Business Ethics

Social Responsibility of Business Organizations
Corporate social responsibility ("CSR" for short, and also called corporate conscience, citizenship, social performance, or sustainable responsible business) is a form of corporate self-regulation integrated into a business model.

Mohd Imran Sherwani MBA-8029/09
11/30/2010

.1 Corporate Social Responsibility Corporate social responsibility (CSR) is commonly described by its promoters as aligning a company's activities with the social. "It appears PR firms may have to clean up their own ethics. A ten-page Tobacco Institute document from 1982 titled "The Development of Tobacco Industry Strategy" indicates that the tobacco industry's early corporate social responsibility programs were developed as part of an overall strategy to address the tobacco industry's eroding power and credibility. Roner argues. sketched some of the benefits of the process as being to build "credibility" and establish a "robust platform on which to build a reputation communications campaign". The industry was facing multiple Social Responsibility of Business Organization: By Imran Sherwani ." What tobacco industry documents reveal about the intent and utilization of corporate social responsibility When British American Tobacco was contemplating producing its first corporate social responsibility report. Essentially it provides a degree of publicly endorsed amnesty. a number of major PR firms have responded by establishing specialist CSR practice groups within their companies. "The process will not only help BAT achieve a position of recognized responsibility but also provide 'air cover' from criticism while improvements are being made.S. In a review of the role of PR firms in corporate social responsibility programs. since many corporate buyers seem to believe that a messenger with internal issues of its own may not be best placed to deliver a credible message. economic and environmental expectations of its "stakeholders. Lisa Roner wrote in Ethical Corporation that "many early efforts to communicate on corporate responsibility have been high on production value and low on substance. CSR and public relations With the growing popularity of CSR in the last few years. their Corporate and Regulatory Affairs director. especially in Europe and more recently in the U." Citing examples such as Hill & Knowlton's role in the first Gulf War and the more recent overbilling controversy that engulfed Fleishman-Hillard over its contracts with a Los Angeles government agency." It has become a multi-billion dollar public relations specialty in the business world." he wrote. Michael Prideaux.

The industry found that its formerly firmly committed supporters were diminishing in federal and state legislative bodies. aimed at mitigating public anger at the company and minimizing the potential for large jury awards in court cases." The potential positive outcomes of adopting programs of this nature. 1999 article by Bill Pecoriello of the "global wealth management" company Sanford C. Mr.2 challenges in areas of health." The paper further states the expectation of a return on their investment in such programs. Szymanczyk in the then-ongoing U. Pecoriello discussed the testimony of PM Chief Executive Officer Michael E. Ms.S.S. advertising. attorney Eubanks questioned whether the PM-21 program wasn't actually a publicity ploy instead. Bernstein. Eubanks presented a 1999 memo written by Steven C. and the cutting of some cigarette advertising from youth-oriented publications. strengthening of social and economic systems in which the industry operates. (Vice President and General Counsel for PM) and sent to all PM employees. i.e. Parrish. To back this up." wrote the Institute. the publicizing of PM's support for domestic violence shelters and feeding the hungry. taxes. In the memo. Szymanczyk about Philip Morris' corporate social responsibility makeover program called "PM-21. ingredients.S. to offset the notion that we place profitability above public welfare." which had been made visible to the public through the company's youth smoking prevention television commercials. Many of the comments focused on the effect the PM-21 program was expected to have on potential jury awards: Social Responsibility of Business Organization: By Imran Sherwani . product specifications and import-export. "may be increased goodwill and reputation of the tobacco industry. U. a more sophisticated understanding by government regulators of the needs/behaviors of industry. Parrish introduced 11 pages of comments from financial analysts about the newly launched PM-21 program. An October 13. a program to discourage teens from smoking (an adult decision) might prevent or delay further regulation of the tobacco industry. the Institute proposed that the industry become more involved in public service and social affairs as a way "To receive broad recognition for responsible public service. the ability to affect the problem areas that most concern the tobacco industry and simultaneously obtain tax benefits." To address these challenges. For the first time. and the playing field was "being defined and drawn too often by our adversaries. For example. Attorney Sharon Eubanks asked Mr. industry adversaries were becoming more organized and unified. product labeling. Szymanczyk told the court that PM started the PM-21 program to bring the company into alignment with society's expectations of a responsible company and thus boost the company's stock value. U. Department of Justice's (DOJ) civil racketeering lawsuit.

