Corporate

Social

Responsibility

This document was prepared by Positive

Revolution LLC, For educational purposes. 2/16/2011

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Corporate Social Responsibility

Corporate Social Responsibility (CSR) is defined as the role, duty

and obligation of a business to provide service beneficial not only to the

company itself but to the stakeholders as well. To define clearly, stakeholders

are groups of people that exert direct or indirect influence over a business and

are also influenced by the actions made by the business. These people could be

the community, the consumers, the employees and other social groups that are

either directly or indirectly connected to the activities entered, created and

maintained by a company. Stakeholders invest time, capital and a personal

relationship with the company. The company in turn gives back to the

stakeholders by providing excellent services and commendable output

products.

The concept of CSR is not new to the business community. In

fact, as early as the 1800’s, the economics of Adam Smith and the philosophy

of John Locke have already pointed to the emergence of the model also known

as the minimalist business responsibility. Under this model, the value given to

the stakeholders is considered to be the sole responsibility of the company.

Initially, the maximization of this value is said to be accomplished only by the

efficient and productive delivery of products and services to the shareholders.

But as business evolved and governments worked to protect the environment

and the people, using CSR as an embedded business model became necessary

to many companies.

The CSR movement is pioneered by a coalition between avant-

garde corporations, lobbyists, environmentalists, socially-conscious

individuals, progressive economists and other cause-oriented groups. It is a

business evolution that points towards the search for valuation. CSR in its

entirety is a consensus among various social groups to bring good to the

environment, the community and the business as a whole.

As a whole, CSR tries to address the major problems that

companies face today. The economic, social, environmental and ethical

challenges are just some of the issues that CSR is trying to deal with. By

creating a culture of “doing good” and “being right”, companies are ensured

that they gain not only their shareholders’ purchasing preferences but the

shareholders’ trust as well.

Who are the stakeholders?

CSR involves a very large scale of stakeholders. Under CSR, delivering

goods and services does not end only with the target social group or

community. Because it is the duty and responsibility of the business to provide

a plethora of benefits such as community project support, environment-

friendly processes, transparent financial disclosures and more opportunities for

the minority, companies are expected to provide for everyone and not just for

their specific market group.

If the primary customers of a banking business are made up of

professionals, income-earners and investors, it doesn’t mean that these groups

are the only stakeholders of the business. Everyone is a stakeholder; from the

employees, the owners, the people who live around the community up to the

groups indirectly connected to the company, CSR reaches out to everyone who

is included in the web of interconnections a business creates.

Necessity and not just Advocacy

To follow the CSR model is to remember this phrase: necessity and not

just advocacy. Critics of the CSR model proposed that business philanthropy,

whatever one may choose to call it, is still business. According to these critics,

a business will give charity, compassion and generosity only if these activities

translate to the generation of more income. Adopting CSR in business is only

acceptable if it leads to a surplus in demand and a steady increase in profit.

On the other hand, the argument presented by CSR advocates points out

the flaw in this reasoning. According to Elizabeth Ness in her paper Corporate

Social Responsibility:

“…since when did honesty go out of fashion? Since when did operating

with basic decency and integrity move into the purview of the fashionista?

And how can today’s money markets, which are increasingly remote from

the wealth-generating activities (eg commodities and derivatives trading),

retain stability if there is no basic underlying integrity?”

Because social responsibility should be a part of an individual’s duty to his

own self and to the humanity as a whole, it goes without saying that a business

should encompass this value as well. If stakeholders consider honesty, social

responsibility and integrity as important core values, companies and

businesses should assess their ways and listen to what their stakeholders value

as well.

SOCIETY

ENVIRONMENT

CSR

BUSINESS

CSR

Convergence

Diagram

CSR and Long-Term Business Success

The importance of CSR in a competitive market

Increasing pressures from the recent global financial crisis and from

several governments taking measures to protect its environment and people

have led to the sudden rise of CSR. Because of the drastic fall in the finance

market and the increased competition between companies, avant-garde

businesses implemented CSR to veer away from their competitors. Consumers

value honesty, charity and competency and often use it as a guide in looking for

a business to support. And in a steadily increasing competition between

companies and global brands, embedding CSR in the business model of a

company produces positive results not only for the company and but for the

shareholders as well.

Business Branding and Winning Customers

In a competitive marketplace, companies look for ways to separate

themselves from the rest of the competition. By adopting CSR, building a

unique brand and image in the minds of the customers is further improved.

Several major brands such as McDonald’s and Adidas spend not only years but

decades to build a certain image in the eyes of consumers. By practicing CSR

through supporting sports events, headlining feeding campaigns, creating

charities and developing output-based community projects, both McDonald’s

and Adidas indirectly say to the stakeholders that “for every hundred dollars

you give, we give ten dollars back.” This mentality leads the customers to

consciously take part in the company’s advocacy by supporting not only its

products but its CSR endeavors as well.

Risk Management

A company’s image takes years, sometimes even decades, to develop and

market effectively. Managing risks is an important corporate strategy employed

by top-level companies to avoid the possible damage to its brand and reputation.

Sometimes, incidents such as allegations of corruption, scandals, environmental

accidents and intellectual dishonesty can instantly ruin the customers’ trust.

Creating diversion and maintaining a “good” track record by adopting CSR can

neutralize or reduce the damage done by these incidents.

Recruitment and Human Resources

By gaining the trust of the community and the customers, a company with

an embedded CSR plan inside its business model attracts potential employees. A

company that proposes a clear and definite CSR plan to its employees and staff

can also gain the respect and dedication needed for a healthy workforce. CSR

provides a unique brand of service and identity instilled in the culture of the

business. Involving the workforce in cause-oriented activities such as tree

planting, fundraising, charity work and socially-relevant activities can change

the perception of the workforce regarding the company. This direct involvement

leads to loyalty and a sense of belongingness within the company’s workgroup.

