The focus of this project is to clarify and enhance the understanding of corporate social responsibility as well as the extent to which corporations adhere to the ever increasing demands emanating from stakeholders (consumers, employees, governments, environmental activists etc) for socially responsibility.
Corporate Social Responsibility has been a very topical issue in contemporary times, but an in-depth understanding of this salient concept is quite questionable to many companies in the corporate spheres.
The degree to which corporate social responsibility is a valid criterion to judge the actions of corporations is also of special interest. The devastative effects of their activities on consumers, the environment, employees, and local communities whose interest and well being they should enhance from the corporate social responsibility perspective are being examined.
Chapter 1 Project Introduction
This chapter explains the background of the project, project objectives and the project title.
1.1 Project Background
CSR matters and is a growing concern for business entities because it can influence all aspects of the business. The concept of CSR addresses business ethics, environmental concerns, public interests and other issues whereby the business would have to monitor and comply with the law, ethnic standards and international norms. Corporate stakeholders exert constant pressure on firms to be ‘socially responsible’. Organizations are accountable to meet the expectations of a wide variety of stakeholders. Stakeholders refer to any person, organization, or group that has a direct or indirect stake in an organization because it can affect or be affected by the organizations actions, objectives or policies. Such stakeholders could be external like customers, communities, unions, suppliers, society, government and governmental agencies, creditors and shareholders or internal like employees, managers and owners. Each category of stakeholders has a distinct interest and expectations from an organization.
Owners (private/shareholders) expect an organization to maximize profits, improve performance and direction, the government expect organizations to meet their tax and legal obligations as well as ensuring reduced employment, senior management staff are also expected to meet performance and growth targets, non-managerial staff expect high rates of pay and job security. Trade unions also expect to enjoy better working conditions and minimum wage requirements, customers expect organizations to offer value, quality, customer care and ethical products. Consumers are demanding more out of organizations than simply a quality product at a low price (Bhattacharya and Sen, 2004). Consumers expect organizations to demonstrate congruence with some social values as part of their contribution to the community (Maignan et. al, 1999). Creditors on their part expect organizations to have good credit scores, secure new contracts and have more liquidity and finally the local community from which organizations taps its resources expect the organization to offer them jobs and take environmental issues seriously.
Corporate organizations are motivated to involve these various stakeholders in their decision making in order to effectively tackle societal challenges because today’s stakeholders are increasingly aware of the importance and impact of corporate decisions upon the society and the environment. They have become so powerful that they can reward or punish corporations.
Corporate organizations have to meet the expectations of each group of stakeholders without jeopardizing that of another stakeholder group. To meet these varied expectations with some reasonable degree of effectiveness, organizations are obliged to adopt a broader agenda which takes these diverse expectations into account.
Corporate organizations nowadays address these broad and varied stakeholder’s expectations by becoming socially responsible. Corporate Social Responsibility is thus increasingly adopted by organizations operating at national and international levels to address these varied stakeholder’s expectations. Forces like rising customer expectations, changing employee expectations, government legislation and pressure, changes of investor interest in social criteria and business procurement practices drive companies to practice a higher level of corporate social responsibility.
Corporate social responsibility has attracted so much global focus and attention over the past few decades partly because of the rapid globalization trend and because its scope incorporates globally salient issues like, climate change, corporate governance, sustainable development, consumer activism and environmental issues. By possessing a broad scope which incorporates such salient global issues has contributed enormously towards the high focus and attention CSR is attracting today.
Corporate social responsibility has over the past few decades greatly evolved both in concept and practice mostly due to the ever changing society. CSR has goes beyond legal obligations to incorporate moral obligations expected from organizations towards the communities from which they tap their resources.
CSR means firms obligations to protect and improve welfare of the society and its organization now as well as in future, through its various business and social actions and ensures that it generates equitable and sustainable benefits for the various stakeholders (Chahal and Sharma, 2006).
