Causes of Increased Corporate Social Responsibility

Abstract

Aim

The main aim of this research was to establish the extent to which the increased priority of CSR is in actuality a reflection of companies acting to meet the interests of society or simply a means for generating profits in a marketing oriented way. In this regard, the research sought to explore CSR behaviour in depth and in turn tried to establish companies’ rationales for CSR behaviour in the UK food retail industry.

Methods

A mixed methodology with both qualitative and quantitative methods of data collection and analysis were used in the research. Qualitative content analysis was used for analysing the contents of food retailers’ websites pertaining to CSR. Store Audits were conducted in order to identify the CSR practices and extent to which they are exercised by different food retailers. In – depth formal interviews were conducted with key decision makers with the goal of obtaining information on CSR activities. Lastly, a questionnaire survey was used with the UK consumer population as the population of interest.

Results

The members of the UK Food Retail Industry showed that they have given paramount importance to CSR in order to somehow become a better neighbour to their customers, render them effective public services and at the same time contribute to the preservation and protection of the environment. The responses to the questions revealed a common rationale behind their CSR policies and ensured that the organisation established a good reputation amongst the members of the community, thereby enabling the latter to maintain a certain level of trust for the UK food retailers.

Conclusion

The study supported the fact highlighted by previous studies that companies have become more aware and mindful of their responsibilities, roles and rights towards the society. They were seen to have implemented activities, practices and guidelines in order to fulfill their legal, ethical, social and environmental roles and responsibilities towards stakeholders, employees, customers, and environment and society in general. However, it can also be realised that these policies contribute to the building of trust in the customers towards the organisations. Thus, as the trust is established, it is more likely that the customers will remain loyal to the organisation, thereby increasing their chances of generating profit.

Chapter 1: Introduction

For many years Corporate Social Responsibility (CSR) has been associated with related terms like business ethics, corporate performance, corporate accountability, corporate responsibility and stake holder involvement. In recent years CSR has grown into a well-known collective expression. The growth of CSR has been a result of organisations realising their responsibility toward their stake holders in the context of business scandals (e.g. Enron) and a growing concern for environmental changes (e.g. global warming).

The European Union defines CSR as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interactions with their stakeholders on a voluntary basis” (European Commission, 2002). According to Vernon and Mackenzie (2007), the question of whether companies should seek to do good by exercising CSR, rather than concentrate solely on wealth creation, is no longer interesting and in fact the focus today is on how well companies do good. Increasingly stake holders expect companies to take on public responsibility. Companies engage in CSR through diverse activities such as donating to charitable organisations (e.g. Ben and Jerry’s), ‘green’ activities (e.g. moves by major retailers to eliminate plastic bags and promote ‘green’ bags) and by implementing environment friendly purchase and supply policies. A survey conducted by Research International, however, found that while CSR practices are commendable, they need to be viewed with caution as these activities are not sufficient in and of themselves (Social Funds, 2000).

The scepticism about CSR activities is related to the growing trend for organisations to drift away from the ‘hard issues’ and concentrate more on ‘soft issues’. The Research International survey revealed that despite ignoring crucial issues such as treatment of employees, and commitment to the local community, some companies portray themselves as socially responsible using charity and other CSR activities, which deal with ‘soft issues’ (Social Funds, 2000). Sceptics also believe that CSR is often used purely as a marketing tool to improving business performance. In the context of CSR being rated as a priority by companies in the last few years (Cost Sector, 2009), this research aims to study the changing nature of CSR, with particular focus on an organisation’s motivation for engaging in socially responsible activities (whether it is a response to society’s expectations or a strategic move by a company). By contributing to a deeper understanding of rationales, notions, risks and effects of CSR, the proposed research provides strategic insights on the subject. With findings based on both corporate and stake holder perspectives on the subject, this research aims to contribute to useful and interesting reading for both businesses and stake holders. The findings of this study are based on the UK food retail industry. Food retailers make a good context for study especially considering the several socially and environmentally responsible schemes that they are involved in and the significance of CSR asserted by industry standards.

