Corporate social responsibility motivations and country factors Essay
Corporate social responsibility motivations and country factors
Corporate social responsibility (CSR) is an increasingly important issue for all businesses around the world. CSR covers economic, legal, ethical, and philanthropic responsibilities of firms. Explain the factors that may motivate an MNE to adopt CSR in its international business strategy and operations. How might the country context influence the types of CSR initiatives undertaken? Support your answer with real world examples or cases.
While corporate social responsibility (CSR) has existed for a long time, it has garnered attention only in the last two decades as an important aspect of doing business. Academic research on CSR has evolved over the years, indicating a change in how CSR is viewed as time goes by. In the earlier years of CSR research, academics sought to identify a link between CSR and financial performance (Aupperle et al. 1985; McGuire et al. 1998), as though CSR had to be rationalised in order to exist. But moving forward to the present, CSR has been undoubtedly recognised as a need by many organisations, and research has shifted from discussing “macro social effects to an organisational-level analysis of CSR and its impact on organisational processes and performance” (Lindgreen and Swaen 2010, p. 1). In other words, CSR research has moved from questioning the “why” to “how” of doing CSR, reflecting the growing prominence of the practice. CSR involves the “economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time” (Carroll 1979, p. 500). These programs are designed to fulfill a basic economic or social need as expected by the community, honoured by the company in goodwill so as to position oneself as a positively value-driven entity (Swanson 1995; Wood 1991).
CSR initiatives can be derived out of self-interest, or external pressure from institutional economics (Meyer and Rowan 1991; North 1992) or when a company decides to rise above its economic function to help and aid stakeholders (Trevino and Nelson, 2004). While there are many reasons for a company to engage in CSR, it ultimately assists the corporation in enhancing its legitimacy (Wood 1991) and fit with society at large (Zensisek 1979), creating a symbiotic relationship between stakeholders and companies (Tuzzolinio and Armandi 1981). Unfortunately, CSR has no consensus definition (Dahlsrud, 2008). It is important to recognise from this that CSR is a complex and multilayered concept that requires examination from various angles. In this essay, CSR will be understood as a firm’s obligations to act responsibly to all possible stakeholders in the market environment. This essay will now seek to explore the motivations behind pursuing CSR programs by a business organisation, determining how various stakeholders and the general public can influence this decision and how the broader country context can affect how a company participates in CSR. In the corporate world, companies are fully engaged in CSR initiatives, with more than 80% of Fortune 500 companies addressing CSR issues (Esrock and Leichty, 1998), reflecting that CSR is more than an ethical or ideological necessity, but also an economic one. As such, more companies today have realised that “not only doing good is the right thing to do, but it also leads to doing better” (Bhattacharya and Sen 2004, p.9).
While it was infamously argued previously that the main purpose of a company was to make profits and thrive economically (Friedman 1970), enterprises now have the option to do so and at the same time, contribute meaningfully to society at large. The reasons for a MNE to engage in CSR initiatives are multiple. Stakeholder theory (Donaldson and Preston 1995) can be used as a skeletal framework to understand where demands for CSR arise. Demand derives from two main groups: consumers and stakeholders. Stakeholders of a company include its investors, employees, suppliers and even the local environment that it is located in. The consumer demand for CSR will be addressed first. CSR engagements may result in producing a good that has socially responsible attributes, such as dolphin-free tuna or a non-animal tested product.
It could be in less obvious means, such as a clothing company not ultilising sweat shops or child labour in producing its goods. When consumers buy products that bear such attributes, they believe they are “indirectly supporting a cause and rewarding firms that devote resources to CSR” (McWilliams and Siegel 2001, p. 119). Consumers are able to identify better with a company that engages in CSR activities and feel a stronger connection or attachment to such firms. Consumer oriented CSR also involve intangible attributes, such as reputation. Having a strong reputation has been linked to attracting more customers, retaining and motivating employees, gaining favour with analysts and the media amongst many more reasons (Bhattacharya and Sen 2004). CSR has come to matter in building a reputation for corporations.
The Reputation Institute ranks the world’s most reputable companies based on the RepTrak® system. RepTrak® analyses seven dimensions of corporate reputation: Citizenship, Innovation, Governance, Workplace, Leadership, Products/Services and Financial Performance (Reputation Institute 2013). Of which, three of these dimensions (citizenship, governance and workplace) fall into the CSR category, and analysis has shown that “42% of how people feel about a firm is based on their perceptions of the a firm’s CSR practices” (Smith 2012, para. 6). The Body Shop, Patagonia and Ben & Jerry’s are some examples that stand out in their respective industries having built reputations centring on socially responsible practices. Hence, it is easy to see why consumers drive the demand for companies to engage in CSR activities. Stakeholders too, demand for CSR for various reasons. McWilliams and Siegel (2001, p.122) have posited that employees will support “progressive labour relations policies, safety, financial security, and workplace amenities, such as childcare.