CSR is business decision making linked to ethical values, compliance with legal requirements and respect for people, communities and environment around the world (Aaronson 2003). It could also be defined as open and transparent practices that are based on ethical values and respect for employees, communities and the environment. It is designed to deliver sustainable value to the society at large as well as to shareholders (Aaronson 2003).
This interesting phenomenon could be generally described as a situation whereby in addition to their profit maximization interest, organizations also display that tendency to consider societal interest by taking on a massive the responsibility for the impact of their activities on employees, customers, suppliers, stakeholders and local communities in which they operate not forgetting their environmental obligations as well. These obligations stretch beyond the ever pressing need for compliance with statutory legislation to encompass voluntary steps to improve on the quality of life for employees and their families, local communities and the society at large.
The importance of considering societal prosperity is because it positively impacts organizations prosperity. CSR is an effective contributor to sustainable development which could be defined as development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
Being socially responsible has been a concern very much related to the rationale that businesses are more likely to do well in a flourishing society than in one that is falling apart. Companies prosper because CSR is an effective marketing tool for organizations. CSR is marketing tool to increase consumer loyalty and marketers make social initiatives an integral part of their marketing efforts. Socially responsible activities may therefore affect customer loyalty in the sense that most consumers value organizations based on their corporate actions.
However, despite the undeniable prominence and advantages of being socially responsible, most corporations nowadays talk much and do less about social responsibility. This may lead to growing consumer skepticism towards corporate propaganda.
Corporate compliance with the demands for social responsibility has emerged as a topical issue, an issue that this work will dwell upon and attempt to clarify.
1.2 Project Objectives
The objectives of this project are namely:
To make an in-depth understanding of CSR.
To find out the degree in which corporations comply with social responsibility expectations.
To find out the degree in which corporations contribute to the betterment of the social communities in which they operate.
1.4 Project Title
Multinational Corporations Compliance with Corporate Social Responsibility Demands
Chapter 2 Literature Review
In this chapter, the corporate social responsibility definition from the communications perspective and conceptual evolution of CSR shall be reviewed. CSR will also be reviewed in the context of advertisement, marketing and communication. The concepts of CSR shall be reviewed from the theoretical point of view.
2.1 Definition of Corporate Social Responsibility
Corporate Social Responsibility (CSR) is a subject of much current interest within the managerial world. CSR has the attention of the business community, investors, customers, and the business media. CSR has been a very topical issue in corporate spheres over the past few decades as several scholars have attempted to clarify what it actually means leading to the birth of several definitions, all attempting to bring out what CSR is all about.
During the last several years, the Harvard Business Review, The Economist, and the Wall Street Journal have all run a significant number of articles focused on corporate social responsibility. More than half the attendees of the January 2005 World Economic Forum in Davos, Switzerland, were from businesses including 500 Chairmen and CEOs. Meeting sessions included CSR topics: “Does business have a noble purpose?”; “How Responsible is Responsible Enough?”; “Using private resources to deliver public good”; and “Is responsible investment about to payoff?” (Phillips, 2006).
In this institutional war, social initiatives play a significant role in defining the meaning of corporate social responsibility. CSR, like ethics, has no universal definition. Approaches include “a manager’s duty or obligation to make decisions that nurture, protect, enhance and promote the welfare and well-being of stakeholders and society as a whole” (Jones, George & Hill, 2000, cited in Phillips, 2006). But CSR efforts are global and since 2002, the International Standards Organization (ISO) has been working toward an ISO standard for CSR. The ISO Bulletin refers to CSR as “the values and standards by which business operates” (Phillips, 2006). The standard has already has its own ID – ISO 26000 and plans to be published mid 2010.
CSR as both the philosophy and practice of for-profit organizations voluntarily acting to positively assist society in ways beyond that required to obtain profit objectives (Phillips, 2006). The concept of CSR is becoming transformed such that it is no longer a radical concept concerning the responsibilities of corporations to society, but simply a tool of managing stakeholders and improving reputations.
