Why CSR is important for corporations

6 June 2017

Since the origins in the middle of last century (Spector, 2008 cited in Carroll and Shabana, 2010: 86), Corporate Social Responsibility (CSR) has been becoming an increasingly influencing factor in corporate governance. KPMG (2008 cited in Du et al. , 2010: 13) indicates that the proportion of the 250 hugest enterprises in the world who annually release CSR reports has grown up from 50% in 2005 to 80% in 2008. Porter and Kramer (2006: 80) declare that CSR is more likely to be advantages such as ‘opportunity, innovation, and competitive advantage’ for a company rather than disadvantages such as ‘cost, constraint or charitable deed’.

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This essay aims to explain and evaluate the extent to which this statement implies, and the benefits and drawbacks of CSR in terms of the short run and long run development in corporations. The complicated connotation of CSR results in the difficulty of understanding intensively and application efficiently. Despite the wide range of definition, CSR generally refers to the obligation to ‘meet or exceed the expectations of stakeholders’ beyond economic and legal means, but including human, environmental and ethical perspective (Cable, 2005 cited in Mullins 2010: 713).

In this sense, CSR is coping with he interest of itself and all those who have interest and can be affected by an organisation’s operations. Henriques (2004: 27) puts forward that the stakeholder issues can be classified as the triple bottom line (economic, social and environmental). In order to achieve the sustainability both in corporations and society, making CSR strategy synthetically and balancing the triple bottom line are necessary.

Even though being a socially desirable event at present, there do also exist some objective arguments that CSR might have some negative influence and reduce competitiveness in the short term. First of all, there is no doubt that taking social responsibility could lead to an increase in financial expense for corporations. CSR diverts from the businesses’ initial objective that is profits maximization (Friedman, 1962 cited in Carroll and Shabana, 2010: 88), since the same corporate resources should have been better used in valued-added business projects (Friedman, 1970 cited in McWilliams et al. 2006:3). Additionally, Henderson (2001 : 30-31) indicates that cost increase and negative performance can be carried by CSR endeavour, and the benefits from CSR are suspicious or out of proportion. Second, CSR can raise time onsumption. The fact that business managers usually do not have enough professional skills to solve social problems (Davis, 1973 cited in Carroll and Shabana, 2010: 88) means companies need to consult outside stakeholders for solution, which is time-consuming behaviour (Henderson, 2001 : 31) except for the time have already spent on CSR deeds.

In addition, organisations have to launch particular department and employees to handle such issues, which will reduce the work efficiency and the use ratio of corporate resources. Both the cost and time consumption can reduce corporations’ competitiveness in the severe market. Thirdly, to some extent, the extra competition. Due to the direction of public opinion and government regulation, some companies, such as Nike and Shell, take social responsibility not out of real intention but because of social pressure (Porter and Kramer, 2006: 80), which demonstrates that free market competition is controlled.

Moreover, once socially responsible companies realize the cost and constraint, they will take advantage of public opinion and government regulation to force others to engage in CSR especially small companies are more easily to be affected (Henderson, 2001 : 31). For those small ompanies, they have to give up some profits to meet the demand, hence, compelled CSR behaviour does not always meet the businesses’ strategies even do harm to advancement because it can limit competition.

From these aspects, if companies explore social responsibility projects without destination and analysing the resources they own, and only follow the mainstream, they cannot obtain great benefits from CSR even give rise to negative effect. On the other hand, based on the internal environment analysis, strategic CSR can distribute the scarce resource efficiently and bring substantial benefits such as the ntangible resources to organisations. First, socially responsible deeds can produce opportunities by enhancing corporations’ reputation.

Smith (2003: 18) contends that if companies are accountable for social, they will be patronized increasingly for their good reputation from those responsible endeavours. Furthermore, reputation not only attracts customers, but also may establish relationships with stakeholders such as employees, suppliers and investors, because people generally tend to cooperate with such socially responsible organisations with good brand images (Sprinkle and Maines, 2010: 448).

For instance, Edward Jones has become one of the most attractive companies people want to work for, because of its ethic (Smith, 2003: 20); additionally, in the investment field, nearly $2,000 billions was invested in socially responsible projects, up 40% on 1999 and keep increasing (ibid). Therefore, reputation is not only the valuable intangible resource itself, but also can improve other resources such the human resource and business relationships. Second, as a proactive approach, CSR can strengthen innovation (Asongu, 2007: 1).

Asongu (2007: 3-4) indicates that in the sense of being CSR initiatives, innovation involves both the utcomes of intentional research and development endeavour, and the serendipitous inspiration of improving cooperate performance. Additionally, the innovation usually comes with other positive side effect such as reduction of production cost (Sprinkle and Maines, 2010: 447) Take Wal-Mart, the largest retailer in the world, as an example. In order to offset the pollution it brings, Wal-Mart design a little bit for one toy brand to reduce excessive packaging, which lead to 497 fewer containers usage, more than $2. million per year freight saving, 38-hundred trees reduction and one thousand barrels of oil (Werther and Chandler, 2011:75-76). A little innovation on the packaging can bring so considerable rewards not mention to other great ideas derives from the CSR initiative. Third, CSR can reduce the risk of government regulation (Carroll and Shabana, 2010: 89). If firms can forecast the future government regulation and social desirability by means of CSR strategy, they will produce satisfactory products and improve self-discipline level to meet the social unnecessary legal and ethical risk can be avoided.

However, the above advantages depends on the analysis of corporations’ particular situation and business strategy to ecide what kind of social responsibility to undertake owing to the scarcity of resources, which is called a resource-based approach or an inside-out approach (Garrett, 2010). Porter and Kramer (2006: 88, 92) argue that corporations do not have enough resources to solve all problems worldwide, thus they have to choose peculiar problems that can both distinguish from competitors and benefit corporations themselves.

Barney (1991: 105-106) suggests that if the resources have the characteristics of value, rareness, inimitability and non-substitutability, they can be the source of competitive advantage. Generated with particular corporation governance and strategy, CSR is a kind of resource with such four characteristics, thus it can become the competitive advantage for corporations. In conclusion, CSR not only arouse financial expenditure, resource consumption and market constraint, but also revitalize corporations with new opportunities, renovations and competitive advantages.

What kind of results occurs depends on how organisations generate CSR with their governance, daily operation and long-term strategies. Implementing CSR blindly only can prevent organisations from moving orward because it will cost resources that should have been used in developing main business. Through a resource-based and inside-out approach, companies can identify distinguishing social responsibility to carry out, which formalizes the valuable, rare and imperfectly imitable intangible resources such as good reputation, new technologies and capabilities.

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