02 Nov 2017

Introduction

Corporate social responsibility (CSR) can be defined as the "economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time" (Carroll and Buchholtz 2003, p. 36). The concept of corporate social responsibility means that organizations have moral, ethical, and philanthropic responsibilities in addition to their responsibilities to earn a fair return for investors and comply with the law.

Corporate social responsibility is very necessary in today’s modern age as consumers look at what the company does for the society and not what it does for itself only. The assumption that the organization’s role is just a profit making body is not widely accepted in the modern society and so corporations now days have to go out of their to show the community what it can do for them in return, and not just be a profit making parasite that is just out for their money.

A traditional view of the company and how it works implies the organizations sole responsibility is to the shareholders, who are the owners of the company, the people who have invested the money so as to earn a return on their investment. Corporate social responsibility suggests that organizations duty is just not only to its shareholders, but also the other stakeholders of the corporation. The stakeholders of the company include suppliers, the local community, and the employees of the corporation, the state, the consumers, environmental groups and various other special interest groups of the company.

The definition above is a four part description of the nature of how corporate social responsibility works and explains its nature and its roles in the society. The economic responsibilities of the organization are to sell goods and services to the consumers at a reliable, affordable price and make goods that are needed or desired by the society. The corporations here are required to keep the shareholders interests in mind as they are the ones who have invested in the value making process of the product the organization manufacturers. Profit making is seen as a priority by the corporation. The legal part of the definition the definition expects the organization to take part in free fair and equal competition, and it adheres to the laws set by the society to govern the competition in the market place. Corporations have many legal responsibilities governing all aspects of their operations which include employment laws, environmental laws, product laws, and consumer laws and so on. Organizations have many ethical responsibilities to the society. These go above and beyond the laws of the state. Such responsibilities include conducting affairs in a fair and just way. These are activities like indulging in fair competition, making good quality products, pricing products in a way that will not affect the consumers, and so on. Discretionary responsibilities of the organization refer to the society’s expectations that the corporation will be good citizens. This may involve such things as philanthropic support of programs benefiting a community or the nation. It may also involve donating employee expertise and time to worthy causes. They are also expected to participate in societal activities, even if not required by the laws of the state. These are done voluntarily by the organization and are seen as activities that will be beneficiary to the society at large and not just the company itself.

The history of corporate social responsibility.

The scope and nature of corporate social responsibility has been changing relatively over time. It is a relatively new approach, and has been in wide use since 1960. Even though it has been in wide use since recent times, societies have always looked at organizations as having certain responsibilities towards the well being of their existence.

In the 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 have called for the business world to be more proactive in ceasing to cause the society problems and start participating in solving problems of the society.

A lot of laws were enforced on the organization that looked out for equal employment opportunities, the safety of the employees, the safety and quality standards of the product, and environmental safety. The societies also started to expect corporations to participate in solving problems faced by the society, regardless of the fact that they were caused by the organization or not. The view was based on the fact that the society started to believe that corporations ought to accept responsibilities for the betterment of the society, regardless of their economics and their legal obligation. Much of the corporate world has started formulating strategies to fulfill their responsibilities to the society, and it has absolutely become clear and necessary for organizations to look at needs of all its stakeholders and not the shareholders alone.

Corporate Social Responsibility- The voluntary nature

There is a general debate on whether the corporate social responsibility of an organization should be enforced or should it be voluntary for the organizations to select what policies it wants to imply?? The general idea is that corporations would not want to waste resources for the betterment of the society while it can use the same resources to enable it grow and pay dividends to the investors who have actually invested to make a profit, and not to make donations.

But this is not the case as in today’s world; many successful organizations strive to have policies so as to ensure that the corporations play a part in the consumer’s life. Consumers in the modern world appreciate the efforts the corporations go through for the betterment of the society, and by doing so it creates a brand name for itself as a corporation that takes care of the society, giving the corporation a very high view in the society. Examples of such activities are like Barclays Bank, and its relief efforts in the 26/11 attacks of Mumbai, India whereby they supported the people affected by the attacks.

The negative aspects of corporate social responsibility.

The basic reason why a business is formulated is to make a profit. Corporate social responsibility insists on a corporation to make an effort to look out for stakeholders who are not shareholders only, but who have an interest on what an organization does and the outcomes of what it does. Despite of that, its not totally the duty of the corporation to look out for the many people who hold an interst in the companys activities. If the operations of the free market don’t solve the social problem, it is the duty of the government and not the businesses, to address the many issues faced by the society.

Some businesses are just not prepared to deal with social issues. The lack of preparations of a particular business to deal with societal issues needs the managers to be trained and well versed in dealing with the complex issues that many societies face, as this will give them the skills and the knowledge to be prepared to do so.

It is a cost to the business to handle social issues in the society. In order to bear with the cost of handling the business, the business will lose its competitive position that it holds in the market as it will have to absorb the added cost. It is important in a global competitive market because if corporations in a particular country use their assets and resources to address social issues in a particular country alone, then the businesses that do not do so, gain a slight competitive advantage over their international rivals in other countries.

