Corporate Social Responsibility

free essayCorporate social responsibility (CSR) is a business framework that has become significant in the business world over the recent years. Various debates have been held regarding the ideal meaning of CSR and the best strategies for companies to embrace the emerging trends in their business ethics and social responsibilities. The basis of CSR is the idea that businesses and other organisations need to have responsibilities towards the society above maximising of their profits (Heath & Ni 2014). However, since the emergence of this idea, many definitions of CSR focused on the various dimensions of the concept, such as stakeholder, economic voluntariness, and social domain. Other definitions related mainly to the categories of CSR, including legal, ethical, economic and discretionary responsibilities of a business (Haynes, Murray & Dillard 2013).

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Social and Economic Roles of Business

Even in the business world, society sets a range of expectations to companies. However, scholars have differing views on the issue. For instance, Friedman’s concept of CSR is based on a shareholder’s approach which implies that businesses are only responsible to shareholders (Hall et al. 2010). This fact is evident in the context of a civilized society where businesses are solely focused on profit maximisation as long as they are operating within the underlying framework of rules. At first, this view may seem the one that does not support CSR, but the theorist further argued that it is the expected responsibility to formulate a framework of law similar to that of an individual pursuing his or her interest (Hall et al. 2010). In addition, Adam Smith has asserted a need to be “led by an invisible hand to promote and uphold an end which was no part of his intention” (Hall et al. 2010). This issue means that the laws that the government and society formulates influence all organizations encouraging them to operate responsibly. For example, laws that are passed to limit pollution make firms to reduce the amount of pollution.

Therefore, the introduced perception of business as a profit-making activity also entails CSR as very important in determining the actions of a company. Since all stakeholders in a business view CSR as a mutual responsibility of both firm and society itself, the frameworks developed by for-profit organisations today are a result of this trend. In other words, the implementation of CSR is not based on business response to fresh social needs but on the overall operational setup of a business that allows it to address collective challenges in a legal, ethical, social and economic manner (Gond & Moon 2012).

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Potential Conflicts in Integrating CSR

A business organisation that upholds proper CSR is always in a better position in promoting social and political interactions within the areas where it operates. Therefore, advanced reputation for profit maximisation purposes has become the desire of many organizations (Horrigan 2010). However, in the process of integrating CSR into business model, businesses are likely to face several challenges.

Undefined Ethical Obligation

For many social responsibilities of a business, ethical obligation of the business has no explicitly defined boundaries (Katamba, Zipfel & Haag 2012). To be more precise, some problems are beyond the legitimate responsibility of the company that may even result in a conflict among the stakeholders or community and the business itself; for example, the conflict that was seen in Nigeria with Shell Oil Company which is based in London. The enormous rate of pollution that was caused by the firm led to many demonstrations and much criticism by various interest groups (Purefoy 2010).

The boundaries of action of the firm were not clearly defined, but recently, the company has integrated programs of CSR, such as investing over $83.5 million in education, health, agriculture, women’s programs, job creation, and youth training (Associated Press 2015). This issue has been caused by the lack of governmental regulations regarding CSR, especially in highly industrialised countries, such as the US and Japan, which were on the frontline in integrating CSR initiatives (Koichi 2015).

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Solution

The best solution to this problem is developing specific international guidelines or standards that govern all aspects of CSR across the globe. When an issue causing conflict rises, it undergoes through several stages as shown in the graph on figure 1 below before it becomes institutionalised.

CSR/Shareholder Value Conflict

Communicating the actual impacts of CSR initiatives to all stakeholders is a great challenge for the CSR executives in a company. This factor has been the root of major conflicts between what shareholders of a company want and the efforts of directors to protect the reputation of the company (Idowu & Okpara 2014). CSR is a new term in the business world since previously businesses tended not to correlate themselves with the negative impacts of their operations. Shareholders require that the company should increase the value of their holdings. Therefore, when the management tries to introduce CSR initiatives, this procedure, in turn, reduces the income for shareholders and employees that creates the background for conflicts. Additionally, all other aspects that concern stakeholders of a business are in measurable units, and the results can be seen clearly, but the impact of integrating CSR into business is not measurable leading to numerous issues, especially for shareholders.

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Lack of Unified Benchmark for Reporting CSR

Different countries use different models of reporting about sustainability, and thus, there is no consistency in the world of revealing CSR data. When the quantitative aspect of CSR initiatives is not addressed, there is friction with the shareholder’s value (Katamba et al. 2012). Most stakeholders are only concerned with CSR activities that form an explicit linkage to the financial performance of the business. There are accounting policies and reporting procedures that are recognised all over the world, and previously, interpreting the reports has been easy for all stakeholders to. Shareholders could have clearly traced their dividends and the stock prices, but now, CSR is reported in different ways. As a consequence, this circumstance causes a conflict because it influences the cash flow of the company as well as the value of stock capital.

Varying Stakeholder’s Views and Expectations on CSR

The definition and the expectations from the stakeholders after integrating CSR vary from different perspectives. Many stakeholders tend to interpret CSR different from the organisations that are implementing the strategies (Horrigan 2010). Therefore, these firms modify their CSR policies to fit the expectations of the stakeholders by the time these policies have executed and the idea of CSR has further evolved. This issue means that there is always a gap that CSR will never fill, and for this reason, it has been called an endless journey.

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Solution

The only effective way to align the conflicting issues that appear during the integration of CSR is to adopt CSR practices that encourage revenue-enhancing, cost-saving and risk-reducing (Mullerat 2010). In this way, all stakeholders will be willing to embrace the integration of CSR policies into business. Therefore, to support sustainable businesses and minimise this conflict, companies need to adopt CSR policies that go beyond today’s business environment.

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Conclusion

In today’s business world, most of the profit-making activities overlap the social aspect of business performance regardless whether of the sector. As a result, there are new conflicts arising in this context, and the only way to minimise such cases is to develop essential boundaries for CSR.