CSR is the idea that it reflects the social imperatives and the social consequences of business success. Thus, CSR (and its synonyms) empirically consists of clearly articulated and communicated policies and practices of corporations that reflect business responsibility for some of the wider societal good.
Yet the precise manifestation and direction of the responsibility lie at the discretion of the corporation. Subsequently, concerns with corporate social performance, stakeholder relations, corporate citizenship, links with financial performance, and new applications of business ethics have extended CSR theory and practice (Matten and Moon, 2008).
Corporate Social Responsibility is business decision making linked to ethical values, compliance with legal requirements and respect for people, communities and environment around the world (Aaronson, 2003). It could also be likened to open and transparent practices that are based on ethical values and respect for employees, communities and the environment. It is designed to deliver sustainable value to the society at large as well as to shareholders (Aaronson, 2003).
In essence, CSR includes extra-legal initiatives undertaken by companies towards pacifying members of the community their operations affect. CSR includes voluntary contribution of finance, goods or services to community or governmental causes. It excludes activities directly related to firms’ production and commerce. It also excludes activity required under legislation or government direction.
2.2 Three Domain Model of CSR
To further provide an in depth knowledge of CSR, the three-domain model of CSR which composed of the three responsibility areas namely economic, legal, and ethical aspects shall be examined.
Figure 2.1 The Three-Domain Model of Corporate Social Responsibility
Source: Adapted from Schwartz and Carroll, 2003
Economic Responsibility (Schwartz and Carroll, 2003)
It is to be expected that the vast majority of corporate activities will be economic in nature. The economic domain captures those activities which are intended to have either a direct or indirect positive economic impact on the corporation. The positive impact is based on two distinct but related criteria and they are maximization of profits and/or maximization of share value. Examples of direct economic activities include actions intended to increase sales or avoid litigation. Examples of possible indirect economic activities include activities that are designed to improve employee morale or the company’s public image. Any activity that is pursued with improving profits and/or share value in mind is deemed to be economically motivated.
Legal Responsibility (Schwartz and Carroll, 2003)
Corporations are expected by society, not only to operate with the motive to make profit but also to adhere and comply with the laws and regulations put in place by the government within which corporations operates in. Corporations are thus expected to achieve their goals and missions within the framework of the law. The legal aspect goes hand in hand with the ethical aspect of corporate social responsibility. Ethical aspects embody basic notions of fair operations as established by our lawmakers.
The legal responsibility of CSR pertains to the business firm’s responsiveness to legal expectations mandated and expected by society in the form of federal, state, and local jurisdictions, or through legal principles as developed in case law. In this context, legality may be viewed in terms of three general categories namely compliance, avoidance of civil litigation, and anticipation of the law.
The first legal category, compliance, can be further sub-divided into three types and they are passive, restrictive, and opportunistic. Please see Table 1.1.
Table 1.1 Types of Legal Compliance
Types of Legal Compliance
The company is doing what it wants and just happens to be complying with the law. The company is in a passive compliance mode if there is a safety standard for a certain product and the company would have adhered to even if the legal requirement did not exist.
Restrictive compliance occurs when a company is legally compelled to do something that it would not otherwise want to do. Although a company may want to pollute at higher levels or sell goods with fewer safety warnings, the law may prohibit it from doing so, leading to restrictive compliance.
There are two general modes of opportunistic compliance. First, a company may actively seek out and take advantage of loopholes in the legislation to be able to engage in certain activities. In such cases one typically finds that the company is abiding by the letter of the law but not the spirit of the law. Second, a company may choose to operate in a particular jurisdiction because of its weaker legal standards. In such a case, the company has based its decision on the legal system, and is still technically complying with the law. Companies which decide to operate in developing nations because of less stringent environmental, employee-welfare, or consumer-protection legislation are opportunistically complying with the law.
