Importance of Corporate Social Responsibility
The term CSR itself came into common use in die the early 1970s, although it was seldom abbreviated. The term stakeholder, meaning those impacted by an organisation’s activities, was used to describe the corporate owners beyond shareholders from around 1989.
An approach for CSR that is becoming more widely accepted is community based development projects. Often alternative approach to this is the establishment of education facilities for adults, as well as HIV/AIDS education programmes. A more common approach to CSR is through the giving of aid to local organisations and impoverished communities in developing countries. Some organisations do not like this approach as it does not help build on the skills of the local people, whereas community-based development generally leads to more sustainable development1.
Taking responsibility for its impact on society means, in the first instance, that a company accounts for its actions. Social environmental effects of a company’s economic actions to particular interest groups within society and to society at large, is thus an important element of CSR.
In some nations, legal requirements for social accounting, auditing, and reporting exist, though agreement on meaningful measurements of social and environmental performance is difficult. Many companies now produce externally audited annual reports that cover Sustainable Development and CSR issues, but the reports vary widely in format, style, and evaluation methodology.
The scale and nature of the benefits of CSR for an organisation can vary depending on the nature of the enterprise and are difficult to quantify, though there is a large body of literature exhorting businesses to adopt measures beyond financial ones.
A CSR programme can be seen as an aid to recruitment and retention, particularly within the competitive graduate student market. Potential recruits often ask about a firm’s CSR policy during an interview, and having a comprehensive policy can given an advantage. CSR can also help to improve the perception of a company among its staff, particularly when staff can become involved through payroll giving, fund-raising activities or community volunteering.
Managing risk is a central part of many corporate strategies. Reputations that take decades to build up can be ruined in hours through incidents such as corruption scandals or environmental accidents. These events can also draw unwanted attention from regulators, courts, governments, and the media. Building a genuine culture of ‘doing the right thing’ within a corporation can offset these risks.
CSR can play a role in building customer loyalty based on distinctive ethical values. Business service organisations can benefit too from building a reputation for integrity and best practice.
Corporations are keen to avoid interference in their business through taxation or regulations. By taking substantive voluntary steps, they can persuade governments and the wider public that they are taking issues such as health and safety, delivery, or the environment seriously and so avoid intervention. This also applies to firms seeking to justify eye-catching profits and high levels of boardroom pay. Those operating away from their home country can make sure they stay welcome by being good corporate citizens with respect to labour standards and impacts on the environment.
When international companies implement their CSR strategies in a developing context, especially within the field of codes of conduct, suppliers and other concerned parties could perceive the CSR strategies as the imposition of another formal norm, since they include additional rules and regulations which demand compliance. Since cornerstones in the concept of CSR include voluntary compliance beyond legal requirements, CSR cannot be seen as a formal rule per se. However, it is likely to give rise to similar effects. External monitoring and enforcement, as opposed to self-enforcement within the social group, constitute an additional similarity with formal norms, which are enforced by the judicial system.
Equilibrium between formal and informal norms promotes institutional efficiency (North, 1990; Coase; 1992). Thus, international corporations should aim at developing and implementing CSR strategies that give rise to the smallest possible conflict within the existing institutional framework and promote the creation of a new institutional balance. To adhere to formal norms in terms of compliance with the prevailing legislation is a relatively uncontroversial issue for corporations, and the majority of codes of conduct include a paragraph which requests compliance with the local legislative context, both among suppliers and within the own company. The challenge among corporations is often found in identifying and respecting informal constraints within the host community in which they operate. The state structure in India can be considered relatively weak compared to that of many Western states, which indicates greater importance of the informal constraints as determinants of social and economic interaction (Nadkami, 2004).
Respecting and acting in accordance with, the institutional framework ofthe host society are important within the entire spectra of CSR strategies, from the code of conduct related activities mentioned above to projects related to community development, in order to promote maximum efficiency of the CSR strategies and investing in projects aimed at areas in the most need of development assistance. Projects related to community development or other philanthropy-related causes that are initiated by international companies in the host context in which they operate are less likely than codes of conduct to be considered as additional formal norms. However, the development impact is far from uncontroversial. According to institutional economies, institutional change promotes development. Thus, it can be concluded that in order for community development-related projects to have an impact on development, they should lead to institutional change (Palmqvist, 2007).
To engage in partnerships with representatives of the civil society can constitute an important method by which to adhere to the institutional constraints of the host society and thus diminish the conflict within the institutional environment arising from the introduction of CSR strategies. This is a practice that is recognized by scholars who are engaged in the issue ofCSR and development, although they are not specifically devoted to its connection to institutional economies. In order to limit the institutional conflict, it is also important to develop CSR strategies according to the actual needs of the host community, or beneficiaries of the strategies. This is recognized by for example Eweje (2006), who conducted an empirical field study of international CSR policies in Nigeria and South Africa.
Development and institutional change especially regarding informal norms, are long-term concepts that do not occur overnight. Thus, in order for international companies to actually to be able to contribute to development through their CSR strategies in the host society, their engagement should have a long-term character where community involvement is encouraged rather focus on one-time spot efforts ofmonetary donations. Also, the codes of conduct-related aspect of CSR should posses these characteristics.
