Corporate Social Responsibility and Multinational Corporations - Literature review Example

Name : xxxxxxxxxxx Institution : xxxxxxxxxxx Title : CSR and Multinational Corporations Tutor : xxxxxxxxxxx Course : xxxxxxxxxxx @2011 Introduction In recent years, an increasing number of multinational companies have come to the realization that sustainable corporate profit does not result from the unwavering pursuit of financial gain. Rather; sustainable development and shareholder value are best attained by working through a broad framework of economic, environmental, social and ethical values and common objectives that involve constant interaction between the multinational companies and their various stakeholders. This paradigm shift that incorporates social, environmental and economic factors into a firm’s commitment to growth and continued profitability is referred to as the triple bottom line. The modern trend of globalization has also brought up a realization among multinational firms that in order for them to compete efficiently in a competitive environment; they need clearly defined business practices with a key focus on the public interest within the market (Boeger, 2008). The increase in competition among the multinational companies to gain advantage in various transition economies by creating goodwill relationships with both the state and the civil society is an ample testimony to this change. In reaction to these concerns, multinational companies have increasingly taken steps aimed at demonstrating their social responsibility as business organizations (Kamineni & Tsang, 2006). This particular paper will therefore provide a literature review on CSR and Multinational Corporations, giving a concise summary of some of the main debates and positions discussed in the past literature. Literature Review In recent years, the business strategy field has undergone the renaissance of corporate social responsibility (CSR) as a significant topic of interest (Rana et.al, 2008). According to Hockerts & Morsing (2006), the idea has not come up for the first time. Corporate Social Responsibility had already established significant interest in the 1960s and 70s, generating a broad range of scholarly contributions as well as a veritable industry of social consultants and auditors. However, according to Hockerts & Morsing (2006), the topic nearly died out from most managers’ minds during the 1980s only to resurface in recent years.CSR re-emerged powerfully over the last decade in response to the growing public concern regarding globalization. Rana (et.al, 2008) asserts that the idea and framework of corporate social responsibility was established to promote corporate social responsibility to the business society and environment The World Council for Sustainable Development describes corporate social responsibility as the continuous commitment by businesses to act ethically and play a part in economic development while enhancing the quality of life of the employees and their families as well as that of the local community and society at large (Boeger, 2008).Corporate social responsibility therefore pushes firms to move away from their sole aim of maximizing profits and to place more importance on improving the economic and social standards of the community within their own nations of operation According Boeger (2008), political leaders, consumer campaigners and non-governmental organizations alike, identify the activities of multinational companies as a key influence on the globe’s social and environmental welfare. Social corporate responsibility is therefore viewed as the avenue through which their activities must be steered. Epstein & Hanson (2006) highlight that; carrying out business within the international environment is more challenging, than in the case of an entirely domestic environment. This is explained by the fact that international business environment presents highly complex interactions among the various contextual variables such as economic, political-legal, social-cultural and technological (Epstein & Hanson, 2006). The highly complex interactions result into a vast number of potentially relevant external influences on multinational business operations. Further, the interactions occur in very dynamic ways that present a firm with either opportunities or threats. Consequently, corporate social responsibility within the international business framework becomes equally more complex than in the domestic market. According to Kamineni & Tsang (2006), a number of multinational companies have had harsh experiences in learning the significance of being socially responsible. Siwar & Haslina (2010) highlights that by operating in more than one nation, multinational corporations imposes greater impacts and faces considerable pressures from stakeholders. Countries where people are highly socially responsible may well demand more CSR practices from the multinational companies. For that reason, best CSR practices initiated in nations in which CSR is a requirement and subject to legal actions for non-conformance might be adapted might be adapted into multinational companies’ operations in other nations. This may well suggest the reason of high commitment exhibited by the multinational corporations as compared to other organizational listing status (Siwar &Haslina, 2010). Multinational companies also have considerable power, and directly, their activities have