Fundamental Principles of Corporate Social Responsibility - Literature review Example

A Report on the Fundamental Principles of Corporate Social Responsibility Name: Course: Tutor: Submission date: TABLE OF CONTENTS Executive Summary ……………………………………………………. 3 1.1 Introduction …………………………………………………….. 4 2.1 History of CSR ……………………………………………………. 5 2.2 Original Principles of CSR ……………………………………………………5-6 2.3 Modern day CSR Principles ………………………………………………….. 6 2.4 CSR Principles in addressing social issues ………………………………….. 7-8 3.1 Codes of Conduct …………………………………………………… 8-12 4.1 Conclusion …………………………………………………… 12-13 Bibliography …………………………………………………… 14-16 Executive Summary Corporate Social Responsibility is an issue that every corporation needs to consider while coming up with their overall strategies and plans. CSR, as it is popularly known, entails performing actions beyond those geared towards making a profit that are perceived to be beneficial by certain stakeholders such as employees, the community and the consuming public. Notably, CSR activities are not mandatory or enforceable by law like formal laws would be. Even when principles and codes of conduct have been stipulated, the performance of these codes of conduct depends largely on the commitment exhibited by the corporation to its stakeholders. Most of these codes of conduct are well intended. For instance companies undertake to pay fare wages, preach against discrimination, agree to the formation of employee associations, and contract to be environmentally conscious, avoid child abuse and generally contribute in meaningful ways to the welfare of the communities in which they operate. However, these codes of conduct will be useless if they are not implemented. The situation is further aggravated when there is a recessionary tendencies like was recently witnessed the world over. In such cases, most corporations react by cutting down on their CSR budgets since they largely perceive it as being unnecessary. CSR can however be used to gain competitive advantage even in recessionary periods. This report demonstrates that companies that follow and implement CSR strategies even during recessionary periods are likely to be more profitable in the long run than those that apply CSR only when times are good. Coca Cola is an exemplary example of a company that consistently applies its codes of corporate social responsibility and the results speak for themselves. 1.1 Introduction Corporate Social Responsibility according to Kotler and Lee (2005) is “a commitment to improve community well-being through discretionary business practices and contributions of corporate resources” (p. 3). The authors are quick to point out that the term community well being refers to both human conditions as well as environmental issues. Notable from the definition is the use of the term discretionary. This implies that the actions/ commitments are voluntary and not mandated by law. Buhmann (2006) agrees with this notion by stating that most of the activities of CSR are not dictated by formal law. There have been some efforts to regulate the actions of companies in as far as international human rights laws are concerned. Notably, the United Nations has been at the forefront in championing this cause. The European Union has also come up with some guidelines and legislations which member states are expected to abide by (Buhmann 2006). This legislations and guidelines constitute what (2006) refers to as informal law. This is because corporations are not necessarily brought to account for violation of these laws and regulation. As such, most of CSR actions and programs depend upon a corporation’s need to impress their stakeholders and behave in a socially responsible manner. This report seeks to shed light on the concept of CSR, the principles of Corporate Social Responsibility, the codes of conduct of CSR and how these codes have been sustained by a company such as Coca Cola in the midst of a recession. The report borrows mainly from secondary online sources on the topic of CSR and from the author’s own observation. The report seeks to highlight the growing importance of CSR activities in the running of any profitable organization and provides justification for including CSR as part of strategy. 2.1 History of CSR CSR has been practiced for years. As Mullerat and Brennan (2005) point out, the principles of CSR find their roots in 1977. The Reverend Leon H. Sullivan came up with some principles to protect African employees against exploitation by foreign companies. The principles were mainly formulated to promote racial equity. Notably this was at a time when discrimination by race was at its peak in South Africa. The government of the day favoured the white inhabitants to the black indigenous population of South Africa. The Sullivan principles to a large extent sought to address these ills in the society. The principles included those of non-segregation, fair employment practices, and equal pay for equal work. Additionally, the principles called for the instigation and development of training programmes, promotion of non-whites to executive positions and upgrading of the quality of workers’ lives outside the work atmosphere. 