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Critically Discuss the Assertion That No Matter What the Ethical Justification for Corporate Social Responsibility (csr) Policies, There Must Be a Firm Business Case for Their Introduction

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Critically discuss the assertion that no matter what the ethical justification for corporate social responsibility (CSR) policies, there must be a firm business case for their introduction (100%).

        Corporate Social Responsibilities (CSR) can be defined as “the view that organizations should act ethically in ways to contribute to economic development, the environment, quality of working life, local communities and the wider society”, (Huczynski and Buchanan, 2013, p.67). It has it roots in the early stages of Cold War where business interests were aligned with capitalism to go against communism. Also, the American social movements in the 1960s ushered in social changes and constructed the social environment where the social and welfare responsibilities slowly shifted from the government to the businesses. Milton Friedman (1970) once argued, “The business of business is business”, on the basis that businesses should pursue only shareholders’ interests and material aspects of society. Detractors viewed it as outdated, using the variety of stakeholders involved and altruism as key rebuttals. Ethical justification can be referred as being socially motivated to do good for the wider society. A business case can be interpreted as a pitch for investment in a project or initiative that promises to yield returns to justify its expenditure, (Crane et al, 2008). Examples include, advertising campaigns, technological development and brand management. In recent times, under the influence of the CSR movement, it is debated that there is a tighter coupling between CSR policies and organization’s financial goals. Scandals like emission rigging by Volkswagen and the infamous Sarbanes-Oxley Act, prompts the question whether CSR policies are ethically or business justified. A precursor in support of the notion would be the positive relationship between corporate social performance (CSP) and corporate financial performance (CFP). This essay aims to explain the reasons companies engage in CSR and impact of CSR to support the business case. We will also explore the definition of a business case and ethics, which would solidify the thesis.

        Opponents argue that social businesses have demonstrated strong altruistic justifications behind CSR policies. Social businesses boast about its ability tackle social problems, improve communities and opportunities or the environment. The CSR policies employed are much titled towards ethical motivations. Examples include, Social Bite, a chain of sandwich shops based in Scotland that employs formerly homeless people and contribute all its profit to social projects. Wellbeing Works, a top social business in the 2014 RBS SE100 Index, delivers free behavioral change programmes that are funded by grants to improve emotional and physical wellbeing. The targeted stakeholders include people with mental health issues and poverty. These businesses are financially self-sustainable and the profits from selling are then reinvested into the business or community. Furthermore, the investors do not reap any dividends. These social businesses are able to leverage on its ethnical causes to attract consumers who favor social responsibility. A survey by Nielson (2014) shows that 55% of global consumers from 60 countries are willing to pay more for socially responsible goods and products, which was an increase from 2011. The increase in consumer demand and social awareness will continue to drive these social businesses that uses a social values-led model, which is the rationale that organizations adopt CSR initiatives regarding specific issues for non-economic reasons, (Carroll and Shabana, 2010). In this instance, there seems to be lack of business case for the introduction of CSR policies.

        Granted, the successes are encouraging and have positively affected the society. However, opponents of the notion failed to evaluate the opportunity costs involved in these social businesses. It is the cost of an alternative forgone in order to pursue a certain action. Social businesses inheritably have high opportunity costs as it chooses to go against economic rationality. To illustrate this, Social Bite could have employed experienced workers rather than formerly homeless people and the profits could have been used for research and development to increase efficiency. It is in the shareholders’ interest not to bear these opportunity costs, as it would eventually incur a loss. These costs are then conveniently transferred to consumers in terms of higher prices. To illustrate, the price of a latte at Social Bite is £2.10 while it is £1.75 at Greggs. Ultimately, consumers are the ones who pay for the opportunity costs in support for social causes. This causes inefficiency in economic terms, as consumers have to pay more to attain the same good. It is flaunted that the CSR policies employed are based on ethical justifications but it fails to recognise that consumers worse off in monetary terms. Using the example of Wellbeing Works, we can also see that the funding from grants that essentially comes from the taxes collected by the government. This supports Friedman (1970) argument that corporate executives would be spending someone else’s money for a general social interest. The issue of ethics comes into question, as it should be the government and not businesses that supervises the provision of welfare goods and services. Inevitably, Social businesses would not able to avoid the principles of economics.

        Opponents also argue that philanthropy is solely based on ethical justifications without a business case. Philanthropic responsibilities of businesses can be interpreted as initiatives that are in response to society’s expectation that firms act as a good corporate citizen, (Carroll and Shabana, 2010). It includes actively engaging in acts to promote human welfare or good will. Examples are McKinsey & Co. that offers free consulting services to nonprofit organizations and donors like Wal-Mart, Microsoft and Procter & Gamble, (Carroll and Shabana 2010). Philanthropic activities aim to spread profits and benefit the wider society. It is an altruistic initiative that does not yields any returns, which disqualifies it as a business case. The increasing social pressure helps to push philanthropy to be on the agenda of corporations. In addition, Positive trends like 71% of Fortune 100 companies giving more in year 2007 than 2006 (Carroll and Shabana 2010), strengthens the argument that philanthropy as a CSR policy is based on ethical justifications.

        Despite the altruistic outcomes of philanthropy, detractors failed to investigate the motives behind these CSR policies. Devinney (2009) suggests that a potentially naive assumption underlying CSR is that firms are guided by society and do not manipulate society for their own benefit. This is not the case as it is the natural vice of corporations that they gravitate towards solving problems from which economic gains are probable. Bruch and Walter (2005), argue that companies use philanthropy to enhance their competitive advantage through combinations of market and competence orientations. It can be referred as strategic philanthropy where contributions are targeted to serve direct business interests while servicing beneficiary organizations, (Tokarski, 1999, cited in Carroll and Shabana, 2010). Competitive advantage is best understood as differentiation strategies where firms utilise CSR practices to set them apart from their competitors. Through a market perspective, companies design their philanthropic practices to suit external demand and meet the expectation of stakeholders. An example, Deutsche Lufthansa AG, enhances its relationship with communities within which it operates by running a community involvement program (Carroll and Shabana, 2010). Companies therefore improve their competitive advantage through improved marketing, higher attractiveness and better relationship with stakeholders. Through a competence perspective, companies align philanthropic activities with their existing capabilities and core competencies. The earlier example of Mckinsey & Co. is such an instance. Brush and Walter (2005) suggests that in doing so corporations are able to avoid distraction from the core business, enhance efficiency and assure unique value creation for the beneficiaries. Philanthropy, in these cases, is used for advancing corporate interests. The competitive advantage build by these CSR initiatives will mean that stakeholders will prefer the firm overs its competitors. It could possibly lead to an increase in demand, prospects of future contracts or even higher share prices. This represents a positive relationship between CSR and CFP. Thus, the ethical justifications of CSR policies are used in favor of firms to influence stakeholders’ decision, which objectively is a business case.

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