significant impacts on the society and on the environment (Windsor, 2006). In addition, their activities have the capacity to damage or create benefits socially and environmentally (Hockerts& Morsing, 2006). The economic power of multinational corporations also brings to them the political power that enables them to influence social and environmental policy as well as regulation. Boeger (2008) argues that such power extends to influence the lives of individuals. Multinational companies started with business viewpoint as principal the principal and guideline towards corporate social responsibility implementation and would like to prove social, environmental and economic responsibilities that benefit its stakeholders. Multinational companies are now considering high standards of corporate behaviour as the key to success within the global market. For instance, according to Kamineni & Tsang (2006), oil company Shell lost business and declined in value owing to two high profile corporate incidents during the year 1995.Since then, Shell has been committed to managing its social responsibilities as a strategic priority, focusing on building up the company’s reputation in order to protect its market share and to operate in a way that satisfies all its stakeholders (McIntosh et al, 1998).As highlighted by Siwar & Haslina (2010),corporate social responsibility used to be a formality; a function carried out in the organization for the sake of it rather than with an aim of creating any material difference to the society. Presently, however, the state of affairs has changed, and as a result of competition within the international market, more product categories and lack of differentiation, companies are integrating corporate social responsibility with marketing plans. Krish, (2010) reveals that multinational companies have come to the realization that in order to gain customer loyalty, and to make consumers prefer them among a host of competing products, it is essential that they go with the trend and project a distinct brand/corporate image ,which is being socially responsible corporate citizen. Due to these, marketers are jumping the corporate social responsibility brand wagon and branding their products and services tagged with corporate social responsibility The significance of all the forms of global social responsibility is manifested in the increasingly widespread implementation of the ISO9000 and ISO14000 management systems by multinational companies (Muruganantham, 2010). As more consumers demand that marketers follow socially responsible practices, multinational corporations are given opportunity to further take advantage of the newer, verifiable social accountability system to enhance their reputation, differentiate their products and build competitive advantage. Consumer groups, social organizations and governments are demanding increased social accountability by multinational corporations.SA8000 may emerge as the global social accountability standard (Muruganantham, 2010). The implementation of SA8000 may be identified as a very cost effective as well as a strategic approach towards managing the multinational corporations’ social reputation with its stakeholders. Consumers consider switching to another company’s products and services complain against the company to family and friends to invest in that company’s stock, decline to work at the company and refuse the company’s products and services in case of negative corporate citizenship behaviours (Muruganantham,2010). Muruganantham (2010) observes that corporate social responsibility practices are more common in multinational companies that take advantage of relational marketing practices. All the types of corporate social responsibility practices receive positive influences by one or more types of relational marketing practices. In the process of building and engaging in relationships, networks, and interactions with customers and other stakeholders, managers search for corporate social responsibility practices that can generate loyalty, trust as well as support from stakeholders, especially as product differentiation becomes increasingly difficult. According to Epstein & Hanson (2006), corporate social responsibility also provides an integration of views and is a potential for multinational companies. It is important to identify with the business perspective of companies and that they confronted by difficulties of integrating societal issues into their organizational systems and structures while working at CSR initiatives for the purposes of sustainability (Epstein & Hanson ,2006). Siwar & Haslina (2010) highlights that there are various theories that governs corporate social responsibilities within multinational companies. According to Siwar & Haslina (2010), the legitimacy theory is one of the CSR theories that propagate that corporate social disclosure is influenced by the corporate need to legitimize activities. This therefore calls for the corporate management to react according to the expectations of the community. Multinational companies are Therefore, expected to undertake activities that are acceptable and tolerable as far as the community expectation is concerned. Legitimacy also ensures that multinational companies take precautions to ensure their activities and performances are acceptable to the community given the growth in community awareness. Corporate social disclosure is therefore