The general view of this argument suggests that corporations are not meant to take care of the problems that are being faced by the society. It suggests that it isn’t their duty and its also because most organizations around the world are ill equipped to deal with such situations. It suggests that businesses should stick to their core duty of making goods and providing services that are of the good quality and that are affordable to the people who consume them.

The positive aspects of corporate social responsibility

It makes the corporations involve other stakeholders in the decision making process of the organization. The development of corporate social responsibility has motivated the corporations to involve and encourage other stakeholders to assist the corporation in making decisions, especially those that affect the social well being of the society at large. The corporations are making an effort to make the stakeholders aware of their decisions and how they might affect the society as well as the environment.

There are several advantages that businesses have experienced by choosing the CSR approach. Some of these are:

Reduction of costs-

Corporate social responsibility is known to reduce the gap between the corporations and its stakeholders. This is because a form of trust is created between the organization and all those that are affected by it. This happens because communication is improved and it improves the flow of information leading to greater efficiency at the work place, leading to reduction in costly conflicts and improved decision making. Because CSR policies involve other stakeholders in the decision making and not the shareholders alone, it can thus help avoid costly delays that affect the company by reducing the decision making time.

Improvement in the financial performance-

Though it has never been proved if there is a correlation between the two, many corporations as well as a number of studies over the years have reported and suggested that they have greatly experienced a rise in financial performance by using the CSR approach, and they believe that a link does exist.

Improved credibility of the public-

The introduction of CSR policies means that companies have increased their effort to provide credible, verifiable and easily accessed information to the public and this vastly improves the credibility of the company as it creates a trust between the stakeholders and the organization. At the same time, the public reporting of achievements as well as failures means companies gain a reputation of honesty within the stakeholders, as they feel they have been involved. It ensures the stakeholders that there are enough measures taken by the corporation to ensure accountability and transparency.

Identifies liabilities earlier-

The free flow of information that is associated with the corporate social responsibility, helps identify liabilities early as there is a free flow of strategic information between the management and the stakeholders, meaning important information is not with held, as there is a level of trust that has been built by the management with the employees as well as other stakeholders. This ensures that the corporation has an opportunity to resolve the problem at an earlier stage, which would vastly help reducing public humiliation of the company. some of these issues are like: hazards the company might be causing to the environment; discrimination of women at work; sexual harassment; unethical recruitment procedures, and so on. This helps companies avoid unnecessary law suits that could be costly to the company.

An improvement in the relationship with the stakeholders-

There is a general sense of improved confidence and trust among stakeholders when companies start being accountable and they public disclose their decisions, successes as well as losses that they face. The act of including and considering stakeholders in the decision making process generally improves the confidence of the stakeholders on the corporations decisions. This engagement helps companies understand how community groups and other stakeholders perceive them, and educate them about further issues and concerns that may affect their operations.

Increases the attractiveness to investors-

Some investors not only look at the profit making capability of the corporation. They look at what the company brings to their portfolio; something which they already don’t have. The inclusion of a socially responsible company in the portfolio of an investor would greatly improve the public credibility of all the other companies that are owned by the investor. This would mean that the public credibility would improve for the investor as well as all his other investments.

Decreased risk of negative publicity-

Companies that have already set themselves as responsible citizens have a lower risk to negative publicity as they have already established themselves as organizations that believe in accountability and transparency, and have created a name for them as being responsible for their actions in the society. Because of the free flow of information, decisions made will be communicated well throughout the organization, and stakeholders will also have a hand in making some decisions and because of this reason the corporation avoids unnecessary boycotts organized by special stakeholder groups.

Advantages in the market-

Because corporations are determined to be accountable, this can make entry into markets fairly easy and corporations can easily establish themselves in the market by having direct relationships with the key stakeholders of the company that is the consumers. This can help companies to easily establish themselves in the market due to the relationships established with the various stakeholders.

The stakeholder concept

Stakeholders are all groups of people who have an interest in the company. Some stakeholders may have legal rights and expectations in regard to the operations. Examples of these are employees and owners. Others have moral rights as to how the company operates. Examples are like environmental groups who may check how the organization uses natural resources. Their interest is if the company is utilizing the resources well and doesn’t waste them, or how the company disposes its waste. All these are groups who have different interests from the company.

Corporations have multiple stakeholders. They are classified into primary and secondary stakeholders. Primary stakeholders are the ones that have a direct interest in the company. These are the shareholders, employees, business partners, customers, communities and so on.

Secondary stakeholders are public or special interest groups that do not have a direct interest in the organization but are still affected by the operations of the company. These are the regulatory bodies, special interest groups, civic institutions and groups, and the local, state and the federal governments.

The owners are the primary stakeholders. The organization has legal and moral obligations to the shareholders, of which is to ensure adequate return on investment among many other things.