The Effect of Corporate Social Responsibility - Assignment Example

Running Head: CORPORATE SOCIAL RESPONSIBILITY Corporate Social Responsibility [The Writer’s Name] [The Name of the Institution] Corporate Social Responsibility To begin with; how would one define corporate social responsibility (CSR), is it merely morals and ethics or is it much more then that, and can companies reflect such values? Firstly a definition of CSR must be determined, and since there is no one definition in use around the highly globalised corporate world, it is necessary to review some of the existing ones and determine what should be used. The World Business Council for sustainable development defines CSR as the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce, their families and the local community and society at large. Other definitions describe CSR to mean that companies should carry out their core functions of making profits by the provision of goods and services, but by doing this in a socially responsible way, so by reviewing these two definitions it can now be determined what is expected of businesses, that is to continue their core business and make profits but do so responsibly by behaving ethically, contributing to economic development and the quality of life in the community at large. In the 21st century the scope of doing business has changed tremendously, and profit maximization through cost cutting and sales at all costs is on the brink of extinction, this has come about due to the fact that businesses today are expected to fulfil ethical and social responsibilities in addition to being competitive, and profits are no longer the primary measure of business success. (Watt, 2004, p8) A good example is James Hardie, and their cynical exercise to avoid moral and legal obligations on a massive scale to save profits, in the end this exercise did not work, due to a backlash against them by the community, and once the company realised the interests of their stakeholders, i.e. asbestosis victims, and set up a more sufficient compensation fund, shareholders directly benefited through higher share values. (McAdam, 2003, 6) So being concise and to the point, the revision of the corporations act to clarify the extant to which interests of both parties should be taken into account when making corporate decisions is not necessary, as the directors duties at present are flexible enough to allow this, and the perception of what makes a profit is changing in the minds of both directors and shareholders, who now expect the adoption of responsible strategic approaches that return financial gain and ensure viability , in the end all it really comes down to is how CSR is integrated into the corporations structures, and that they realise that to make a profit, they need to rebuild the loss of public trust and respect , by communicating CSR policies to the public to eliminate the residue of suspicion still present due to past actions. The second point of this essay although similar to the first also concentrates on the revision of the Corporations Act 2001, but not on the clarification of the act; instead the focus is whether or not it should be changed to require directors to take into account the specific interests of both parties, i.e. shareholders and stakeholders other than shareholders when making corporate decisions. Most views on this issue reject government intervention in the implementation process of CSR, while a minority support such action. The community business partnership scheme employs tax measures to entice businesses to fulfil mutual obligation responsibility by engaging in forms of philanthropic activities in partnership with communities, and thus giving corporations a chance to integrate CSR practices into their corporate structures. (Reich, 2008, 3-17) An example of other reforms put in place around the world; include those of the European commission, which did not impose legislation upon corporations to take up CSR but rather put emplace processes that pressure corporations to take CSR up themselves, theses include labelling of corporations that implement and do not implement such practices, encouraging of social responsibility investing (SRI) and allowing citizens to be more vocal in demanding accountability for conduct that undermines CSR values , likewise in the United Kingdom a bench marking system has been introduced to help identify those businesses who recognise that they have an interest in continually improving their impact on society . In fact the current momentum in UK to change directors duties and to alter the Corporations Act 2001, is based on false assumptions, that is, that corporate directors do not already take into account stakeholder interests; and that taking into account stakeholder interests is contrary to the best interests of the company. (Lucas, 2004, 28-30) Furthermore there is a fear that an introduction of formal legislative intervention would represent a limited view and place little public and political faith in directors, thus CSR and the focus on stakeholders should be left to the corporations and their internal governance, coupled together with government guidelines, because company interests are intertwined with; and dependent on stakeholders and their interests. The point is that, the act should not be changed to require directors to take into account both interests, as they already do, but rather introduce public policy into the area to guide them in determining theses interests, and adopt a non-regulatory activist approach, which demonstrates the best practices in corporate citizenship. After reviewing the