Workers are searching for signals that managers are responding to causes they support”. Nintendo has numerous employee well-being programs in place where all employees can receive support in various aspects of their lives. Free training in life-saving skills and first aid, and subsidies for work safety shoes, transportation costs and even gym memberships are provided to help employees achieve work-life balance and a better well being (Nintendo, 2013). It has been observed that CSR initiatives in a firm typically lead to greater employee work satisfaction where job attitudes are improved and productivity is increased, and is used as a way of attracting talents to a company (Bhattacharya, Sen and Korschun 2012). Valentine and Fleischman (2008) have observed that CSR also plays a part in mediating the relationships between ethics programs and job satisfaction. Taken holistically, effective organisational ethics and CSR activities will incite more “positive beliefs in the firm, as well as the immediate work context and culture” (Valentine and Fleischman 2008, p. 167). As observed then, employees play an important role in creating a demand for CSR in firms as they stand to benefit from such programs intrinsically. For both stakeholders and consumers then, CSR programs create an organisational identity that becomes relatable.
When companies engage in CSR that underpins their mission and values, stakeholders are able to see an element of themselves in the organisation, which leads to increased support for the company. As already observed, this can lead to stronger purchase intention in customers, or increased job satisfaction in employees. The largest motivation to pursue CSR for a company though could lie in developing a competitive advantage. While CSR could be executed simply by donating to charities as corporate philanthropy, some firms have recognised CSR as a strategic tool to use and develop in order to answer not only a societal need, but a business issue as well. Strategic CSR is now a form of social innovation, and by answering crucial problems in society that leads to real, long-lasting change; a company will reap the benefits of a better workforce, a new market or higher consumption while adding value to society (Kanter 1999). The need to recognise that economic and social objectives are not distinctively opposing but complementary will lead to CSR that can potentially bring about a social benefit and improve competitiveness (Porter and Kramer, 2002). There are two main business advantages that arise from CSR. Firstly, it presents an opportunity to test out a new technology. Secondly, it provides the opportunity to build political capital by influencing regulations, presenting itself as a market leader or to strengthen relationships with government officials (Kanter 1999).
This was exactly what Bell Atlantic did through Project Explore by going into schools to test out their new High-bitrate Digital Subscriber Line (HDSL) technologies with personal computers in the early 1990s. This provided a test ground that would get their technology into the real world and also presented itself as a demonstration site to political leaders for Bell Atlantic to petition favourably for their proposed statewide technology communications plan (Kanter 1999). Bell Atlantic managed to help schools by providing them with computers and new technologies, bettering education and technology literacy, while still achieving a business agenda. The competitive context of a company and its business environment can benefit greatly when economic and social goals are seen as mutually linked. Porter and Kramer (2006) identify four key areas strategic CSR can affect competitive context positively: factor conditions, demand conditions, context for strategy and rivalry, and lastly, related and supported industries. Improving education, in the case of Cisco, enabled them to educate students in computer skills that resulted in a high quality, yet cost effective curriculum due to Cisco’s expertise.
Whilst all students from Cisco’s Networking Academy may not work for Cisco, the industry at large benefits. Furthermore, well-trained network administrators who graduate from The Cisco Network Academy create demand for higher quality service and solutions (Porter and Kramer 2006, p. 85). CSR can influence in the creation of a more productive and transparent environment for competition (Porter and Kramer 2006, p. 85), such as Transparency International, where corporations have pledged to disclose and deter corruption in the world. This aids in building fair competition and higher productivity. Finally, a company can benefit by supporting a related industry. For example, American Express funds travel and tourism academics in the recognition of its reliance on the hospitality industry for travel-related spending on its credit cards (Porter and Kramer 2006, p.85). These examples show how CSR can result in tremendous payoffs when executed effectively. While immediate stakeholders can drive the motivations for CSR initiatives, it is important to consider how the country a company is operating in can affect how CSR activities are chosen and implemented.
The different social and cultural differences in each country should be salient enough for managers to acknowledge that CSR cannot be entirely universal, especially in the case of global MNEs. Furthermore, different social needs and problems will be inherent in each country. For example, the prevalence of AIDS/HIV is critical in South Africa. As such, it is only appropriate that companies with a presence in South Africa address this issue; with the likes of Toyota, Sappi and Mercedes-Benz deploying CSR programs that help employees tackle the pandemic of AIDS/HIV. British Petroleum (BP) (BP 2013), a global oil company, undertakes CSR initiatives that are identified as locally relevant, tailoring to the needs of their host communities and societies. A quick glance of their case studies shows various CSR programs ranging from workforce rights in Brazil to community relations in Turkey. While addressing locale-specific issues would be the most effective method of CSR, other factors may encourage or hinder such intention. The legal environment can affect the way CSR is implement in a country greatly. It changes either through strong intervention whereby social responsibility is legally stipulated, or a severe lack thereof, which leads to voluntary action by other players (Campbell 2007). France and Brazil are two examples par excellence of how the government can play a key role in creating CSR demand, albeit in opposite directions.
