Corporate Social Responsibility
Background and Introduction
In the world of today businesses all over the world are engaged in addressing various social issues and continually enriching their corporate philanthropy. The reason for this is that they have realized that their responsibility lies not only with the customers and the investors but also with the many stakeholders residing in the society that the business operates in and due to whom it successfully operates. A business thus has a social responsibility towards the society in return for the labor and economic support it bestows upon the business. How does one define social responsibility exactly? Social responsibility is management’s acceptance of the obligation to consider profit, consumer satisfaction, and societal well being of equal value in evaluating the firm’s performance. It is the recognition that business must be concerned with the qualitative measures of sales and profits, by which business performance is traditionally measured. Businesses may exercise corporate social responsibility because such behavior is required by law, because it enhances the company’s image, or because management believes it is the ethical course of action.
Historically, a company’s social performance has been measured by its contribution to the overall economy and the employment opportunities it provides. Variables such as wage payments often serve to indicate social performance. Although profits and employment remain important, today many factors contribute to an assessment of a firm’s social performance, including providing equal employment opportunities; respecting cultural diversity of employees; responding to environmental concerns; providing a safe, healthy workplace; and producing safe, high quality products.
A business is also judged by its interactions with the community. To demonstrate their social responsibility, many corporations highlight charitable contributions and community service in their annual reports and their web site. Among them:
- Anheuser-Busch collaborates with community groups to prevent alcohol abuse, drunk driving, and underage drinking. The company encourages sellers of alcohol beverages to enforce laws against selling alcohol to minors. It also provides advertising and financial support for programs that educate parents and students about responsible drinking.
- Procter & Gamble contributes millions of dollars through the Procter & Gamble Fund, corporate contributions, product donations, individual facilities’ gifts, and other types of giving. The company donates products to America’s Second Harvest, a network of food banks. It donates to universities and research organizations patents that do not fit the company’s strategic plans but may offer commercial potential, thereby providing revenue to the organizations that apply the patents.
Some firms measure social performance by conducting social audits, formal procedures that identify and evaluate all company activities that relate to social issues such as conservation, employment practices, environmental protection, and philanthropy. The social audit informs management about how well the company is performing in these areas. Based on this information, management may take steps to revise current programs or develop new ones.
Outside groups may conduct their own evaluations of the businesses. Various environmental, religious, and public interest groups have created standards of corporate performance. Reports on many of these evaluations are available to the general public. The Council on Economic Priorities produces publications such as The Better World Investment Guide, which recommends basing investment decisions on companies’ track records on various social issues, including environmental impact, nuclear weapons contracts, community outreach, and advancement of women and minorities. Other groups publicize their evaluations and include critiques of the social responsibility performance of the firms. The Centre for Science in the Public Interest evaluates the healthfulness of the food marketed to the consumers.
Many firms find that consumers evaluate their social track records in retail stores through their purchase decisions. Some consumer groups organize boycotts of companies they find to be socially irresponsible. In a boycott, consumers refuse to buy a company’s goods or services. Mail Abuse Prevention System (MAPS) offers a new twist on the old fashioned boycott: a service that blocks incoming mail from companies that it believes have send spam. The company compiles the Real Time Black hole List, a list of reported spammers, and for those who subscribe, it deletes mail from those sources or returns it to the sender. Bouncing the messages back not only spares the receiver, it can also swamp the sender’s website so that it effectively shuts down during the onslaught. Companies that place online marketing messages treat MAPS with kid gloves. MessageMedia, for example says it has refused to work with clients who do not adhere to MAPS guidelines because a misstep by one of its clients could land MessageMedia on the list.
The Social responsibilities of business can be classified according to its relationships to the general public, customers, employees, and investors and other members of the financial community. Many of these relationships extend beyond national borders.
Responsibilities to General Public
The responsibilities of business to the general public include dealing with public health issues, protecting the environment, and developing the quality of workforce. Additionally, many would argue that businesses have responsibilities to support charitable and social causes and organizations that work with greater public good. In other words, they should give back to the communities in which they earn profits. Such efforts are called corporate philanthropy.