used to appease some of the concerns of the relevant publics and also as a practical legitimization strategy to get hold of continued inflows of capital as well as pleasing ethical investors (Siwar & Haslina (2010). The economic theory on the other hand reflects the extent of association of corporate social responsibility and financial performance by taking into consideration market advantages, cost-related advantages and reputation advantages. In business therefore, CSR is concerned with employment, consultation and participation of employees, lifelong learning, equal opportunities as well as the integration of people towards restructuring and industrial change. Essentially, policies formation is determined by the initiative on social responsible restructuring, the authority employment strategies, the initiatives to enhance quality and diversity within the workplace, health and safety strategy (Siwar & Haslina, 2010). According to Chamhuri & Wan (2004), the social issues consist of the benefits offered in terms of training related to safety, environment, health, education scheme, medical benefits, donations and others. Environmental issues lay emphasis on the preservation in addition to the conservation of the natural resources such as carrying out recycling activities, water and process treatment, noise reduction action plans to work at noise enhancement initiatives and compliance with the authority requirements and regulations. A large number of multinational companies recognized the value of their responsibilities towards the environment and take them seriously by setting up targets for continually enhancing their performance. Policies are normally developed in line with efforts such as minimizing the consumption of natural resources such as water, energy and other raw materials, phasing out the use of ozone depleting substances in buildings, encourage recycling and minimizing the use of landfill sites while ensuring compliance with all relevant regulations. In addition, it might also entail regular review of transport operations that enhances efficiency and reducing its environmental impact, promoting recycling of raw materials, liaising with suppliers to come up with environmental best practices in the supply chain, encouraging employees to support the initiatives towards local, national or global environment in a positive way, raising and maintaining staff awareness on such policies, monitoring and reporting on major aspects of environmental performance, ensuring that the staff is engaged in supporting resulting practices and frequently reviewing the progress against targets (Chamhuri & Wan,2004). Environmental performance can be realized by putting into operation the environmental management system by the multinational corporations. The environmental management system is a set of processes as well as practices that enables organizations to reduce their environmental impacts and increase their operating efficiency. Therefore, corporate social responsibility has unquestionably been an advantage to a number of multinational companies by widening their access to markets, increasing brand recognition, providing cheap labour and satisfying stakeholders (Siwar & Haslina, 2010). Siwar & Haslina, (2010) undertook a study on Unilever Company. Siwar & Haslina, (2010) highlights that the company defines their social innovation as utilizing consumer concerns on social and environmental issues. This provides opportunities to connect with their consumers at a deeper level and, in doing so; they gain competitive as well as sales advantage through the means of cross-sector partnerships. This enables Unilever to carry out business and deals with social problems at the same time.Unilever normally focus on emerging markets. To attain optimal results for the company as well as local societal development, local markets ought to teach and change Unilever, and not the vice versa. Taking advantage of local strengths rather than trying to overcome local weakness is at the core of its business activities. An example of one the initiatives by Unilever is the Lifebuoy soap intended to lower child mortality caused by diarrhea. To deal with these issues, Unilever has initiated the largest rural health and hygiene education programs ever carried out in India. Education teams are therefore visiting schools and communities to get in touch with broad masses. In order to assist low income families Unilever sells soap in 18 grams bars, enough for an individual to wash their daily for up to a period of 10 weeks ( Siwar & Haslina, 2010). As highlighted by Porter & Kramer (2006) therefore, corporate social responsibility is a way that multinational companies can be accountable as well as profitable. On the other hand, Porter & Kramer (2006) argue that corporate social responsibility do not appear to work or prove to the society of businesses engagement with social responsibility. First, they pit businesses against the society, when in the actual fact the two are mutually dependent. Second, they compel companies to visualize CSR in generic ways rather in the way most appropriate to their individual strategies (Porter & Kramer 2006).For this reason, the problem of integrating corporate social responsibility into the business agenda and strategy still continues regardless of the integration and implementation efforts on the side of the multinational companies and their stakeholders. Despite