2.2 Original Principles of CSR The original principles as stated by Mullerat and Brennan (2005) included: non segregation of the races in all comfort and work facilities, equal and fair employment practices for all employees, equal pay for all employees doing equal or comparable work for the same period of time, initiation and development of training programs that would prepare in substantial numbers blacks, and other non-whites for supervisory, administrative, clerical and technical jobs and lastly, increasing the number of blacks and other non-whites in management and supervisory positions The principles led many companies operating in South Africa at the time to contribute to the education and the general well being of the black worker in the country. Most companies made great investments in education, providing health facilities and provision of social amenities to local communities. This played a key role in ending apartheid by eliminating in meaningful ways, the discrimination against blacks in the country. The Sullivan principles form the basis for most corporate responsibility practices and actions of most organizations. 2.3 Modern day CSR Principles These principles were later reviewed to the global Sullivan Principles of Social Responsibility in 1997. In the words of Sullivan himself, “the principles are meant to encourage companies to support economic, social, and political justice wherever they do business” (Mullerat and Brennan 2005). They were developed with the input of several Multinational enterprises and included broad directives on labour, business ethics and environmental practices. The principles have found wide acceptability in recent years in most organizations that perceive that CSR offers a valuable opportunity to secure a competitive advantage (Anon 2005). The principles include express support for universal human rights, promotion of equal opportunity for employees, respect for employees’ freedom of association, compensation enabling employees to meet their basic needs and improve their skills, provision of a safe and healthy workplace, promotion of fair competition, cooperation with governments and communities to improve employees’ quality of life, training and opportunities. Notably, the principles seek to protect both the employees of organizations and also seek to benefit the society as a whole. 2.4 CSR Principles in addressing social issues The principles cover a host of social issues from environmental issues to human rights issues. Mullerat and Brennan (2005) point out that a social issue refers to anything that is found wrong with society. The author intimates that a social issue should be something that is perceived to be important by many people in society. As such social issues are not individualistic. Secondly, social issues are to be found within a particular context. This implies that social issues are not universal per se but are found within particular social contexts at a particular point in time. Certainly, issues such as environmental preservation are universal social issues but in terms of CSR, they can only be interpreted in a certain societal context depending on the impact of the issue at a particular point in time. Thirdly, they point out that to say something is wrong, presupposes that the ideal situation of how things should be is known and is actually achievable. Only then can CSR play its rightful role in ensuring that social issues/ problems are addressed. The Sullivan principles were even ratified by the UN as being critical for any organization that sought to protect their bottom lines and also enforce their reputation for being responsible corporate citizens (Mullerat and Brennan 2005). The principles have been widely accepted and applied by many organizations and they explain the activities of most corporate organizations today. Companies that integrate these principles into their work systems and plans benefit from enhanced reputation, satisfaction and loyalty among employees, have greater prospect of attracting investments and generally gain favour with the consuming public. The Sullivan principles are by no way a representation of all the principles of corporate social responsibility. Other principles have been advanced such as the Coalition for Environmentally Responsible Economies principles which largely focus on how organization can pursue their goals in a way that is environmentally responsible. Another key dimension in Corporate Social responsibility as stated by Katsoulakos and Katsoulacos (2007) is to assist people who have been excluded or disadvantaged by globalization. Katsoulakos and Katsoulacos point out that at a local level, companies should participate in the communities in which they operate by responding to social issues such as regional development, education and health and seeking to maximize the impact of their donated money in the communities that they serve. 3.1 Codes of Conduct Mamic (2004) defines codes as statements of principles that define relationships on a range of issues between an entity and stake holders. The stakeholders may be employees, society etc. The issues may range widely from safety issues to health issues to issues related to the products being developed. Notably, like most CSR activities, codes of conduct are chiefly voluntary and depend upon organizations’ goodwill to implement and enforce them. Mullerat and Brennan (2005) suggest that the formulation of codes was mainly as a result of pressure from stakeholders. The codes typically augment/ complement the legislation set in place by the government. 