Public Health Issues
One of the most complex issues facing business as it addresses its ethical and social responsibilities to the general public revolves around public health. Central to this debate is the question of what business should do about products that are inherently dangerous, like tobacco, alcohol, and handguns. Tobacco products represent a major health risk, contributing to heart disease, stroke, and cancer among smokers. Families and coworkers of smokers share this danger as asthma, and respiratory infections. Recently, courts have agreed with this assessment of smoking as a health risk, and tobacco companies have been assessed heavy fines to compensate for their actions. In 1998, Philip Morris, and three other tobacco companies agreed to a $206 billion settlement with 46 states. Two years later, a Florida jury ordered the tobacco industry to pay $145 billion in punitive to damages to Florida smokers who had developed illnesses associated with long term smoking. Philip Morris, whose products represent one of every two cigarettes sold in the United States, was ordered to pay about half the entire amount. Faced with prospect of even more legal actions, Philip Morris and other tobacco companies have spent tens of millions of dollars on socially responsible acclivities and causes, such as youth smoking prevention programs, food banks, and medical assistance in developing countries. But not everyone is buying the sincerity of the tobacco industry’s attempts at social responsibility. Even though Philip Morris ranks among the highest contributors to charitable events, it also ranks near the bottom in surveys of consumer attitudes towards individual businesses. “With their charitable donations, they are trying to divert attention away from the harm they they’re doing,” says Matt Myers, president of Campaign for Tobacco Free Kids. “In essence, they’re trying to buy forgiveness for the harm their product causes and their ongoing wrongful behaviors.”
Substance abuse, including alcohol abuse, is another serious public health problem worldwide. Motor vehicle accidents are a major killer, and drunk drivers cause many serious crashes. Alcohol abuse has also been linked to serious diseases such as cirrhosis of the liver. Other risks to public health and safety come from fatty foods, television violence, and motorcycles.
Of particular concern is the impact of such products on vulnerable groups. Alcohol ads appeal to teenagers. Absolute vodka ads have even become collector’s items for many teens, raising concerns that the company is encouraging underage drinking. Many consumers view alcohol advertising, whether aimed at adults or young people, as socially irresponsible. Some brewers have tried to counter these views by sponsoring advertising campaigns that promote moderation.
Businesses also face challenges when dealing with the consequences of diseases like AIDS, which is especially dangerous because, on average, five years pass between a person’s first exposure to HIV, the virus that causes AIDS, and the actual development of the disease. During this period, people may not show any symptoms, and they probably do not even know they have the virus, but they are still carriers who can transmit the disease to others. This large pool of unknown carriers contributes greatly to the rapid spread of the disease.
The onslaught of AIDS has forced companies to educate their workers about how to deal with employees and customers who have the deadly disease. Health care for the AIDS patients can be incredibly expensive, straining the ability of small companies to provide health care coverage. Do companies have the right to test potential employees for AIDS virus and avoid this expense? Some people believe that this screening violates the rights of job applicants; others feel that a firm has a responsibility not to place AIDS patients in jobs where they could infect members of the general public. These are difficult questions. In resolving them, a business must balance the rights of society in general.
Protecting the Environment
Businesses consumer huge amounts of energy, which increases the use of fossil fuels like coal and oil for energy production. This activity introduces carbon dioxide and sulfur into the earth’s atmosphere; substances that many scientists believe will results in dramatic climate changes during the 21st century. Meanwhile, the sulfur from fossil fuels combines with water vapor in the air to form sulfuric acid. The acid rain that results can kill fish and trees and pollute ground water. Wind can carry the sulfur around the entire globe. Sulfur from factories in the United States in damaging Canadian Forests, and pollution from London smokestacks has been found in the forests and lakes of Scandinavia. Other production and manufacturing methods leave behind large quantities of waste materials that can further pollute the environment and fill already bulging landfills.
For many managers, finding ways to minimize the pollution and other environmental damage caused by their production or operating processes has become an important economic, legal and social issue. The solution can be very difficult. Ford Motor Co., recently issued a Corporate Citizenship Report in which it admitted that its sports utility vehicles (SUVs) are environmentally harmful as well as dangerous to automobile drivers involved in accidents with them. However, the vehicles are also highly profitable and any automaker without an SUV in its product line is rushing to add one. So while Ford is trying to develop more socially responsible products, it intends to continue making and selling SUVs.