as an alternative to additional or existing mandatory regulations." Christian Aid stated." Christian Aid argued..we feel that the company's 'admission'. will be viewed as far more reasonable and will likely help moderate potential juror anger. Social Responsibility of Business Organization: By Imran Sherwani ." "We believe that over time the [PM21] program should moderate public anger against the company and the tobacco industry.. "The image of multinational companies working hard to make the world a better place is often just that .. reduce the risk of large-scale punitive damage awards in individual smokers claim. we feel that a campaign such as this will help mitigate the need on the part of juries to further punish tobacco companies for past behavior.. a key factor in the juries' willingness to punish Philip Morris. What's needed are new laws to make businesses responsible for protecting human rights and the environment wherever they work.or CSR . will actually strengthen the company's legal defense and reduce the risk of large scale punitive damage awards in individual smoker cases. in our opinion." ".3 "In the long term. "The burgeoning industry known as corporate social responsibility ." "We reiterate our initial assessment of the image campaign as a long-term positive for the company based on its ability to mitigate 'jury anger. and for continuing to sidestep any direct admission about the link between smoking and disease. is now seen as a vital tool in promoting and improving the public image of some of the world's largest companies and corporations..... in its report scrutinizing the record of several major companies. many non-governmental organizations are suspicious of the CSR "movement" as corporate PR or regulation-dodging.an image ... for carefully wording its public statements to preserve its current liability defenses.. particularly over time..The company's revised position..." The analysts also praised PM for avoiding offering an apology to the public for the company's decades of wrongdoing. Accordingly. The International Chamber of Commerce has aggressively promoted a standards-free concept of "corporate responsibility" that enables companies to proclaim their "responsibility" without necessitating companies to meet minimum standards. CSR and regulation CSR is often used to promote voluntary corporate initiatives." "Leaving the 'flat-earth' society should moderate juror anger.

"Positive CSR information has led 72% of the respondents to purchase a company's product or services and 61% to recommend the company to others. The four myths of CSR Deborah Doane. APCO suggested that companies "shape the opinion environment" by touting their own CSR efforts." he warns. Based on its survey. not only are the interests of profit-seeking corporations and broader society often at odds. by APCO Worldwide. Conversely. and interest in public policy issues) in 10 countries. with regard to media consumption.or don't align ." Those myths are: 1. negative CSR news has led 60% to a boycott a company's products and services." admitted consultant Scott Greathead." According to Doane.to four-year time horizon that public companies. often seem to require. according to a 2004 survey of more than 400 "opinion elites" (members of the top 10 percent of society. according to Business Week. has been debated. but it fosters "dialogue between companies and their civil society critics" and "lends the stature of the Secretary General to the concept of corporate responsibility. civic engagement. through demands of the stock market." Social Responsibility of Business Organization: By Imran Sherwani . wrote an article for the Fall 2005 issue of the Stanford Social Innovation Reviewwhere she listed and debunked what she called "the four key myths of CSR.4 CSR and sales People's consumption patterns are influenced by corporate social responsibility efforts. "The market can deliver both short-term financial returns and long-term social benefits. but socially reponsible investments by corporations "are particularly unlikely to pay off in the two. although "91 percent of respondents found CSR more credible when verified by a third-party such as a non-governmental organization or local government. "Some companies are using it for public relations. the chair of the Britain-based organization CORE Coalition (for "COrporate REsponsibility"). the Global Compact of the United Nations. the lack of enforcement "raises real concerns about the longer-term risk to the UN's reputation. "More attention should be paid to the extent to which corporate lobbying by Global Compact members align ." reported PR Week." Consultant John Elkington contends.with their stated commitment." The UN's Global Compact The meaning and practical effect of one international CSR program." Also.