In this attempt Chapter Two provides the background and review of literature conducted in order to extensively analyse previous works published with regard to Corporate Social Responsibility and the manner by which it applies to the members of the UK food retail industry.

Chapter Three discusses the different methods used in order to obtain data for the study to obtain relevant results.

Chapter Four then presents the results obtained from the use of the different methodologies enumerated in the study.

The results shall then be discussed in relation to the aim of the study in Chapter Five and conclusions would be provided by answering the research questions.

Lastly in Chapter 6 we will give us an understanding of the scope and limitations of this study.

Chapter 2: Background and Literature Review

2.1 Background of the study

Society’s preoccupation with the social responsibility of organisations has existed since at least the early 1930s and probably even before. Wells (2002) notes that it is perhaps the infamous Dodd-Berle correspondence contained within the Harvard Law Review Issue of 1931-32 that launched the debate on corporate social responsibility. The debate started when corporate law professor Adolf A. Berle Jr. published an article arguing for the imposition of legal control on management so that only their shareholders would benefit from their decisions (Berle, 1931). E.M. Dodd, another professor from Harvard, published an article that addressed the issue raised by Berle. He argues that besides focusing on the interests of the shareholders, managers must also take into consideration the concerns of the employees, consumers and the organisation’s stakeholders. Berle (1931) responded by saying that companies should “not abandon emphasis on the view that business corporations exist for the sole purpose of making profits for their stockholders until such time as [one is] prepared to offer a clear and reasonably enforceable scheme of responsibilities to someone else” (Berle, 1932, p. 1365).

Since the idea of corporate social responsibility has its roots in the legal community, several academic disciplines have followed the debate with little discussion occurring between and among them (Radin, 1999). More specifically, researchers in the field of business ethics have spent substantial effort in the past two decades to come up with a stakeholder theory that would eventually fall under corporate social responsibility, existing as a separate approach to management.

The issue of corporate social responsibility was not discussed after the argument between Berle and Dodd. It resurfaced in the 1960s and the 1970s against the backdrop of the civil rights movement in America. This is due to the fact that the top agendas of politicians, public interest groups, individual citizens and corporations have been largely influenced by concerns about the environment, product safety, workplace health and safety, racial and sex discrimination, urban congestion, political corruption and technological advances. Apart from this, the increasing influence and power that organisations possessed during this period (this period being the 60’s and 70s?) has eventually led to a widespread societal belief that large businesses have a duty towards ensuring the betterment of society (Banner, 1979).

The power and influence of corporations, actual or perceived, and the impact of their economic, social and political actions on society in general, has led to a broad societal expectation that corporations be held accountable for their actions. Simply put, there is growing public sentiment that organisations must be responsible enough to weigh the impact of their decisions on the different parties involved. As a result, they must be able to eliminate, minimize or compensate for the harmful damages that they may inflict on society. The above mentioned justification is basically derived from a moral position that corporations are expected, and should, behave like any citizen in society. This expectation is also justified on the basis that corresponding responsibilities always accompany power. As Dodd (1932) asserts, “power over the lives of others tends to create on the part of those most worthy to exercise it a sense of responsibility.”

Moreover, the increasing power of organisations has resulted in a societal expectation that corporations act proactively and at the same time, carry out a leadership role in order to provide solutions to problems that the world faces (CSR Survey, 2003). This means that given that organisations frequently have more resources than governments, they should give something back to the society. In the same manner, they are also called to allocate and offer some of their resources to carry out good works and help the less fortunate sectors of society.

Overall, this CSR goal is justified as follows: initially, a societal need is identified. For instance, areas such as education, healthcare, low-income housing or the arts may require funding that cannot be generated privately or that government is unable to provide to enable these institutions to continue making goods or services available or even to exist. Second, corporations are identified as capable of filling the gap by providing either funds or infrastructure to address the need. In other words, an appeal to organisations is made because they frequently have the capacity, in accordance with their size and reach, to act as agents of “social progress” (Kahn, 1997).