Another solution is recycling – reprocessing used materials for reuse. Recycling can sometimes provide much of the raw material that manufacturers need, thereby conserving the world’s natural resources and reducing the need for landfill. Several industries are developing ways to use recycled materials. One innovative solution comes from Interface, which makes commercial carpeting. Rather than merely selling carpet for a business customers to throw away after it wears out the company rents the carpet. When the customer is finished using it, Interface removes and replaces it, then it recycles the old carpet.
Developing the Quality of the Workforce
In the past, a nation’s wealth has often been based on its money, production equipment, and natural resources. A country’s true wealth, however, lies in its people. An educated, skilled workforce provides the intellectual know-how required to develop new technology, improve productivity, and compete in the global market place. It is becoming increasingly clear that in order to remain competitive, a business must assume more responsibility for enhancing the quality of its workforce.
In developed economies like that of the United States, most new jobs require college educated workers. Companies find it more economical to hire overseas workers for low skilled tasks, because wages are lower in developing nations. With demand greatest for workers with advanced skills, the difference between the highest-paid workers and lowest-paid workers has been increasing. Among full time workers in the United States, the top 10 percent earn an average of $1200 per week, compared with just $275 for the average worker in the bottom 10%. Twenty years ago, a college graduate on average earned 38% more than someone with only a high school diploma, but today the college graduate earns 71% more. Clearly education is essential to the well being of the workforce. Businesses must encourage students to stay in school, continue their education, and sharpen their skills. Companies must also encourage employees to learn new skills and remain competitive.
Organizations also face enormous responsibilities for helping women, members of various cultural groups, and those who are physically challenged to contribute fully to the economy. Failure to do so is not only a waste of more than half of the nation’s workforce but also devastating to a firm’s public image. Socially responsible firms advertise and act on their commitment to a diverse workforce.
Not-for-profit organizations play an important role in society by serving public good. They provide human resources that enhance the quality of life in communities around the world. To fulfill this mission, many not-for-profit organizations rely on financial contributions from the business organizations. Firms respond by donating billions of dollars each year to not-for-profit organizations. This corporate philanthropy includes cash contributions, donations of equipment and products, and supporting the volunteer efforts o company employees. Recipients include cultural organizations, adopt-a-school programs, community development agencies, and housing and job training programs.
Corporate philanthropy can have many positive benefits beyond purely altruistic rewards of giving, such as higher employee morale, enhanced image, and improved customer relationships. Procter & Gamble’s donation of its unneeded patents to research programs provides motivation to the company’s own research and development staff. They can see that their efforts will bear fruit, even if their patents do not directly benefit the company. In addition, by supporting research and educational institutions, P & G is helping to develop a future pool of researchers, some of whom may work for or with the company. in an effort to maximize the benefits of corporate giving in an era of downsizing, businesses have become more selective of the causes and charities they choose to support. Many seek to align their marketing efforts with their charitable giving. For example, many companies make contributions to the Olympics and create advertising that features their company’s sponsorship. This is known as cause related marketing.
Another form of corporate philanthropy is volunteerism. In their roles as corporate citizens, thousands of businesses encourage their employees to contribute their efforts to projects as diverse as Habitat for Humanity, the united way, and Red Cross Blood drives. In addition to making tangible contributions to the well being of the fellow citizens such programs generate considerable public support and goodwill for the companies and their employees. In some cases, the volunteer efforts occur mostly during off hours for employees.
Responsibilities to Customers
Business people share a social and ethical responsibility to treat their customers fairly and act in a manner that is not harmful to them. Consumer advocate and recent presidential candidate Ralph Nader first pioneered this idea in the late 1960s. Since then, consumerism – the public demand that a business consider the wants and needs of the its customers in making decisions- has gained widespread acceptance. Consumerism is based on the belief that consumers have certain rights.
The Right to be Safe
Contemporary business people must recognize obligations, both moral and lega, to ensure the safe operation of their products. Consumers should feel assured that the goods and services they purchase will not cause injuries in normal use. Product liability refers to the responsibility of manufacturers for injuries and damages caused by their products. Products that lead to injuries, either directly or indirectly can have disastrous consequences for their makers.
Many companies put their products through rigorous testing to avoid safety problems. Still, testing alone can not foresee every eventuality. Companies must try to consider all possibilities and provide adequate warning of potential dangers.