Government Support and Incentives

Companies are keen to avoid any interference from the government in their

businesses. By doing voluntary steps and actions to promote environmental

concern, better employer-to-employee relations, equal opportunity and support

to charity, companies gain not only the support but also the trust of the

government and the customers. Potential customers can be transformed into

loyal buyers if they know that the business is doing its part in protecting the

environment and helping people. Governments can also offer incentives such as

tax reduction and flexible working terms for companies maintaining a good

CSR implementation.

Reduced Cost of Capital

In the paper entitled “Does Corporate Social Responsibility Affect the Cost

of Capital?* (Ghoul et.al, 2010), the possibility of reducing a company’s cost of

equity by employing CSR as a central part of a company’s business plan is

thoroughly observed. In the study that included 12,915 U.S. business firms and

took place from 1992-2007, the researchers concluded that CSR investments

can enhance the value of a firm by simply reducing the cost of equity capital.

Firms that have high CSR scores enjoyed significantly lower cost of equity in

their businesses compared to those with low or no CSR ratings. These findings

support the argument that companies with socially-responsible products and

practices enjoy a higher valuation and lower business risk.

Spreading Positivity through

Corporate Social Responsibility

The need to adopt CSR as a working and active business plan involves a

company’s future. With the growing consciousness among stakeholders and affected

social groups regarding issues about ethical, environmental and social concerns,

employing CSR in business proves to be a positive move that brings only positive

perceptions and results. Winning the loyalty and trust of stakeholders increases not

only the monetary benefits that a business enjoys. More importantly, by being a part

of the community and the humanity as a whole, a company promoting CSR is

assured to secure its long-term survival and existence.

Four Pillars of Corporate Service Responsibility

Focus – a company’s CSR programs should properly address a specific concern

among the shareholders and the community. Pointing out the exact issue to be

addressed and the best plan of action to solve this problem will lead to better

distribution of resources and faster viewing of results. Objectives must be properly

defined to facilitate better resource allocation and avoid unwanted wavering of

attention.

Commitment -- long-term support for the company’s CSR programs is required in

order to succeed in delivering the intended service. A business should prioritize its

CSR even in times of crisis and financial challenges. Making CSR a central part of a

company’s business plan will build a culture of commitment and loyalty to the

stakeholders inside the firm and out to the community.

Integration – CSR should be embedded and integrated into the business system and

not treated as a “bolt-on” activity employed only when the need arises. A culture of

doing the “right and ethical thing” should be learned and practiced not only inside

the realm of the business but outside its four corners as well.

Transparency – a company should have a transparent, open and balanced

communication with its stakeholders. Allowing the community to know about the

ongoing activities, current plans and future endeavors of the company is necessary to

build a strong relationship with people. Building trust is very important in any

business and transparency forms a stronger trust coming from the employees, the

customers and the community.

Four Pillars of Corporate Responsibility

Informing Stakeholders:

Let people know that you care

It is very important to let stakeholders know that you are promoting CSR-

related advocacies and activities. Most of the time, stakeholders are not aware of

the steps many companies are taking to promote the overall well-being of the

community. By involving its customers, employees and the community, a business

raises the awareness level of these social groups. This increase in awareness will

lead to involvement and support and a change of perception among your

management and your shareholders.

Cause-Related Marketing: Reaching out to your Shareholders

A company should not hide its CSR endeavors behind the backroom. In

contrast, it is very important to market your CSR-related plans to gain the support

and respect of the customers and the community. Raising the shareholders’ level of

involvement and awareness is what measures an effective, well-perceived and well-

received social duty and responsibility. You can reap all the benefits provided by

CSR if people know that you are doing the habit of “doing good” and you have a

culture of “being good”.

Using media and the Internet to spread the message

Modern technology offers a wide array of resources for you to reach out to your

shareholders. Different forms of media such as television, radio and the internet

offers an alternative where you can rapidly and instantly spread your message to a

wide audience. Sharing news, activities, ongoing projects and future plans

involving the community can be achieved through the use of media communication.

Proper orientation is also perceived to be the best way in promoting cause-related

marketing.

Among the mentioned modes of communication, the Internet is considered to be

the most dynamic of all. Unlike in television, radio & newspapers where people

engage in a one-way mode of communication (target groups can receive

information but cannot give information back instantly), the Internet provides an

arena where two-way communications can proliferate. In social networking sites,

Internet users can view information and instantly react if there are concerns

involving the subject. Dialogues between the company and its shareholders are

quickly established and trends about important issues can be easily understood.

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Notes and References:

1. Johnson Douglas, et.al., “Corporate Social Responsibility: It’s about long term business success.”

2. Strugatch, Warren, “Turning Values into Valuation: Can Corporate Social Responsibility survive hard times and emerge intact?”, www.emeraldinsight.com/0262-1711.htm

3 Quairel-Lanoizelee, Francoise, “Are competition and corporate social responsibility compatible? The myth of sustainable competitive advantage.”, www.emeraldinsight.com/1746-5680.htm

4. Ness, Elizabeth. “Corporate Social Responsibility.”

5. Green, Todd. and Peloza, John. “How does corporate social responsibility create value for consumers?” www.emeraldinsight.com/0736-3761.htm

6. Ghoul, Sadok, et.al. “Does Corporate Social Responsibility Affect the Cost of Capital?”.2010