The French government has influenced how CSR has developed and emerged greatly by playing an active role in passing legislation, amongst other policies that requires French companies, including subsidiaries of international firms, to be socially responsible and accountable (Sobczak and Martins 2010, p. 448). On the other hand, Brazil’s history of a military government has fostered a passive environment where innovation is stifled, including that of encouraging improvements for society (Sobczak and Martins 2010, p.449). As such, private actors such as Non Governmental Organisations (NGOs) are most active in Brazil to encourage CSR programs to Brazilian companies. While the legal environment can affect how CSR is implemented in a country, it can also affect what type of CSR is initiated. Although France has passed mandates to enforce listed companies submit reports on social and environment impacts, the main area of concern belies in employment rights (Sobczak and Martins 2010, p. 450). Similarly, Brazilian companies are also strongly focused on employee relations and well-being, that being the key principle of CSR in Brazil (Sobczak and Martins 2010, p. 451). CSR then is only translated into one dimension of obligation and other dimensions, though equally pressing; take a backseat in the case of France and Brazil. Different priorities in a country culturally can affect how CSR is implemented. In such scenarios, international NGOs come in and encourage other concerns to be addressed.
This helps to bring harmony to the imbalance within the CSR activities focused in countries such as France and Brazil. For instance, international environmental NGO, the World Wildlife Fund, has collaborated with French companies to allow the use of their logo, one of the most recognisable brands in the world, on products that meet their standards (Sobczak and Martins 2010, p.452). This has encouraged firms in France to meet environmental standards that was not previously crucial in CSR portfolios. Through this, French companies are more receptive to practicing CSR that is not inherent to their usual procedures. Despite the particularity of each country and how CSR is ideally done based on local demands, the reality of the matter is that CSR is not always practiced this way. Global MNEs typically have general and universal guidelines on what CSR activities should be undertaken in host countries, and most managers have to be given permission to pursue local CSR from the parent company. Universalism in CSR practices by MNEs creates linearity and coherence for all stakeholders, but can result in less powerful CSR practices.
On the other hand, localised programs may end up being fragmented or ad hoc. There is undoubtedly differing perspective on which approach is preferable, as each holds its argument convincingly (Muller 2006). As suggested by Husted and Allen (2006) then, the key difference between global or local CSR is the community that demands it. Another key factor that affects the way CSR is conducted is the development of CSR in a globalised world. It has been recognised by scholars (Gugler and Shi 2009; Jamali 2010) that CSR is fundamentally Anglo-Saxon both in history and development. Hence, CSR has a strong presence in the United States and United Kingdom, but is still lacking in both conceptual and practical thinking in countries based in the Southern hemisphere. Jamali and Ramez (2007) has noted that numerous issues with CSR in the Lebanon context. Firstly, CSR is typically executed in tangent to the parent company’s mission and values. While it is not necessarily a bad move to have a universally applicable CSR issue identified by a parent company, this may lead to a lack of agency by foreign subsidiaries to pursue CSR that is truly important in a specific context. Hence, CSR in Lebanon is still largely based on altruistic means and charitable giving, which is considered a low-level and basic method of implementing CSR. Interviewed companies by Jamali (2007) did not track the performance of its CSR outputs, showing that CSR is not implemented for a genuine purpose of serving a long-term positive impact to society, but to address the obligatory needs in order to build a positive corporate image. Due to the lack of understanding from global perspectives and North-driven ideology, countries may derive value and meaning from CSR in their own terms (Gugler and Shi 2009).
China has come up with their own standards because of the dilemma of being the “world’s factory” and cannot comply with various standards demanded from different suppliers, it becomes too costly to be effective. In this instance, the Chinese government has developed various rankings and best practices for Chinese companies, and goes as far as prohibiting international certifications unless approved by the right local authorities (Gugler and Shi 2009, p.15). By doing so, Chinese companies do not face foreign pressure to comply with standards that are unfeasible for their modus operandi. Overall, this essay has shown that there are numerous motivations for companies to practice CSR. Answering demands to achieve higher satisfaction in consumers and employees, helping to build a reputation and in its most strategic form, creates a competitive advantage for companies are some of the benefits that a company can yield through effective CSR. While there are numerous benefits of conducting CSR, CSR implementation is highly diverse due to the various legal, socio-economic and cultural factors that each country brings.
Furthermore, due to the development and history of CSR, CSR is still very much in its infancy stage in the Southern hemisphere and pressure to develop a CSR programs similar to current ones in the Northern hemisphere becomes unrealistic and untenable. As such, other actors such as international NGOs may step in to realign and create focus for different needs, or countries may come up with their own compliance standards as a global benchmark to ease doing of business internationally. This has shown thus far how CSR is highly complex as a practice, varying from simplistic to more complex approaches, and once again changing within localities due to the needs and issues to be addressed. As CSR continues to develop, one should take notice of how CSR might change in developing countries and how globalisation continues to affect how companies may choose to conduct CSR. References:
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