Source: Adapted from Schwartz and Carroll, 2003.
The second general legal category, avoidance, relates to corporate activities that are motivated by the desire to avoid possible current or future civil litigation for negligent conduct. In response to such fears, corporations may, for example, disengage in the manufacture of dangerous products, voluntarily recall products, or cease non-environmentally friendly activities. Companies that act in ways despite being aware that they will most likely be sued as a result (e.g., for negligent activity) would fall outside of the legal domain, despite being in compliance with laws and regulations. Often these companies engage in a legal defensive strategy whereby they attempt to settle all lawsuits.
The third legal category consists of the anticipation of changes to legislation. The legal process is often slow in nature, and corporations may wish to engage in activities that will result in immediate compliance upon the legislation’s eventual enactment. Changes to legislation in other jurisdictions often serve as an indication of forthcoming similar legislation in one’s own jurisdiction. If laws are anticipated, companies may engage in voluntary activities to help prevent, modify, or slow down the pace of new legislation being enacted, and are thus acting based on a consideration of the legal system.
Ethical Responsibilities (Schwartz and Carroll, 2003)
As oppose to legal responsibilities of CSR which embody norms about fairness and justice, ethical responsibilities duel on the activities that are expected or prohibited by society even though they are not codified into law. This domain includes responsiveness to both domestic and global ethical imperatives. Ethical responsibilities embody what consumers, shareholders, employees, and the community regard as fair. In effect, ethical responsibility seems to be the most highly regarded value when it comes to consumers making decisions based on CSR. There are three general ethical standards namely conventional, consequentialist and deontological. Please see Table 1.2.
Table 1.2 Types of Ethical Standards
Types of Ethical Standards
The standard of conventions is defined as those standards or norms which have been accepted by the organization, the industry, the profession, or society as necessary for the proper functioning of business. Society is defined as embodying the corporation’s stakeholders, including shareholders, employees, consumers, competitors, suppliers, and the local community, in addition to general citizens. Societal norms can vary depending on one’s reference point (i.e., different stakeholder groups). To minimize this limitation, and to enhance the standard’s practical application, reference should be made to formal codes of conduct or ethics (e.g., organizational, industrial, professional, or international) to establish whether a company is acting ethically according to the conventional standard. Examples include HP Ethics and Compliance whereby HP employees are mandatory to attend the virtual training program “Standards of Business Conduct” yearly.
The consequentialist standard (sometimes referred to as “teleological”) focuses on ends or consequences. In this respect, consequentialism includes both egoism (promoting the good of an individual) and utilitarianism (promoting the good of society). Although egoism can be used as a moral justification for the economic domain, only utilitarianism is considered relevant for the purposes of the ethical domain under the consequentialist standard. As a result, an action is considered ethical according to consequentialism when it promotes the good of society, or more specifically, when the action is intended to produce the greatest net benefit (or lowest net cost) to society when compared to all of the other alternatives.
The deontological standard, as opposed to focusing on consequences, is defined as embodying those activities which reflect a consideration of one’s duty or obligation. This standard embraces ethical principles such as moral rights and justice. Rights are defined as an individual’s “entitlement to something” and justice can be of several different types, distributive (whether benefits and burdens have been distributed equitably), compensatory, or retributive. The three domain model utilizes the category of deontological principles because it has the potential to more specifically capture a broader range of potential ethical justifications that have been suggested in the literature as duty-based in nature. More specific core values such as trustworthiness (i.e., honesty, integrity, reliability, loyalty); responsibility (i.e., accountability); caring (i.e., avoid unnecessary harm); and citizenship (i.e., assist the community, protect the environment) can be included.
Source: Adapted from Schwartz and Carroll, 2003.