N. Competitive Enterprise Institute analyst Isaac Post wrote." reportsThe Age. say by signing the U. In fact." While CSR efforts often "offer good PR. in order to attract investment. or sell-by date than ethics. taste. "in some cases businesses may be able to capitalize on well-intentioned efforts." claims the lobby group. "In the global economy. without necessarily having to actually change their behavior. "The ethical consumer will drive change." Doane writes. environmental and labor conditions. "companies often fail to uphold voluntary standards of behavior in developing countries. for example 'societally appropriate value maximisation. countries will compete to have the best ethical practices. "Mandating CSR through legislative intervention runs the risk of stifling the innovation and creative approaches to CSR that are being adopted by Australian companies. in a submission to a Parliamentary inquiry. "The greatest social contribution made by corporations is through employment.' much of the business community has embraced it." Although companies often claim that their presence in "developing" countries will improve health. "Though CSR was labeled by free-market icon Milton Friedman as a 'subversive doctrine. arguing that it is simply 'good for our business.' Opponents of CSR have naturally argued the contrary." In March 2006." It also highlights the existing CSR efforts of Council members. "Most surveys show that consumers are more concerned about things like price." Business and conservative opposition to CSR "The Business Council of Australia has come out against Government plans to create legislation forcing directors to meet certain levels of corporate social responsibility (CSR). "There will be a competitive 'race to the top' over ethics amongst businesses.' as a way of asserting that they were doing whatever Canberra thought it was causing them to do. Wal-Mart¶s success certainly is a case in point. emphasizing the economic costs of following such a 'misguided virtue' as CSR. The chair of Morgan Stanley Australia says government mandates would result in less meaningful CSR: "People would invent a bit of jargon. arguing instead that they operate within the law of the countries in which they are working. Global Compact [see below]. the goods and services they create and the wealth these produce. competitive pressure for foreign investment among developing countries has actually led to governments limiting their insistence on stringent compliance with human rights or environmental standards." 4." 3. The submission stresses. Doane counters." which companies of course like.5 2. But little attention has been paid to the Social Responsibility of Business Organization: By Imran Sherwani .

' sparked considerable debate on CSR. local communities. By feeding into politically correct themes. Sure. humanity as a whole. "Clive Crook of The Atlantic Monthly.' To that I would add the corollary: By doing anything to reduce their bottom line." On March 3.6 actual arguments made by advocates of CSR within the business community. "Is CSR really a win-win situation²as its promoters claim²for both corporations and the public? Corporate leaders struggle with determining to whom their social responsibilities extend: to shareholders. For example. employees. while another group is ³organized´ and insists on $10 per day. the American Enterprise Institute hosted a conference on CSR titled. whose article in The Economist. and environmental practices.. This is a shame. Referring to the basic principles of fair trade. Thomas J. how does it help poor people by refusing to hire the first group? Market wages aren¶t set by whim." Murphy added. called NGO Watch. "CSR is an insurance policy for image-sensitive CEOs." Robert Murphy criticized CSR in a Townhall. Borelli from National Center for Public Policy Research wrote. social.. 'The Good Corporation. future generations?" The conference promised to "examine the complex global CSR phenomenon and take an in-depth look at Wal-Mart. he wrote. which has been under fire for some of its corporate. "Even the ban on child labor isn¶t so straightforward. . companies make the world poorer ² and there's nothing responsible in that. the environment. CEOs gain admittance to Club CSR and enjoy a host of membership privileges. The conference description asked. based on a set of assumptions that undermine the legitimacy of the free-enterprise system. 2006. because a closer analysis of the 'business case for CSR' shows that it is. why should Starbucks pay more than it has to for its coffee beans? If one group of farmers is willing to work for $7 per day. they reflect productivity. By paying an ideological and financial cover charge to social and environmental causes. it makes me uncomfortable to think of little children in distant lands toiling away so I can get a Social Responsibility of Business Organization: By Imran Sherwani ." Competitive Enterprise Institute Editorial Director Ivan Osorio wrote. indeed. adds another important consideration: 'Profit seeking serves the social purpose." In August 2006.com column. "Is Corporate Social Responsibility Good Business?" The event was part of their joint project with the Federalist Society. "As an economist I disagree with virtually every plank of the trendy movements. these campaigns frequently distract the media and shareholders from failed business practices and poor stock performance. One major club benefit is protection from advocacy actions such as protests and boycotts wielded by antibusiness activists.