3.2 Types of codes 1. Model codes They are developed by intergovernmental organizations or NGOs. They consist of voluntary guidelines that are non-binding but provide examples of best practices e.g. The UN sets forth certain standards in relation to the conduct of companies but does not really enforce them or see to their fulfilment. 2. Intergovernmental codes They are negotiated at international levels by sovereign countries. A case in point as stated by Schaffer et al. (2009) is the OECD (Organization for economic Cooperation and Development). The OECD comprises of thirty industrialized countries some of which include US, Canada, Japan and some European countries. The codes reflect the joint opinion of these countries. 3. Multi stake holder codes Negotiated by many stake holders such as government, trade unions, NGOs, businesses etc 4. Trade union codes They are specific to certain industries and seek to address the issues that are specific to that country. 5. Company codes They include compliance codes, corporate credos- commitment to ethical and responsible conduct. Mamic (2004) asserts that company codes are especially applied by multinational enterprises that seek to extend their policies to other countries abroad where they base their operations. 3.3 Contents of corporate codes of conduct Despite range of codes, there appears to be some harmony on the issues they address. This overlap is common. Most codes address a combination of the following issues: forced labour, child labour, wages, benefits, and terms of employment, hours of work, discrimination, harassment, abuse, and disciplinary action, freedom of association and collective bargaining and health and safety. Some of the codes of corporate social responsibility that cut across industries are elaborated below: 3.3.1 Forced labour The use of forced labour is generally prohibited in most codes of conduct. Forced labour according to Smith and Feldman (2003) may include the use of slaves, convicts and involuntary labour. This code requires that workers only provide their services out of free will and not under any forced circumstances. 3.3.2 Child labour The minimum age for child labour, according to Smith and Feldman (2003), must be at least 15 or that age at which the minimum/ compulsory education is concerned. This is usually of concern in manufacturing or agro-based industries that require semi skilled or unskilled workforces. In such industries firms are likely to solicit for cheap child labour hence preventive measures are needed. 3.3.3 Wages, Benefits and Terms of Employment Minimum wage in most industries is usually set at the local prevailing wage rates. However, this rate should also match up to the minimum wage in the industry. Smith and Feldman (2003) suggest that benefits should be accrued on any overtime at a standard and known rate. Any other benefits should also be communicated to employees. 3.3.4 Discrimination Smith and Feldman (2003) point out that most codes of conduct give assurances about non-discrimination. Discrimination may arise due to differences in race, age, gender, political opinion etc. Discrimination tends to be based on personal rather than objective grounds. Most codes of conduct provide against discrimination. 3.3.5 Freedom of association and collective bargaining This is by far the most critical issue in the codes of conduct. It may well or may not appear in some codes of conduct. It represents the rights of employees to join and be part of associations for purposes of collective bargaining. During the financial crisis most corporations were apprehensive about this code for fear of getting into negotiations that will cost them money. 3.3.6 Health and safety policies This pertains to issue of providing healthy and safe working environments. Active steps should be taken to reduce and even eliminate cases of accidents and injury (Smith and Feldman 2003). It also includes taking preventive measures such as the training of employees on safety related matters and the installation of fire extinguishers and escape routes. 3.3.7 Environmental standards It is generally accepted that the process of manufacturing in itself depletes the environment. This may occur due to emissions and waste materials being discharged into the environment. Most CSR codes will contain mechanisms of reducing emissions, pollution control, waste management etc. As the recession bites, it is common practice for companies to cut back on their CSR budgets. Whether this reaction is valid is a question of debate. As Gray (2008) points out, the question as to whether CSR is necessary in a recession, boils down to the company’s goal for undertaking it. Is CSR simply done to preserve a reputation or more importantly as part of strategy? One of the companies that integrate CSR as part of their strategy is Coca Cola. The company even in the midst of the recession still stuck to its codes of conduct. While all other firms were hoarding funds and cutting back on seemingly ‘unnecessary’ expenditures, Coca Cola stuck to its code of conduct and maintained minimum wages, continued to produce environmentally friendly products, provided safe and healthy workplaces for their employees, allowed them to participate in associations etc. This behaviour in the midst of the recession is proof that the company is committed to CSR. It also indicates that CSR for Coca Cola is more than a public relations stunt but rather is part of strategy for the company. As a result the company continues to enjoy loyal customers. 