Critical Discussion of Corporate Social responsibility (CSR)

Corporate Social Responsibility Defined

Corporate social responsibility (CSR) is when a corporation exceeds statutory business standards (Johnson and Scholes 2008). CSR policies are relevant because they state what a company intends to achieve, in addition, to its statutory obligations. A corporation has to comply with legal standards such as employment contracts. However, a company can exceed those principles if it chooses to pay a ‘living wage’ rather than the minimum wage (Bloomer 2014).

Introduction to the Critical Discussion

The discussion will examine a traditional criticism of corporate social responsibility through the work of Friedman. This is a view which proponents of CSR will need to refute. The essay will then discuss how social and environmental responsibility can be reconciled, with profitability, using the work of Porter. The example of Hewlett Packard is discussed at length. This is because its policies emphasise how a multi-national company can achieve both environmental and social responsibility together with corporate profitability. The work of Handy is then considered. This argues that companies should have corporate objectives which are broader than just profitability and consider the purpose of the business.

Friedman’s View of Corporate Social Responsibility

Friedman’s view is a non-interventionist or laissez-faire vision of commerce. In his view business should aim to earn money while complying with “the basic rules of the society” such as paying taxes (Friedman 1970:1). It assumes that consumers are sovereign and are able to significantly influence corporate decision-making. This view of commercial organisations underplays the significance of consumer market failure. It is assumed that consumers can take their business elsewhere as Friedman believed that consumers can transfer their business to other producers (Friedman 1970). However, this is not possible if the consumer is unable to pay for another competitor firm’s products. This is the case if a consumer were unable to pay for the safety features, offered by a car manufacturer such as Volvo, as discussed below. To summarise, socially responsible polices, can be seen as unrealistic if consumers are unwilling to pay for them.

Friedman argued that socially responsible business policies, such as promoting equality, can harm company performance. For example, Ben and Jerry’s adopted a payment scheme where the highest paid employee could only earn “no more than five times the income of the lowest paid firm employee” (Barney and Hesterly 2010:7). This payment scheme made it difficult to recruit senior managerial talent to make sure that the company grew and remained profitable (Barney and Hesterly 2010).

A More Progressive View of Corporate Social Responsibility

There is an increasingly an expectation that companies will contribute to society to a greater extent than when Friedman was writing in the early 1970’s. Companies operate in a social environment as well as an economic environment (Grant 2008). A firm’s ability to survive depends upon its acceptability among consumers who give the firm ‘social legitimacy’ (Grant 2008:446). Examples of social awareness, such as a demand for safer cars, suggest that companies are wise to respond to consumer concerns (Grant 2008).Corporations have come under “increasing pressure to contribute to the societies … in which they operate and to adopt more socially responsible business practices” (Christodoulou and Patel 2013:467).

The corporate setting of voluntary objectives can be seen as an adequate response to the needs of society. Companies can set voluntary standards: to reduce the extent to which their actions cause negative externalities or side-effects (Barney and Hesterly 2010). For example, if a car manufacturer builds a car with a large number of safety features which more than comply with legal requirements. Volvo has promoted the benefits of a “relatively safe car … which adds value that the customer is willing to pay a premium for” (Thompson and Martin 2005:95). However, this approach can also be seen as merely serving a premium segment of the market, rather than being particularly socially responsible. In this case, Volvo is taking a marketing position which conforms to sales objectives while offering better safety to the motorist (Johnson and Scholes 2008). Corporate social responsibility is only conforming to financial requirements.

Porter’s View on Corporate Social Responsibility and the Environment

The concept of CSR is useful as it can help reconcile the financial needs of business with say the safety needs of society. Porter argues that it is a mistake for business to see environmental legislation as a threat to be resisted (Porter and van de Linde 1995). Rather, socially responsible businesses can view regulation in a positive manner; that environmental regulation can be built upon to utilise resources more effectively. It is argued, that there are costs incurred with the elimination of environmental problems but that these are outweighed by the benefits, including financial savings and improvements to product quality (Thompson and Martin 2005). Therefore, it is possible for corporations to be socially responsible without compromising the financial status of the organisation. Porter’s argument is useful. It has allowed thoughtful companies, such as Hewlett Packard, to reconcile investment in environmental initiatives with corporate profitability.

The Hewlett Packard Report

Hewlett Packard has a strong reputation in terms of corporate social responsibility (thecro.com 2010). The company’s CSR policies are detailed and indicate a high level of social responsibility. For example, the company presents environmental information, in a proactive manner, with evidence of wanting to improve recycling programmes. It aims to improve environmental programs to reduce the waste from its production operations (Hewlett Packard 2011). Through these environmental initiatives, the company can help reduce business costs. Hewlett Packard’s CSR report discusses how it aims to extract value from products which are at the end of their product life (Hewlett Packard 2011). An example is the company’s commitment to re-manufacture its printer cartridges so that they can be used again. The company is attempting to promote a strong corporate responsibility through proactive environmental investment.