above two topics, that is should any change occur to the Corporations Act 2001, the question now is should corporate companies be encouraged to adopt socially and environmentally responsible business practices, and how. To answer the above question, it is necessary to review similar actions around the world, and suggestions from other research on the topic; the Sarbanes-Oxley Act 2002 (US) is such an example, as it encourages CSR with four objectives, which are as follows, firstly it increases accountability of corporate executives and board members for their actions, through the introduction of a "checks and balances system', and increases penalties for misconduct; secondly it encourages truthless through complete disclosure; it eliminates internal and external conflicts of interest; and encourages an ethical climate in which all employees from all levels are encouraged to report unethical or questionable behaviour. Other policies based on those recommended in Canada include, following up CSR policy and practice implementation with social audits, passing legislation to protect whistleblowers who inform of corporate non-compliance; make CSR and stakeholder considerations part of business; expressly state that directors won't be in breach of duties if interests of other stakeholders are taken into account; include social clauses in trade agreements; and develop a culture supportive of CSR. (Hannon, 2002, 28-29) Currently there are approximately three hundred CSR tools throughout the world designed to help corporations fill in the gaps arising from government regulations and international agreements, what the governments can do to encourage such practices is to advocate the use of such tools, put in place their own guide lines, convert the UN guidelines on the topic into local laws and either fill in the gaps left from local laws and international agreements or create a forum to do that. However there are also many options for corporations to put in place themselves instead of waiting for the development of laws or guide lines; these include, adopting the standards that already exist; promote these standards to other corporations; support the integration of CSR into company structures; and participate with organisations that drive standards forward. (Imperato, 2005, 11-18) To conclude on this topic, there is no question about whether or not CSR should be encouraged, it is just a matter of picking the right techniques to encourage it, whether it is through guidelines or legislation, or even through self incorporation of CSR by companies, the point is it has to be done. The final point of this essay is should the Corporations Act 2001 require certain types of companies to report on the social and environmental impact of their activities; based on the previous points of the essay such action enforced through legislation would come under government interventionism, however this is a specially sensitive topic because companies are the main polluters of the environment and their actions have tremendous impact on the economy and thus society. However what exactly is social disclosure? Firstly it is the abbreviated term for social and environmental disclosure and includes the disclosure of company practices, policies ands performances in relation to social and environmental issues. At present the Corporations Act 2001, only has two sections which refer to disclosure, whilst at the same time making social disclosure is voluntary at the moment and not mandatory, Section 299(1)(f) states that if an entities operations are currently subject to any particular or significant environmental regulation, under commonwealth, state or territory law then details in relation to the environmental regulation should be provided in the annual report; furthermore section 1013D(1)(1) states that if an investment component in which labour standards or environmental, social, or ethical considerations are taken into account in the selection, retention or realisation of an investment, then it also must be disclosed . Four points have been reviewed in this paper, that is whether the Corporations Act 2001 be revised to clarify the extent to which the interests of both shareholders and stakeholder are considered when making corporate decisions; whether it should require directors to take such interests into account; should corporate companies be encouraged to adopt more socially and environmentally responsible business practices and how; and finally should the corporations act require certain types of companies to report on the social and environmental impact of their activities. (Darvas, 2002, 139-40) The points put forward for and against these questions are varied, but the general view of the writer is that government interventionism through legislation is unnecessary and that it would only serve to confine the development of CSR practice; instead a more supportive view is favoured, where governments and communities encourage and reinforce such practices, by making them easier to apply and providing incentives for their implementation, but most important, is the fact that these practices develop solely from inside the corporations and thus be fully integrated into their policies, employees and general structures. Proposals put forward to help guide and encourage corporations on this journey include, specifically eliminating any breaches of duty for considering stakeholder interests; legislatively enacting United Nations norms; amending ASX listing rules to reflect drafted norms. Corporations themselves can implement a lot of thing to successfully implement CSR, some