As repeatedly mentioned earlier, corporate social responsibility has been required of companies that have both, actual or perceived power and influence. This is why multinational corporations that operate parts of the globe where people fear the effects and consequences of Globalisation are expected to perform such duties. This, according to Zinkin (2004) is usually brought about by the fact that these corporations are usually seen as enemies rather than friends. Thus, to regain the trust and confidence of the people, the company must be able to make their social responsibility known as this is said to give them legitimacy to operate in a given country (Zinkins, 2004).

2.2 Literature Review

In order to gain a better understanding of the concepts and principles of CSR, the review of literature is divided into the following sections:

1. Corporate Social Responsibility: Definitions and History,

2. Corporate Social Responsibility and the UK Food Retail Industry, and

3. Summary

2.2.1 Corporate Social Responsibility: Definitions and History

Globalisation, the increasing influence of companies including small and medium enterprises, a change in the position and opinion of governments, and a paradigm shift in working with and appreciating the importance of building solid relations with stakeholders- are all factors that have contributed to changing the dynamics of the relationship between businesses and society. Businesses have always been mindful of their responsibilities towards society. The concept of companies sharing their resources and influence with other groups has been repeatedly spoken about for centuries (Bowe, 1953).

Nowadays, companies have become more aware and mindful of their responsibilities, roles and rights towards the society. They are seen to have implemented activities, practices and guidelines in order to fulfill their legal, ethical, social and environmental responsibilities to stakeholders, which include shareholders, employees, customers, suppliers and the environment and society in general. These actions have been given many terms, including: (1) Corporate Responsibility or CR, (2) Corporate Social and Environmental Responsibility or CSER, (3) Corporate Citizenship, (4) Corporate Accountability, and lastly, (5) Socially Responsible Business (SRB) (Raynard & Forstater, 2002). However, the most famous terminology would have to be Corporate Social Responsibility or CSR.

CSR first began to be written about by academics in the 20th century. The term Corporate Social Responsibility and the modern view on CSR are largely attributed to Howard Bowen, who is considered by many scholars, especially Carroll, as the father of CSR. Bowen conceived CSR as an integral part of a larger vision of a better American society with a robust and socially responsible business sector. Before Bowen wrote his book in 1953, CSR was not a generally accepted practice among businesses in the United States.

Carroll (1991) writes that in the early years, businesses believed that their only obligation was to their shareholders and their only function was the quest of financial improvement in order to provide the greatest financial return to their shareholders. The errors of this way of thinking soon became apparent. For one, businesses still had to work within laws set down by governments. In the 1960s, groups advocating social issues pushed for a more extensive concept of responsibilities for businesses. In the 1970s, various organisations in charge of the social issues pushed by the activist groups were created in the U.S. Some of these organisations were the Environmental Protection Agency (EPA), the Equal Employment Opportunity Commission (EEOC), the Occupational Safety and Health Administration (OSHA), and the Consumer Product Safety Commission (CPSC). These governmental organisations allowed the establishment of national public policy that now acknowledged the legality of environmental issues. The new policies forced businesses to re-examine their own strategies and to learn how to develop a balance between making a profit and the legal and ethical responsibilities placed on them by a widening range of stakeholders.

For Bowen (1953), businesses become prominent in society because society needs the products and services provided by these companies. This grants businesses vital decision-making power in the way they affect the lives of many people. Therefore, for a balanced business-society relationship to continue, Bowen (1953) asks what responsibilities society can reasonably expect businessmen to assume. The answer to this question, Bowen states, is corporate social responsibility. He defines CSR as a social obligation that necessitates businessmen to engage in policies, formulate decisions, and implement actions that are considered desirable when connected with the objectives and values of society. He took a broad view when defining what business responsibilities include—responsiveness, stewardship, social audit, corporate citizenship and rudimentary stakeholder theory.

