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(MNCs) redefine their role in society and their responsibility to human rights and the
environment. CSR provides corporations with an opportunity to do well while doing
good. There are more than one definition of CSR provided by institutions and
economists, differing in scope. A common theme among these definitions, however, is
the notion that corporations must now be accountable to a broad network of stakeholders
that includes but is not limited to shareholders. Yet the current definitions are not able to
clearly articulate the essence of corporate social responsibility and this inability has
complicated the debate over CSR. In simpler terms, just like Wikipedia states-"CSR is a
form of corporate self-regulation integrated into a business model. Ideally, CSR policy
would function as a built-in, self-regulating mechanism whereby business would monitor
and ensure its support to law, ethical standards, and international norms." Now,
addressing the question posed in the topic provided, assuming myself to be a CEO of an
Oil company, I'd like to respond that the role of CSR in a corporation of the twenty first
century can-not be overlooked. One can't do away with social-responsibility in a modern
day corporation.
Corporations have grown in many ways since the previous century and so have the needs
for corporations to follow a sincere policy of social responsibility. In the era of Milton
Friedman, Nobel prize-winning economist, who insisted that the "business of business of
business" and that corporations have an exclusive obligation, called fiduciary duty, to
create wealth for their shareholders. As long as enterprises paid taxes, abided by the
prevalent legal code of conduct and met the basic safety and health guidelines, they were
deemed as good corporate citizens. Society mostly accepted this and expected the state to
serve for their good. By 1980s, however, public trust in big enterprises seemed to
diminish because of revelations of unethical corporate practices. An instance could be
"Nestlé" which was accused of unethical marketing of breast-milk substitutes in Africa.
By this time, corporations desperately engaged in maximising their profits and missing
out on social safety had kept stakeholders dissatisfied ,compelling them to passively
demand a more responsible attitude from the corporations. Another example of the
carelessness of the corporations can be witnessed in the "Union Carbide" incident of
Bhopal which left the entire nation baffled. In the 20th century, particularly of the Oil and
Gas industry, triggered an unprecedented public backlash against multi-national
corporation. The events were the 1989 spill of the Exxon Valdez, the February 1995
planned sinking of Shell’s "Brent Spar" oil platform, and the November 1995 alleged-
execution of nine Ogoni activists by the Nigerian military in a perceived quid-pro-quo
arrangement with Shell. In other industries, reports that sweatshop labourers used to
produce merchandise for the likes of Nike, Kathie Lee Gifford and Disney only served to
intensify the public’s demands for corporate accountability at home and abroad.
Therefore, we observe how the need for CSR gradually crept in and is almost mandatory
now. In another dimension, it can viewed that any corporation working in the society
must ensure that its operations aren't hazardous for the society in any way.
Consequentially, by 2000, most major corporations had pledged allegiance to the
principles of corporate social responsibility. At least, publicly.
Ever since the question of implementing CSR into enterprises was thought of, the pros
and cons were vigorously debated and critics hugely criticised it on grounds of increasing
operational costs for a corporation. True, an initiative to instill social-responsibility in the
firms does involve intensification in the firm's operational expenses. However, there is
more to it. It is quite understood that all the firms strive on one pivotal and basic motive
i.e. profit. Firms carry out each of their operations to achieve maximisation of profits and
minimisation of costs. One of the reasons why the critics and firms were apprehensive
about incorporating CSR as one of their chief objectives is debated to be increase in
operational costs. However, the goal of any firm, by applying CSR into its operations, is
to be able to generate benefits in order to be a sustainable business concern and to
succeed in attracting shareholders to invest their money in their corporation, expecting
the highest possible risk adjusted return. Therefore being socially responsible should have
bottom line benefits in order to be sustainable. Let us now throw some light on this and
find out how CSR leads to better financial performance:
BP calling itself "Beyond Petroleum" after integrating CSR into its operations estimated
that it saved $0.65bn by cutting down on the venting and flaring of natural gas in 2000,
following the introduction of its cap-and-trade scheme. This same cap-and-trade scheme
made BP's GHG emissions decline by 22% in 2005-06. Once CSR is introduced,
company staff often discovers a convergence of environmental and business interests.
The introduction of better quality materials or equipment to reduce the likelihood of
environmental damage also reduces the costly, long-term need for maintenance. Thus, it
is evidently visible that incorporating CSR works efficiently in the long run. Benefiting
both, the society and the enterprise. Noteworthy point here is the company's cut-down in
its expense after being socially responsible. Here, the financial hike that CSR provided to
BP can't be overlooked.
Besides all the other stated points, another significant merit of CSR that just can't be
ignored is the value-factor of a corporation ascribed to CSR. For many companies, brand
name is the core of their business. CSR today is not fluffy do-goodism. It is underpinned
by a hard-nosed business case that today’s shoppers want companies to be ethical, moral
and socially responsible. Stuart Rose who has transformed Britain’s biggest clothier,
Marks & Spencer, from a fuddy-duddy image to a nimble retailer invests £200m for his
environmental and social initiatives. He knows his clients are fretful about what they buy
and are prepared to pay more for eco-friendly, healthier, organic products. His “eat well”
logo has helped to boost food sales by 10%.TNS, a research firm says a quarter of
shoppers are willing to pay more for clothing that comes from firms that pay fair wages,
and protect environment. Sale of Fairtrade foods has trebled between 2002 and 2006
despite its higher prices. CSR, therefore, has become a value enhancer, a competitive
differentiator, a trigger for great innovation. Hence, CSR's attribute to enhance the brand
name and value of an enterprise has helped boost its profits through customer-trust.
CSR, in particular, can be an excellent tool for risk-management having multiple positive
impacts for the corporation. To instantiate, the infamous oil-spills are known to most of
us and so are the hazards. A constructive risk-management policy as a part of the CSR of
an organisation can not only help to guard the environment against fatal consequences
but help an enterprise in more ways than one. Firstly, and most importantly, the huge
financial losses can be avoided, with just a little care and effective pre-emptive measures.
Secondly, the company's brand -image can be saved. Media-libels that often follow such
mishaps lead only towards negative results with company's brand image being tarnished
in the eyes of its stakeholders. A risk reduction strategy is needed along with good
governance procedures in order to mitigate potential liabilities. As far as the financial
angle of the enterprise is concerned, the losses that could have been saved otherwise
would contribute a lot to its financial wellbeing and growth.
Thus, it is quite justified on my part to assert that relationship between corporate social
and financial performance have shown a positive correlation between the social
performance of a company and its financial performance, and that social involvement
brings several benefits that offset and even "outrun" the costs. Furthermore, current
literature considers that there is a direct and reciprocal causal link between a company's
social responsibility and its profitability: a socially responsible company will be better
perceived by the public and will earn substantial profits; similarly, a financially well
performing company will afford to promote and invest in a socially responsible
behaviour, which will cause future prosperity. The connection between profitability and
CSR can be seen on an ascending spiral, the so called "virtuous circle". Therefore, it can
be conveniently said that CSR does lead to better financial performance. In today's world,
it isn't just about making profits, it is about making profits "with a difference" and
inculcating CSR seems to be the best deal both, financial and social success.