corporate social responsibility being implemented prevails over societal difficulties; the idea’s uncertainty raises misunderstandings. This uncertainty raises a number of problems, of which two are especially significant. The first is that corporate social responsibility is viewed as a public relations tool, rather than a value-creating process in its own right, whose objective is to assist multinational companies achieve sustainability. The second is that a number of multinational companies have alleged to practice CSR, but in actual fact have only used contributions to social objectives as a mechanism for carrying on profit-maximizing operations. How these multinational corporations have acted, especially in the transition economies in the past has attracted much concern from social groups in the respective host nations. According to Kamineni & Tsang (2006), the society believes that self-interested multinational companies only take advantage of resources within the transition economies. Profit is an essential part as well as a tangible way of evaluating a company’s growth; however, it is not the only objective (Boeger, 2008). According to Boeger (2008), proponents of CSR claim that multinational corporations ought to be made accountable for their activities as well as how they exercise their power and that corporate social responsibility ought to lead corporations to have a positive effect on the society. Despite increased attention on corporate social responsibility and claims that CSR has turned out to be an established feature of corporate policy during the last few decades, progress in terms of its effectiveness has not been impressive. Boeger (2008) argues that some of the multinational companies that claim to respect the environment and human rights are accused of committing among the worst right abuses. Therefore, according to the Global Exchange on issues as diverse as environmental degradation, release of toxins into unspoiled environments and causing widespread health problems, with familiar multinational companies such as Coca Cola, Lockheed, Caterpillar and Philip Morris playing a significant role. Mullerat & Brennan (2010) argues therefore that a number of corporations question what the social corporate responsibility buys. Mullerat & Brennan (2010) highlight that a great deal of insincerity also exists in this area. Many consider CSR as a smoke screen behind which anti-social practices continue. Mullerat & Brennan (2010) highlights further that it is common today for many multinational company websites to broadcast their CSR accomplishments. In reality, however, there is more lip service given to corporate social responsibility than the actual service. A recent survey carried out by the United Nations Institute of Public Research survey for instance, showed that only 4 out of 10 multinational company boards discuss social and environmental issues while only one-fifth of the companies have a board member with an evident interest in social issues (Epstein& Hanson, 2006). Furthermore, during the World Economic Forum held in Davos, Switzerland in the year 2004, of 1,500 delegates, mostly business leaders, only a small percent placed social corporate responsibility high in assessing corporate success. There is therefore a good reason to be cynical as to whether social corporate responsibility will be steadfastly as well as comprehensively exercised by most multinational corporations, or whether it merely will result in scattered short term measures. According to Mullerat & Brennan (2010), multinational corporations have also been able to enhance their influence (power) while disregarding the objectives of truly advancing the underdeveloped as well as the poverty-stricken countries which they have penetrated. This criticism is not just a casual matter. Mullerat & Brennan (2010) highlights foreign investments have grown to new heights but only about one-third of it goes to the developing nations. Developing nations have 80 percent of the globe’s population but less than 20 percent of global GDP.What is most upsetting is the fact that despite the benefits of globalization, the gap between the poor and rich is not only huge but widening. There are a number of reasons for this gap including scarce resources, non-existent technology, awful education, rampant corruption etc. Mullerat & Brennan (2010) argues that all these ills cannot be laid at the doorstep of globalization, but a number of multinational companies exploit and aggravate these conditions, while the exercise of corporate social responsibility can help alleviate them. According to Rana, et al (2008), one possible reason that can explain the poor results of corporate social responsibility agenda among multinational corporations is that CSR does not exist in substance and that it is merely an aspiration for best practice or ethically acceptable behaviour. By relying on CSR it can possibly be valid to blame policy makers of hypocrisy, especially as they appear willing to delegate their responsibilities to multinational companies, consumers and civil society by means of a privatized regulation. Multinational corporations are therefore left to monitor themselves or to be monitored by external bodies such as the non-governmental organizations that may not be directly connected to legal or political systems (Muruganantham, 2010). The effect of this is that multinational corporations