Broadly speaking therefore, corporate social responsibility is a concept whereby in addition to their interest, organizations also consider societal interest by taking on a massive the responsibility for the impact of their activities on employees, customers, suppliers, stakeholders and local communities in which they operate not forgetting their environmental obligations as well. These obligations stretch beyond the ever present need for compliance with statutory legislation to encompass voluntary steps to improve on the quality of life for employees and their families, local communities and the society at large.
Corporate social responsibility has been the focus of the studies of most emerging companies. Recently, most executives acknowledge the importance of social and environmental responsibility. One of the reasons for this growing interest in CSR is because of its influence on consumer behavior at a time when consumers are demanding more out of organizations than simply a quality product at a low price (Bhattacharya and Sen, 2004). According to recent surveys, they see the effect of CSR on their companies’ reputations, and their customers. But when it comes to translating social responsibility into meaningful programs and embedding it in the business, companies range from leaders to laggards while the majority landed somewhere in between. As a result of such doubts and hesitation in the implementation of CSR programs due to the limited research and established benefits to a business entity,
2.3 MARKTING BASED ACTIVITIES
Sen and Bhattacharya (2001) has been increasing evidence linking CSR program and initiatives to business performance and that corporate social responsibility is increasingly being recognized and implemented by firms as they see it as being central to core business activities. In a bid to be good citizens, most companies affiliate with causes such as aids, breast cancer, drug prevention, mental and physical disabilities and racial harmony. CSR activities that have a relation to marketing aspects fall under one of the following domain; cause-related marketing, corporate issue promotion, corporate social marketing, social issues, mission marketing, or passion branding.
Recently, there has been established a significant increase in the amount of money companies are willing to spend on social activities with a marketing dimension. An organization’s choice of involvement includes marketing based activities such as cause-related marketing, sponsorship, social marketing, employee volunteering, strategic philanthropy, alliances with nonprofit organizations and adoption of new business practices that support community initiatives. (Hee and Warren, 2008)
Cause Related Marketing (CRM)
Various social responsibility initiatives have become popular over the last century which has marketing as their focus. One common and popular form of such activity is called Cause Related Marketing (CRM). CRM can be viewed as a marketing program that strives to achieve two objectives; improve corporate performance and help worthy causes by linking fund raising for the benefit of a cause to the purchase of the firm’s product and/or services. CRM is CSR with marketing objective or a marketing program with social objectives.
CRM contributes to societal well and it leads to an increase in companies’ revenue. As defined, CRM is “The process of formulating and implementing marketing activities which are characterized by an offer from the firm to contribute a specified amount to a designated cause when customers engage in revenue-providing exchanges that satisfy organizational and individual objectives” (Varandarajan and Menon 1998 Cited in Pracejus and Olsen, 2003).
Consumers believe that companies sponsoring CRM are socially responsible and turn to increase the willingness of consumers to buy a company’s product. CRM creates added value and directly enhances financial performance. In doing so, CSR acts as a foundation for the long term value needed for a company to survive in a competitive market environment and thereby achieve competitive advantage over its competitions.
Rajan Varadarajan & Anil Menon(1988) argued that the distinctive feature of CRM is the firm’s contribution to a designated cause being linked to customers’ engaging in revenue-producing transactions with the firm (exchange of goods and services for money). They argued that firms have for a long time used CRM as a means to enhance their corporate image, and to cultivate favorable attitudes in the minds of consumers. With these goals and objectives in mind, even after the CRM programme ceases, the corporation can still keep on boosting of sales increases as a result of the goodwill generated among consumers by the CRM sponsored program.
They can boast of increases in sales due to an established consumer based that have been created leading to whole new arena of loyal consumers. In carrying out CRM activities, most companies hope to market their socially responsible behavior to consumers of their product and create awareness at the same time about their products which have a direct impact on their shares and customer loyalty (Stewart, 1998).