4.1 Conclusion From the foregoing discussion, CSR is an important factor to consider in today’s economy. Globalization has emphasized the importance of CSR. Global companies are setting up plants in developing regions to take advantage of cheap labour. There is need for codes of conduct to be set in place and adhered to so as to ensure that these multinationals do not abuse their positions by giving unfair wages therefore exploiting the locals. There is also a need for corporations to demonstrate actively that they care about the environment and are not just fixated on making profits. This can be demonstrated by contributing to the communities in which they operate in by providing social amenities and making other contributions such as building schools, dispensaries etc. These philanthropic acts will demonstrate their commitment to the communities. Corporations should also strive to protect the environment by checking on their emissions and employing proper disposal of waste materials. Finally CSR should not stop during recessionary periods. Gray (2008) observes that recessions hardly last more than 5 years. There is therefore a strong incentive for holding on to strategies. Additionally, recessionary periods provide a litmus test for consumers to gauge the corporations that are committed to their well fare through thick and thin. This does not however license indiscriminate spending during times of recession. Instead, Welch (2009) advices that CSR programs should be adopted to suit the economic realities of the day. In essence therefore, a company’s CSR practices determine its success within the population. Gone are the times when companies were judged by their market margins. The current trend is to assess how an organization treats the society in general. Bibliography Anon (2005) The value of corporate social responsibility. Strategic Direction. Vol. 21 (7), p. 24-28. Buhmann, K. (2006) Corporate social responsibility: what role for law? Some aspects of law and CSR. Corporate Governance, Vol. 6 (2), p.188-202. Available at: http://www.emeraldinsight.com/Insight/ViewContentServlet?contentType=Article&Filename=Published/EmeraldFullTextArticle/Articles/0100480602.html [Accessed 16th May, 2010]. Gray, D. (2008) Can CSR survive a recession? Brand & Engagement, CR & Sustainability, Strategy & Competitive Advantage. July 9, 2008. Available at:http://crmatters.wordpress.com/2008/07/09/can-csr-survive-a-recession/ [Accessed 16th May, 2010]. Katsoulakos, T. and Katsoulacos, Y. (2007) Integrating corporate responsibility principles and stakeholder approaches into mainstream strategy: a stakeholder-oriented and integrative strategic management framework. Corporate Governance, Vol. 7 (4), p. 355-69. Available at: http://www.emeraldinsight.com/Insight/ViewContentServlet?contentType=Article&Filename=Published/EmeraldFullTextArticle/Articles/0560240303.html [Accessed 16th May, 2010]. Kotler, P. and Lee, N. (2005) Corporate social responsibility: Doing the most good for your company. New Jersey: John Wiley & Sons. Available at: http://books.google.co.ke/books?id=2ppzhuJyyPgC&printsec=frontcover&dq=corporate+social+responsibility&hl=en&ei=gB_wS7HJEcr5-Qbex6GXDw&sa=X&oi=book_result&ct=result&resnum=1&ved=0CCsQ6AEwAA#v=onepage&q&f=false [Accessed 16th May, 2010]. Mamic, I. and International Labour Office. (2004) Implementing codes of conduct: how businesses manage social performance in global supply chain. Available at: http://books.google.co.ke/books?id=142ZSd05MaQC&printsec=frontcover&dq=codes+of+corporate+social+responsibility&hl=en&ei=t_fyS8DGFcG--Qa8s5CODg&sa=X&oi=book_result&ct=result&resnum=7&ved=0CEUQ6AEwBg#v=onepage&q=codes%20of%20corporate%20social%20responsibility&f=false [Accessed 16th May, 2010]. Mullerat, R. and Brennan, D. (2005) Corporate social responsibility: the corporate governance of the 21st century. Available at: http://books.google.co.ke/books?id=WNR9qIUaQJ8C&pg=PA222&dq=principles+of+corporate+social+responsibility&cd=7#v=onepage&q=principles%20of%20corporate%20social%20responsibility&f=false [Accessed 16th May, 2010]. Schaffer, R., Agusti, F, and Earle, B. (2009) International Business Law and Its Environment. Available at: http://books.google.co.ke/books?id=73nQYLkj4lIC&pg=PA71&dq=codes+of+corporate+social+responsibility&hl=en&ei=t_fyS8DGFcG--Qa8s5CODg&sa=X&oi=book_result&ct=result&resnum=6&ved=0CEAQ6AEwBQ#v=onepage&q=codes%20of%20corporate%20social%20responsibility&f=false [Accessed 16th May, 2010]. Smith, G. and Feldman, D. (2003) Company Codes Of Conduct And International Standards: An Analytical Comparison. Available at: http://siteresources.worldbank.org/INTPSD/Resources/CSR/Company_Codes_of_Conduct.pdf [Accessed 16th May, 2010]. Welch, S., and Jack. (2009) Corporate Social Responsibility in a Recession. Struggling companies have no choice but to recalibrate their philanthropy. Business Weekly. May 20, 2009. Available at:http://www.businessweek.com/magazine/content/09_22/b4133000801325.htm [Accessed 16th May, 2010]. Read More