are given the license to determine a corporate social responsibility agenda of their own meets with, and is limited by, their business goals. Additionally, multinational corporations driven by immediate profit demands, have little short-term incentives for making efforts towards realizing a socially responsible existence (Boeger, 2008). Windsor, (2006) proposes the need for the adoption of a code of conduct that directs how CSR is undertaken by multinational companies. A variety of arguments have been raised concerning the code of conduct to be applied. Windsor, (2006) further argues that the code of conduct should be based on guiding the behaviour of the employees in a manner that is compatible to the image of the business that the senior management wants to display. Van and Kolk, (2001) on the other hand stress that the code of conduct should assist the multinational firm to achieve some degree or level or legitimacy in the eyes of those that are outside the organization. As a result a code of ethics in CSR undertaken by multinational companies aims at achieving a level of loyalty across their operations and a measure of authenticity in their external environment. Arnaud, et al (2007) point out that there are two basic codes of conduct in CSR practices for multinational companies; the internal code of conduct, which target the management and the external code of conduct which target outside stake holders such as customers and suppliers. Ultimately, a corporate social responsibility agenda is more likely to give multinational corporations more power by placing greater control into their hands and enabling them go for their profit-motivated goals without worrying about the potential external limits placed upon them. Hockerts & Morsing (2006) argue that the issue ought to be dealt with by ensuring the multinational companies are accountable for the way in which they exercise power. Corporate social responsibility ought therefore to be defined to include a number of minimum requirements and to involve a system of corporate answerability through regulatory and enforcement of obligations. Conclusion In conclusion, as Ramon Mulleret stated, and going by the analysis above; CSR may well have entered our national vocabulary, but it has not taken root into our realization.CSR still has along way to go if it has to be truly entrenched in the corporate conscience and be implemented in its behaviour of multinational companies. To be sure, there is progress, but it is travelling at a petty pace, when it really ought to be a rapid one. On the other hand, the exploration of CSR by the multinational corporations can lead to a comprehensive understanding of the area as well as the challenges that multinational companies face today in resolving the persisting misconceptions identified in the literature. As identified in the literature, social aspects have received less consideration, even though they are of considerable significance to successful and sustainable operation. References Arnaud , M, Élodie, B, Claude D, 2007, ‘’What Codes of Conduct Tell Us: corporate social responsibility and the nature of the multinational corporation, Corporate Governance: An International Review, (15 (1),p 77–90. Boeger, N, 2008, Perspectives on Corporate Social Responsibility Corporations, globalization, and the law, Edward Elgar Publishing. Chamhuri, S and Wan, N.M, 2004, Corporate Social Responsibility (CSR), Costs for R&D and Financial Performance in Developing Countries: Case Study in Malaysia, The 2004 Corporate Social Responsibility and Environmental Management Conference Proceedings, Nottingham. Epstein J and Hanson K.O, 2006, The Accountable Corporation: Corporate Social Responsibility, Volume 3. London: Praeger Perspectives. Hockerts, K & Morsing, M, 2006, A Literature Review on Corporate Social Responsibility in the Innovation Process. Sage. Kamineni, R & Tsang, K.C, 2006, Multinational Corporations and Corporate Social Responsibility in Transition Economies. Krish, 2010, ‘Marketing and corporate social responsibility, Retrieved on 8 September, 2011 from http://ayushveda.com/blogs/business/ Muruganantham, G,2010, Case study on Corporate Social Responsibility of MNC’s in India, International Trade & Academic Research Conference (ITARC) - London 2010 McIntosh, M, Leipziger, D, Jones, K., Coleman, G, 1998, Corporate Citizenship: Successful Strategies for Responsible Companies. Financial Times Professional Limited, London, UK. Mullerat, R & Brennan, D, 2010, Corporate social responsibility: the corporate governance of the 21st century: International Bar Association series, Kluwer Law International. Porter, M.E. & Kramer, M. R, 2006, Strategy and Society: The Link between Competitive Advantage and Corporate Social Responsibility. Harvard Business Review, 84(12), 2‐17. Rana, P, Platts, J & Gregory, M, 2008, Exploration of Corporate Social Responsibility (CSR) in Multinational Companies within the Food Industry: Corporate Responsibility Research Conference 2008. Siwar, C & Haslina, S, 2010, A Study on Corporate Social Responsibility Practices amongst Business Organizations. van Tulder & Kolk, A. 2001. “Multinationality and Corporate Ethics: Codes of Conduct in the Sporting Goods Industry”, Journal of International Business Studies, 32(2):267-283. Windsor, D, 2006. “Corporate Social Responsibility: Three Key Approaches”, Journal of Management Studies, 43(1):93-114. Read More