Bowen’s concept of a mutual relationship between business and society is echoed by Porter and Kramer (2006), who point out that the value of CSR lies in the values companies share with societies they exist in. Businesses operate in social contexts and societies need the products and services that businesses provide, thus there is a mutual need for each entity. CSR, therefore, makes it possible to promote a collaborative relationship between business and society.

Many have tried to create a definition of corporate social responsibility that encompasses its functions and the range of responsibilities it entails. One of the most comprehensive is that of the World Business Council for Sustainable Development (2007), which defines CSR as the long-lasting commitment that businesses create which compels them to behave in an ethical manner and to add to the development of the economy while helping improve the quality of life of their employees and their families in addition to the lives of those in the local communities and society in general. This definition is specific enough to imply the holistic and philanthropic maxim of CSR. It is also broad enough to include activities or programs that companies engage in that do not directly yield income but bring visible and long-term benefits to both the companies and the recipients of the programs and activities such as youth and partner communities. With this definition programs such as scholarships and funds for research, advocacy programs for the environment, and livelihood programs can be considered as CSR.

One of the earliest authors on CSR, Carroll (1979) was the first to propose the four categories of ordered layers of CSR—economic, legal, ethical, and discretionary—when he wrote that the social responsibility of businesses includes the economic, legal, ethical, and discretionary expectations that society puts upon enterprises.

Aupperle, Carroll, and Hatfield (1985) further defined these categories into:

* Economic responsibilities showcase the principle that businesses have the primary responsibility to generate products and profits and fulfill the desires of their customers;

* Legal responsibilities highlight the issue that economic responsibilities must be performed within the restriction of rules and regulations as mandated by the laws of the land;

* Ethical responsibilities takes into consideration the codes, norms, and values that are not written into laws but are still followed implicitly by society; these responsibilities rise above the complexities of written laws and encompass activities that are vigorously carried out without any clear and defined statements made about them;

* Discretionary or philanthropic responsibilities reflect the voluntary nature of actions that are not easy to establish and assess, but are still expected by society.

These categories are still widely cited and frequently reproduced in management and CSR journals by researchers and authors on CSR. The reason for its lasting acknowledgement may be the simplicity of the model. Carroll’s (1979) categories are logical and easy to understand. The author himself writes that these categories are merely guidelines or reminders that the motives or actions of businesses can be generally classified into any of the categories he presented. The arrangement and relative influence of each category was intended to imply the basic role each had in the progression of significance. When it first came out, Carroll’s model reflected a point of view that was simultaneously retrospective and developmental. It was based on the assertion that historically businesses first emphasised only the economic aspects of their trade. The legal aspect came next, and the ethical and discretionary were only emphasised in recent years.

Juholin (2004) suggests that companies practice corporate social responsibility (CSR) because of long-term profits that CSR brings to companies. Other reasons may also include the commitment of top management to the moral and ethical standards promoted by CSR, competitiveness of the market today, and the visionary skills of many business leaders that allows them to anticipate the needs of the future.

Porter and Kramer (2006) agree that CSR provides long-term profits. The authors note that companies should practice CSR and integrate it in their core strategic plans to ensure long-term prosperity. This is because socially responsible activities can return goodwill for companies. On the other hand, activities that harm the environment or result in any disadvantage to stakeholders can only result in bad karma in the form of bad financial operation, low brand positioning, and, worse, a rift in the relationship between companies and their consumers and suppliers and even expensive litigations. Porter and Kramer (2006) write that corporations are not obligated to solve the problems of the world. They do not have resources to do this. But, a company that is well managed can have a greater impact than any other organisation or charity group when they do something good for society.