recommendations included adopting existing standards; promoting them, supporting the integration process as a whole; and participating with other companies to drive the standards forward. (Sparkes, 2003, 1-5) In short it needs to be recognised that the world today no longer regards corporations as purely economic institutions, but as social ones as well ; that they have a broader constituency then shareholders alone, and that they have an impact that goes beyond the market place transaction , it is therefore societies view that companies be made accountable for their actions, and that governments take active non-legislative participation in the development process of such accountability and its encouragement, so that a new CSR based corporate culture, so lacking is developed and enshrined within company structures. (Buchholz, 2001, 19-32) CSR builds a management framework that is virtually impossible to copy. This means that a company can have a sustainable competitive advantage, but it also has its disadvantage. Unlike the balance sheet, a social performance report is much harder to compare among companies. The effect of CSR can be seen through the satisfaction from workers, consumers, shareholders and other stakeholders. In the future, the value of a corporation will not only be derived from its financial success. (Owen, 2005, 12-13) The value of a corporation will also be drawn from how well it distributes some of its wealth back to the stakeholders and the community, and as well as how it contributes to both environmental and social issues. CSR is still a new area that needs to be more thoroughly researched. However, one thing is for sure. CSR has a positive impact on both the company and the community. By demonstrating leadership in balancing commercial and social responsibility, corporations can be regarded as an employer of choice. With the growing popularity of environmental and social concern by stakeholders, adopting CSR is becoming a common choice among organisations. (Aaronson, 2002, 46-47) Having a good environmental and social ethic means more than just simply donating money to the community. It means for the company to partner with the community and to get involved in fundraising. Not only is CSR beneficial for consumers and special interest groups, but to employees as well. Employees are an important asset to a company, so it is essential to maintain their well-being while working. There is no particular solution for all of these issues. There is only hope that social responsibilities will guide every manager throughout his or her career. Professional conduct should be governed by a code of social responsibilities that reflects positively on the practitioner and managerial profession. Countrywide is a positive example for socioeconomic view of social responsibility. (Cleverdon, 2004, p.4) The company has strong consciousness of social responsibility since three decades age. The company planned a long-term profit for itself. Fortunately, they got the benefits after they launched their nonprofit program. This behavior is not only benefit the society but also good for the company. A company should treat all its demands seriously, regardless of which group has brought it up. When a company is confronted by a specific social demand, it is very important on choosing the right method of handling it. Some management professors have developed a scale of responses that organisations use when a social issue confronts them. A socially responsible organisation would try to seek an accommodative or a proactive response. Exxon took an accommodative response when there was an oil spill in Prince William Sound, Alaska. After being hassled by the public, it decided to do a clean up and open environmental awareness programs. This eventually put the company in a good light, rather than a bad. With the growing popularity of environmental and social concern by stakeholders, adopting CSR is becoming a common choice among organisations. Having a good environmental and social ethic means more than just simply donating money to the community. It means for the company to partner with the community and to get involved in fundraising. It also means to have a long term goal, which is to operate the business with as little environmental impact as possible and with minimum consumption of materials of natural resources. Not only is CSR beneficial for consumers and special interest groups, but to employees as well. Employees are an important asset to a company, so it is essential to maintain their well-being while working. A socially responsible company can eliminate those distractions, as it also takes interest in the welfare of the employees. This improves the productivity of the employees and hence the output from the company. In the future, the value of a corporation will not only be derived from its financial success. The value of a corporation will also be drawn from how well it distributes some of its wealth back to the stakeholders and the community, and as well as how it contributes to both environmental and social issues. CSR is still a new area that needs to be more thoroughly researched. However, one thing is for sure. CSR has a positive impact on both the company and the community. By demonstrating leadership in balancing commercial and social responsibility, corporations can be regarded as an employer of choice. Reference Aaronson, S, "Broadening Corporate Responsibility", International Economy, (2002), Vol. 16, Issue 4, pp. 46-47 Buchholz, R., "Corporate responsibility and the good society: From..." 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