Given the same quality and prices of a product, research have shown that consumers will most likely turn to associate themselves more with brands that have a cause related marketing benefit(rsw,1993,1996). If properly executed, CRM has proved to be an important aspect in the enhancing of companies image, reputation and likewise loyalty of a company. This is particular true especially when CRM is properly executed with a tie to the goal of the organization and making it a long term objective rather than a short term tactic to increase sales of its products Duncan and Moriarty (1997).
Some basic objectives of CRM both long term and short term as pointed out by Varadarajan & Menon (1988) include; gaining national visibility, enhancing corporate image, thwarting negative publicity, pacifying customer groups, generating incremental sales, promoting repeat purchases, promoting multiple unit purchases, promoting more varied usage, increasing brand awareness, increasing brand recognition, enhancing brand image, reinforcing brand image, broadening customer base, reaching new market segments and geographic markets, and increasing level of merchandising activity at the retail level for the brand. They stressed for a need of the long term goals for causes like building reputation, and achieving loyalty.
Early research like that of Ross, Patterson, and Stutts 1992; Smith and Alcorn 1991; Webb and Mohr 1998 have focused on the general response of consumers to CRM. The most common form of examined research to determine the perception and attitude towards the company or product are those of surveys and interviews. Most research indicates that consumers generally have positive attitudes towards companies that have CRM programs.
They tend to such companies are socially responsible (Ross, Patterson, and Stutts 1992). These established positive effects has mostly form a base and reasons for most companies to engage themselves in CRM activities. However, most companies have found it difficult to measure the direct amount of benefit or outcome that arises due to the implantation of a particular CRM initiative. This is largely due to a limited research in this area of study. From 1989 up to the year 1992, CRM grew from $100 million in corporate expenditures to $254 million in the United States (Andreasen 1996). Other figures for that same year placed it to be as high as $2 billion (Smith 1994). A survey showed that CRM was well perceived among customers and that they directly affect the customer’s decision making and judgment with long term identification to the company (Carringer 1994). For example, 64% of American adults surveyed said they believe that cause marketing should be a standard part of a company’s activities; 78% said they would be more likely to buy a product associated with a cause that they care about; and 84% said cause marketing creates a positive company image.
CRM refers to the branch of CSR that deals with a company committing to make contribution or donation based on fix quantum for each product acquisition, percentage of a sold product, etc. In this case an organization is usually partnered with a nonprofit organization.
An example is Comcast donating 4,95 dollars of installation fees for high speed internet service to Roma McDonald for charity at the end of every month.
Its objectives are:
• To create an opportunity for Representatives to create relationships to their customers.
• To improve consumer perceptions and to differentiate Comcast from its competitors.
• To make a real and sustainable difference to a cause their customer care about.
Corporate Social Marketing (CRM)
Here the main focus is on behavior. Management uses this type of CRS program to facilitate the change in behavior from a negative to a positive one. Here a corporation supports the development and implantation of a behavior change campaigned which is intended to improve public health safety, traffic safety, natural disaster or any social related cause. For example Philip Morris encouraging parents to talk with their children about the use of tobacco. A Social Marketing Campaign is adequate in the case where the company’s profile is related to the social problem or there is the vision to increase sales.
It’s a kind of initiative that encourages the employees, retailers and /or franchise partners to volunteer their time to support local community or a particular cause. The core objective here is to use the volunteering to give more impact to the social initiatives and the business objectives and Company’s values of communication. Some causes that constitute community volunteering include
• Volunteering promotion as an organizational value
• Some causes recommendation through the internal communication
• Volunteering equipments, recruitment and organization
Social Responsible Practices
Here, a corporation aims at conducting discretionary business practices or investments that support social causes to improve the well being of a community or protect the environment (for example, the “Youth Smoking Prevention” programs, initiated by Philip Morris).
Strategic philanthropy is defined by Debbie Thorne and Linda Farrel (2002) as the systematic use of organizational core competencies and resources to address key stakeholders interest and to achieve both organizational and social benefits. It includes social aspects like corporate giving, volunteer efforts and other societal contri