. He told the Corporate Crime Reporter: "The CSR cost for Nike is about $10 million to $12 million a year. That¶s part of the CSR game. and indeed a hindrance to free trade. Body Shop founder and early proponent of socially-responsible business practices Dame Anita Roddick is quoted as saying. the children need to work to avoid starvation. .. They have two or three Nike people at every meeting. . Social Responsibility of Business Organization: By Imran Sherwani . marketing houses. do you know what that would cost Nike compared to the CSR cost? That would cost them $210 million a year. including concerns about insincerity and hypocrisy. corporations are only responsible to their shareholders and not to society as a whole." Progressive opposition to CSR In a press release. to go to these sustainability meetings all over the world. Those who assert that CSR is contrasting with capitalism and are in favor of neoliberalism argue that improvements in health. just for the CSR staff and expenses. I figure 75 cents per pair of shoes to the worker would fix the problem. but does it really help them to refuse to give them money? For many families around the world. and that since only people can have social responsibilities. Although they accept that corporations should obey the laws of the countries within which they work. longevity and/or infant mortality have been created by economic growth attributed to free enterprise.7 cappuccino.. "I don¶t think Corporate Social Responsibility is working. been taken over by the big groups. If Nike instead paid workers 75 cents more per pair of shoes. Nature of business Milton Friedman and others have argued that a corporation's purpose is to maximize returns to its shareholders. It¶s a huge money building operation now. they assert that corporations have no other obligation to society. Declaring ourselves righteous and hiring only adults doesn¶t fix the problem. These include CSR's relationship to the fundamental purpose and nature of business and questionable motives for engaging in CSR.." Criticisms and concerns Critics of CSR as well as proponents debate a number of concerns related to it." Labor activist Jeff Ballinger dismisses CSR as cost-effective public relations. Some people perceive CSR as incongruent with the very nature and purpose of business. I think it¶s been taken over by the big management houses.

Ethical consumerism The rise in popularity of ethical consumerism over the last two decades can be linked to the rise of CSR. Industrialization. noting that these countries usually have fewer labour protections. However. They claim that the type of capitalism practiced in many developing countries is a form of economic and cultural imperialism. 105) Global competition places a particular pressure on multinational corporations to examine not only their own labor practices. 147). Globalization and market forces As corporations pursue growth through globalization. so all economic entities have an obligation to society (see for example Economic Justice for All). and thus their citizens are at a higher risk of exploitation by multinational corporations. helping them sustain a competitive advantage by using their social contributions to provide a subconscious level of advertising. Consumers are becoming more aware of the environmental and social implications of their day-to-day consumer decisions and are therefore beginning to make purchasing decisions related to their environmental and ethical concerns. from a CSR perspective. as discussed above. is booming as a result of both technology and globalization. many CSR proponents point out that CSR can significantly improve long-term corporate profitability because it reduces risks and inefficiencies while offering a host of potential benefits such as enhanced brand reputation and employee engagement. For example. Meiners 1986. so does the pressure on limited natural resources required to meet rising consumer demand (Grace and Cohen 2005. while some companies use CSR methodologies as a strategic tactic to gain public support for their presence in global markets. Some view ethical issues as simply a costly hindrance. (Fry. environmental restrictions and varying standards of what constitutes "labor exploitation" are problems that can cost organizations millions of dollars. Many religious and cultural traditions hold that the economy exists to serve human beings. the REALeadership Alliance asserts that the business of leadership (be it corporate or otherwise) is to change the world for the better. Moreover. in many developing countries. Government regulations. they have encountered new challenges that impose limits to their growth and potential profits. but those of their entire supply chain. this practice is far from consistent or universal. Social Responsibility of Business Organization: By Imran Sherwani . A wide variety of individuals and organizations operate in between these poles. tariffs. Keim. As global population increases.8 Critics of this argument perceive neoliberalism as opposed to the well-being of society and a hindrance to human freedom.