CSR does not merely imply profitability for companies. Its results go beyond the costs or constraint of altruistic actions. CSR can be a source of market opportunity, improvement, and an edge over the competition (Porter & Kramer, 2006). It also does not mean engaging in activities for the sake of doing what is socially required and expected of these companies based on legal and social laws, especially those on environmental issues. CSR implies taking action to go beyond these laws to minimize any harm towards and maximize benefits for all stakeholders in order to fulfill what society desires (Raynard & Forstater, 2002).

Warhurst (2001) identifies three major elements of CSR—product use, business practice, and distribution of profits. Product use entails the positive involvement of products from businesses that assist in the promotion of welfare and better quality of life for members of society. Business practice entails business governance that observes the rules and regulations and presents a high level of thrust towards welfare of the natural environment and equity for all generations and species. Distribution of profits entails equal distribution of profits across a varied range of sectors of society, with emphasis on local communities.

Bowen (1953) also notes that CSR should not be seen as a primary solution to the many problems of society. CSR can only do so much, and it should only be seen by companies and society as a set of guidelines for businesses in the way they perform and carry on their operations within the context of a larger society and the many issues that abound within the social milieu that they operate in.

A key concept of CSR is the idea of stakeholders. Stakeholders are all groups or individuals who have an impact on or are affected by the attainment of any organisation’s goals (Freeman, 1984). It can be said that stakeholders are any entity who have a big “stake” in what businesses do. The concept of stakeholders therefore goes beyond the shareholders, employees, and clients or customers of a company. It includes communities, public interest groups, social activist groups, environmental groups, and the media which, according to Freeman, author of the Stakeholder Theory, businesses are accountable to.

Other researchers (Marcus, 1996; Munilla & Miles, 2005) list specific stakeholders as: owners; customers; employees; local, regional and national communities; competitors; suppliers; social activists; public at large; creditors; non-government organisations (NGOs); and even the natural environment, which, although unable to state its opinions, has become a major stakeholder today because of the many laws promulgated to care for the Earth in a sustainable way.

Hopkins (2003) writes that CSR primarily deals with ensuring that businesses treat stakeholders in an ethical or responsible way which means treating them in a manner considered suitable by members of any civilized society. The social context of this definition includes economic responsibility. Stakeholders can be both within businesses and outside it. This signifies the natural environment as a stakeholder. In a broader sense, the objective of social responsibility is to establish better and higher standards of living while maintaining the capability of businesses to make a profit. These two components of the objective of social responsibility are both done for the stakeholders within and outside companies.

According to Freeman (1984) for successful transactions with stakeholders, businesses must accept the authority and procedures of various stakeholders. Stakeholders will thus have the freedom to communicate their concerns. Furthermore, to manage and develop a strong relationship with stakeholders, businesses must understand their concerns and develop programs that will address these concerns. Stakeholders have various ways to ensure that businesses fulfill society’s expectations. Some may opt to organize rallies, some may opt for more peaceful negotiations, some may engage in joint activities such as seminars or tree-planting sessions or other awareness raising activities, and some may use the media to further disseminate their issues. For example, the environmental group Greenpeace printed leaflets and wrote articles against genetically modified food, which led some food manufacturing corporations to either stop production of certain products or to develop new, healthier items.

Freeman (1984) points out that the term “stakeholder” first appeared in management literature in a 1963 international memorandum published by the Stanford Research Institute. The term then was strictly yet broadly defined as the peoples or groups who give their support to companies and without whom businesses would stop to surviving. The main idea in this initial context already shows a measure of the importance of stakeholders. In a way, this definition states that without the support of stakeholders, businesses would not be able to survive. Of course, the limitation of this definition lies in the fact that stakeholders here may mean only the groups that are influential for companies such as the shareholders or government groups or investors.