Hewlett Packard has demonstrated strong social responsibility policies. This suggests that such policies can be implemented on a large scale. The company has provided a significant amount of disclosure on a wide range of corporate areas from the environment to human resource management. The detail provided by Hewlett Packard is superior to other companies given that online trade publications have viewed Hewlett Packard’s performance favourably (thecro.com 2013). Given that Hewlett Packard was assessed favourably then the information provided, in its CSR report, can be interpreted as thorough and accurate.

The company attempts to improve the wider business community with measures to develop its external supply chain. The company aims for strong standards of behaviour outside the company’s core business. This suggests that it is attempting to improve working relationships with its component suppliers (Hewlett Packard 2011). Hewlett Packard’s CSR document conveys that the company is enabling social responsibility to be addressed. The company suggests that it has a grievance procedure so that different stakeholders can report social or ethical problems to senior management (Hewlett Packard 2011). The company is clearly investing in a responsible approach as it describes legal observance as an “absolute minimum” which it expects of different stakeholders (Hewlett Packard 2011:82). They argue that their decision making achieves better employment standards, than laws in the different countries in which the company operates (Hewlett Packard 2011).

Concerns over Hewlett Packard’s Stated Policies

Hewlett Packard attempts to make the company accountable, to external industry scrutiny. Procedures have been outlined which should make sure that ethical labour standards are achieved (Hewlett Packard 2011). The concern is that ethical objectives could be difficult to implement. There does not appear to be a specific example of how this guidance statement could be delivered in practice. However, there is a well structured diagram which outlines how the company will provide a “governance structure” so that the company can comply with ethical challenges (Hewlett Packard 2011:82).

Some of Hewlett Packard’s environmental statements can be interpreted as platitudes. The company claims that that it wants to conserve more resources than it consumes (Hewlett Packard 2011). The concern is that it is easy to provide such statements. However, it is more difficult to assess how they are going to conserve more than they consume. This is because environmentally acceptable re-manufacturing programmes will still require energy consumption despite the conservation of the materials.

Hewlett Packard may have worse polices, in practice, than those conveyed by its report. This is because suppliers could be forced to comply with the company’s standards. There are power relationships between dominant multi-national companies, such as Hewlett Packard, and their suppliers (Locke et. al. 2012). The international sourcing of computer components has left suppliers vulnerable to the dominant buying policies at Hewlett Packard (Wetherly et. al. 2011). These power relationships will tend to be overlooked, in corporate social responsibility reports, because companies will want to portray themselves in a favourable light.

Corporate social responsibility policies have been criticised. The development of CSR policies have been difficult to implement for many firms (Birchall and Cook 2006). However, these criticisms should, generally, not be directed at Hewlett Packard due to the level of detail contained in its CSR report. Arguably, they have made an honest corporate attempt to contribute to society (Porter and Kramer 2002). The report goes beyond the legal compliance advocated by Friedman. The detail provided is of a superior standard when compared to a minimum level of legal compliance.

The Business and Ethical Concepts of Handy

The work of Handy, arguably, goes beyond the corporate responsibility work of writers such as Porter. This is because Handy emphasises the importance of mission statements and the purpose of the organisation. Handy argues that “the purpose of a business . . . is not to make a profit, full stop. It is to make a profit so that the business can do something more or better. That ‘something’ becomes the real justification for the business” (Sage Publications 2015:15). Handy argues that a firm’s profit should be the means to a larger end (Sage Publications 2015). There are companies which adhere to a deeper purpose than merely profit. Tradecraft, in the UK, would be a good example as the company’s purpose is to operate “life-changing development projects” (Traidcraft 2015).

However, Traidcraft operates in a niche area of the retail market where affluent consumers, who are willing to pay higher prices, contribute to international development. Therefore Handy’s ideas may have limited application to businesses throughout the whole of the United Kingdom. However, his ideas are useful where they can be applied. Tradecraft’s mission moves beyond immediate stakeholders, such as owners and clearly considers the needs of the broader society (Dess et. al. 2010). The company is an excellent example of a company which incorporates social and environmental, as well as financial factors, into its decision making (Dess et. al. 2010).

The challenge for proponents of ‘social responsibility’ is that many retailers only undertake social and environmental policies which do not damage their sales and profits. Many retailers will concentrate on environmental responsibility in their stores, where they can achieve resource efficiency targets (Jones et. al. 2009). Many retailers’ social responsibilities are guided by what they can achieve within their financial imperatives (Jones et. al. 2009). However, such corporate policies could lead to accusations of ‘greenwashing’. In other words, that the retailers’ commitment to the environment is limited and that social responsibility reports can play a public relations role rather than a social responsibility role. Many firms are engaging in ‘greenwashing’ to mislead consumers about the extent of their environmental activities (Delmas and Burbano 2011).

Conclusion

There is evidence of improvements to companies social responsibility polices. This is because firms have realised that it is financially prudent to use environment resources wisely. It is also necessary for business to be sustainable and to invest in good employment practices and proper labour standards. However, there is a concern that corporate social responsibility is limited by what the consumer is willing, or able, to pay for more ethical approaches. There are few examples of businesses which are willing to adopt socially responsible policies which affect their profitability. Ben and Jerry’s is one example before its takeover by Unilever.

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