The introduction and implementation ofCSR strategies, which respect and act in accordance with the existing institutional environment, have the potential to function as a complement to existing legislation and state enforcement. Inherent in functioning CSR strategies related to codes of conduct lies a system of monitoring and enforcement that coexists simultaneously with its state counterpart. If CSR strategies are to have the potential to contribute to development through stimulating institutional efficiency, they should take place on a larger, structural level in the society. The effects are likely to be smaller if CSR strategies act on the micro level, unless substantial spillover effects exist in the society. This is important both for the code of conduct related features and the aspect relating to community development. Furthermore, adhering to the institutional context of the host country also fosters institutional efficiency through the reduction of transaction costs involved in human and economic interaction. An effective monitoring and enforcement strategy ofthe codes of conduct reduces uncertainty and increases clear communication to the stakeholders regarding the CSR strategy, which increases transparency and reduces information costs (Palmqvist, 2007)
Benefits of Corporate Social Responsibility
Socially responsible organisations aim to make a profit in a way that does not cause harm to the environment, or to the local or global community, They will also consider the human factor: a socially responsible organisation will treat its employees and suppliers fairly, it will source goods ethically, and it will deal only with companies who also do business in a socially responsible way. CSR can go even further than this: it can sometimes involve a ‘giving’ policy. Some organisations will make substantial financial contributions to a community or charity, or encourage their employees to participate in voluntary community work, or even donate products to a particular cause (Pirsch et al. 2007)
So it is easy to see how socially responsible companies benefit communities and employees. There are quite a few benefits to the company itself. Some of the business benefits, which can be associated with CSR in the Indian context are listed below. While some of them demonstrate a direct link with business benefits, some others can only be felt.
- Financial Performance The desire and urge in business to be sensitive about social responsibility has a significant and far-reaching impact on financial performance, resulting in increased revenues and reduced operating costs. The adoption of a sensitive attitude towards the community forces businesses to strive for environmental improvements, for adopting eco-friendly measures using less energy and material, and for re-organizing production processes, material flows and supplier relationships. It is an old saying that there is wealth in industrial waste and it needs only appropriate eyes to identify that wealth. This concept, when adopted as a matter of habit leads to the elimination of wastage at nonmanufacturing sites through more judicious handling of waste, energy efficiency, water conservation, and so on (Agarwal, 2008). A number of previous studies concluded on positive association between CSR and financial performance (e.g., McWilliams and Siegel, 2000; Heal, 2004; Stratling, 2007; Peloza and Papania, 2008).
- Brand image and reputation Probably the most significant business benefit of CSR is the positive effect it can have on brand image and reputation. There is no doubt that the image of corporations involved in CSR is far better than those who are not. Branding of products, more particularly of consumer products, gets an immense boost through social messages. Advertisements with social messages have a larger and deeper appeal than general advertisements. Corporate social responsibility campaigns, which communicate corporate good deeds, exert considerable positive influence on public opinion and corporate social responsibility campaigns enhanced people’s perceptions of sponsors’ image, reputation and credibility (Pfau et al., 2008). Also, in a survey conducted by Confederation of Indian Industry (2002), majority of the corporate respondents had the perception that CSR leads to improved brand image.
- Customer Loyalty This is perhaps the most non-controversial statement about CSR’s business benefits. Consumers not only want good and safe products, but would also like to know that what they buy was produced in a socially and environmentally friendly way, and are sometimes even willing to pay more for products that are produced in a socially and environmentally responsible manner. Consumers, weary of the tales of ruthless corporations doing everything in their power to maximize profits, are becoming more and more interested in supporting companies who are seen to be ‘doing the right thing’. Pirsch et al. (2007) highlighted this link between CSR policy and marketing: it found that while an institutionalized CSR policy is effective in building customer loyalty and public perception of the company, it is crucial to promote this policy in order to increase purchase intent. Loyalty is a combination of three crucial elements: product or service quality, price, and intellectual or emotional bonding. Consumers are usually loyal to products and change brands infrequently (Agarwal 2008).
- Retaining employees Research has shown that potential employees take an interest in the CSR policies of a potential employer. A company with a good record for social responsibility will therefore attract and retain the best employees. A study carried out by the Stanford Graduate School of Business2 found that more 97% of MBA graduates would be willing to forgo 14% of their salaries in order to work for a socially responsible business. Employees who work for socially responsible companies tend to be highly motivated in their jobs, partly because they take satisfaction in knowing that they are working for an organisation that has the greater good of society and the planet at heart; and partly because their employers are treating them well. If an employee is motivated, then they will be more productive.
- Easier Access to Capital Increasingly, investors are becoming more and more interested in the CSR policies ofthe companies they invest in, particularly in issues relating to the environment and human rights. Investors feel that they will be able to get the best value from a socially responsible company. More and more people do feel that to be the case as well as those who have always felt that the ethics and morals of the investment overrode even their need for profit (Hancock, 2005). Over a period of time, lenders and investors have become more vocal and assertive about their own expectations regarding evidence of a company’s responsibility to reduce cost and ensure its sustainability. As opposed to general perception, the banking and finance industry is equally responsive to the need of hour and has developed its own set of principles and standards to take any decision about investment in a particular sector or region or asset class (Agarwal, 2008).
For Citing this article use:
- Murthy, R. (2010). Effectiveness of corporate social responsibility as a function of attitude towards CSR and socially responsible behaviour-The Indian corporate perspective.