Each business activity has a different group of stakeholders. This is because each individual in society is interested in and promotes a varied and widely different range of concerns (Freeman, 1984). Some are more interested in environmental issues, while others advocate employment benefits, and still others fight for education. One way to determine which stakeholder is relevant to which particular aspect of business is through the generation of a generic stakeholder map, which is a diagram of the various groups relevant to the whole organisation broken down into levels and subdivisions in order to divide big groups into small groups based on specific interests. Some experts, however, think that this mapping procedure does not encapsulate the complex linkages between businesses and the various individuals and groups in society.

An approach of corporate social responsibility that centers on stakeholders emphasizes the strategic and effective management of relationships and promotion of what Freeman and McVea (2001) call shared interests. The stakeholder model also puts some emphasis on persuading businesses to rebuild or restore relationships with groups or organisations that they have been at odds with. A good stakeholder management program also involves open communication, negotiation, management, and motivation. The end result of all of these actions leads to the establishment of an attitude of partnership, mutual association and interdependence between businesses and stakeholders. All of these activities are held together by the values and ethical standards that businesses stand for.

Freeman and McVea (2001) further emphasise that good stakeholder management promotes a business’ own company values. CSR does not mean catering to the interests of stakeholders while abandoning all other aspects of business. Rather it entails in-depth deliberations taking into account all factors of social expectations. A well-developed stakeholder management program also allows businesses to create approaches that can serve stakeholders even in the long run. Although some individuals may not be happy with short-term decisions and feel that their causes need more attention, a good stakeholder management program takes all things into considerations so that all stakeholders, not just a chosen few, continue to be firm supporters of businesses.

Besides understanding stakeholders’ concerns, businesses must also look at the other components of CSR to determine the entire range of responsibilities that stakeholders expect them to embrace. When discussing and identifying these components of CSR, scholars and authors have been turning to the CSR pyramid presented by Carroll (1991). The CSR pyramid is arranged to follow the levels of Carroll’s (1979) earlier work of the four categories of CSR. The arrangement is in accordance with the degrees of social expectations that have been connected with each category. It has been used to assess businesses performance in terms of quantity, quality, effectiveness, and efficiency in their implementation of CSR initiatives.

Table 2.2.1 The Pyramid of Corporate Social Responsibility

Be a Good Corporate Citizen

Philanthropic Responsibility

Contribute Resources to the community; Improve Quality of Life

Be Ethical

Ethical Responsibility

Obligation to do what is right, just and fair; Avoid Harm

Obey the Law

Legal Responsibility

Law is Society’s codification of right and wrong; Play the Rules of the game

Be Profitable

Economic Responsibility

The Foundation on which all the others rest

(Source : Pyramid of Corporate Social Responsibility (Carroll, 1991, p. 39))

Obligations or responsibilities included in the pyramid have always existed in the business world. But the importance of philanthropic and ethical responsibilities has only received attention in recent years. Through this pyramid, Carroll (1991) hoped to show that a good CSR program can be broken down into well-defined components that make up a complete package. It can be seen as a framework for comprehending companies’ ever-evolving CSR activities. In addition, looking at each component can help leaders to distinguish and understand the various obligations of businesses that are in constant conflict with each other but which are mutually exclusive. Based on the expected activities for each level, economic responsibilities seem to be always in tension with the other responsibilities.

Carroll (1991) also included the concept of stakeholders in this model, pointing out that taking their perspective into account would allow businesses to recognize the tension between all levels of the pyramid as realities of any organisation. This perspective can also allow businesses to see the pyramid as a united basis or framework of how firms will implement their decisions, actions, and programs.

As can be seen, economic profit forms the foundation of the whole pyramid. Carroll (1991) acknowledges the basic fact that businesses were created historically as economic entities that are primarily concerned with making money and creating profit. Without this component, all other responsibilities become moot. Carroll states that the idea he was proposing was that CSR, to be acknowledged as a legitimate action for businesses, had to deal with the whole range of responsibilities these businesses had to answer for to society. Of course this would have to include the most basic responsibility—economic. The next level shows that businesses are obligated to follow the rules of law—various national and international laws—that socie