while the cleanup remains stagnant. Regulation in itself is unable to cover every aspect in detail of a corporation's operations. On 16 December 2008. just before the meeting of the UN Framework Convention on Climate Change. investors and state-owned Social Responsibility of Business Organization: By Imran Sherwani . Through education and dialogue. Laws and regulation Another driver of CSR is the role of independent mediators. on the concerns of economic loss and national interest. Shareholders and investors themselves. (Sullivan & Schiafo 2005). General Electric failed to clean up the Hudson River after contaminating it with organic pollutants. particularly the government. the Danish parliament adopted a bill making it mandatory for the 1100 largest Danish companies. This view shared by Bulkeley. The second issue is the financial burden that regulation can place on a nation's economy. For example. Denmark has a law on CSR. Prime Minister Kevin Rudd signed the ratification immediately after assuming office on 3 December 2007. This leads to burdensome legal processes bogged down in interpretations of the law and debatable grey areas (Sacconi 2004). who cites the Australian federal government's actions to avoid compliance with the Kyoto Protocol in 1997. Non-governmental organizations are also taking an increasing role. in ensuring that corporations are prevented from harming the broader social good. On the change of government following the election in November 2007. Critics of CSR also point out that organisations pay taxes to government to ensure that society and the environment are not adversely affected by business activities.9 Social awareness and education The role among corporate stakeholders is to work collectively to pressure corporations that are changing. through socially responsible investing are exerting pressure on corporations to behave responsibly. CSR critics such as Robert Reich argue that governments should set the agenda for social responsibility by the way of laws and regulation that will allow a business to conduct themselves responsibly. including people and the environment. pg 436). leveraging the power of the media and the Internet to increase their scrutiny and collective activism around corporate behavior. The company continues to argue via the legal process on assignment of liability. The Australian government took the position that signing the Kyoto Pact would have caused more significant economic losses for Australia than for any other OECD nation (Bulkeley 2001. The issues surrounding government regulation pose several problems. the development of community in holding businesses responsible for their actions is growing (Roux 2007).

Odwalla also experienced a crisis with sales dropping 90%.10 companies to include information on corporate social responsibility (CSR) in their annual financial reports. improved recruitment. Understanding what causes are important to employees is usually the first priority because of the many interrelated business benefits that can be derived from increased employee engagement (i. The company ordered a recall of all apple or carrot juice products and introduced a new process called "flash pasteurization" as well as maintaining lines of communication constantly open with customers.e. The required information includes:  information on the companies¶ policies for CSR or socially responsible investments (SRI) information on how such policies are implemented in practice. but if a company has no policy on this it must state its positioning on CSR in their annual financial report. Magellan Metals in the West Australian town of Esperance was responsible for lead contamination killing thousands of birds in the area. Coli spread through Odwalla apple juice. Other examples include the lead poisoning paint used by toy giant Mattel. Key external stakeholders include customers. and the company's stock price dropping 34% due to several cases of E.dk Crises and their consequences Often it takes a crisis to precipitate attention to CSR. higher productivity. corporations are motivated to become more socially responsible because their most important stakeholders expect them to understand and address the social and community issues that are relevant to them. increased retention. consumers. more loyalty. One of the most active stands against environmental management is the CERES Principles that resulted after the Exxon Valdez incident in Alaska in 1989 (Grace and Cohen 2006). and information on what results have been obtained so far and managements expectations for the future with regard to CSR/SRI. The reporting requirements became effective on 1 January 2009. In another example. More on the Danish law can be found at CSRgov. investors (particularly institutional Social Responsibility of Business Organization: By Imran Sherwani . and so on). Stakeholder priorities Increasingly. which required a recall of millions of toys globally and caused the company to initiate new risk management and quality control processes.   CSR/SRI is still voluntary in Denmark. The company had to cease business immediately and work with independent regulatory bodies to execute a cleanup.

Social Responsibility of Business Organization: By Imran Sherwani .11 investors).(lead partner Equal) Community Action Dacorum (lead partner IiC Hertfordshire) Council for Voluntary Service St Albans District BITC . a Lucknow based Voluntary organization. In fact. academics. and the media.Business In the Community CSR (India). communities in the areas where the corporation operates its facilities. these voluntary organizations always go on devising newer and more pragmatic/stringent norms of application of the requirements of Corporate social responsibility. regulators. Efforts to implement CSR A very large number of social and voluntary organizations are contributing to the field of Corporate social responsibility by making it an important agenda where they clearly harp for all the corporate bodies to adhere to the morns of CSR at all costs.a subsidiary of IRDS. A few of them are: Examples:.