The Right to Be Informed
Consumers should have access to enough education and product information to make responsible buying decision. In their efforts to promote and sell their goods and services, companies can easily neglect consumers’ right to be fully informed. False advertising is a violation of the Wheeler Lea Act. In addition, the FTC and other federal and state agencies have established rules and regulations that govern advertising truthfulness. These rules prohibit businesses from making unsubstantiated claims about the performance or superiority of their goods and services. They also require businesses to avoid misleading consumers. The responsibility of business to preserve consumers’ right to be informed extends beyond avoiding misleading advertising. All communications with the customers – from sales peoples’ comments to warranties and invoices – must be controlled to clearly and accurately inform customers.
The Right to Choose
Consumers should have the right to choose which goods and services they need and want to purchase. Socially responsible firms attempt to preserve this right, even if they reduce their own sales and profits in the process. Other companies are not as ethical about protecting consumer’s right to choose, though. Some credit card companies have a policy of charging higher rates to customers who ask to close their accounts. The company says the higher rate is fair, because customers who close their accounts are less likely to keep up with their payments. Consumers do not always realize they can protect themselves by paying off the card before they cancel the account.
The Right to Be Heard
Consumers should be able to express legitimate complaints to appropriate parties. Many companies expend considerable effort to ensure full hearings for consumer complaints. The eBay auction website assists buyers and sellers who believe they were victimized in transactions conducted through the site. It deploys a 200 employee team to work with users and law enforcement agencies to combat fraud. The company provides all users with insurance coverage of up to $200 per transaction, with a $25 deductible. It operates a feedback forum, where it encourages users to rate one another. The auction sire operates a software program that tracks individual’s bidding performance, looking for patterns associated with fraudulent behavior. And when it receives complaints of fraud, eBay forwards them to the FTC. So, although, eBay cannot prevent all instances of fraud, it does provide an environment in which buyers and sellers feel protected.
Responsibilities to Employees
One of the most important business resources is the organization’s workforce. Companies that are able to attract skilled and knowledgeable employees are better able to meet the challenges of competing globally. In return, businesses have wide-ranging responsibilities to their employees, both here and abroad. These include workplace safety, quality of lie issues, avoiding discrimination, and preventing sexual harassment and sexism.
A century ago, few businesses paid much attention to safety of their workers. In fact, most business owners viewed employees as mere cogs in the production process. Workers – many young children – toiled in frequently dangerous conditions. In 1911, 146 people, mostly young girls, died in a fire at the Triangle Shirtwaist Factory in New York City. Contributing to the massive loss of life were the sweatshop working conditions at the factory, including overcrowding, blocked exists, and a lack of fire escapes. The horrifying tragedy forced businesses to begin to recognize their responsibility towards workers’ safety.
The safety and health of workers while on the job is now an important business responsibility. The Occupational Safety and Health Administration (OSHA) is the main federal regulatory force in setting workplace safety and health standards. These mandates range from broad guidelines on storing hazardous materials to specific standards for worker safety in industries like construction manufacturing and mining.
Quality of Life Issues
Balancing work and family is becoming harder for many employees. They find themselves squeezed between working long hours and handling child care problems, caring for elderly parents, and solving other family crisis. A “sandwich generation” of households whose caring for two generations – their children and their aging parents – has arisen. As the population ages, the share of American households providing informal care to a relative or friend age 50 years or older is expected to double – from one household in five in the mid 1990s to more than two in five in the early years of the 21st century. At the same time, as married women spend more time working outside the home, they have an average of 22 fewer hours per week to spend on family. The employees juggling work with life’s other demands aren’t just working mothers. Childless couples, single people, and men all express frustrations with the pressures of balancing work with family and personal needs.
Helping workers find solutions to these quality of life issues has become an important concern for many businesses, but finding answers is not always easy. Some companies offer flexible work arrangements to support employees. Other firms offer benefits such as subsidized child care or on -site education and shopping to assist workers trying to balance work and family.
Ensuring Equal Opportunity on the Job
Business people face many challenges managing an increasingly diverse workforce in the 21st century. By 2050, ethnic minorities and immigrants will make up nearly half of the U.S. workforce. Technological advances are expanding the ways people with physical disabilities can contribute to the workplace. Businesses also need to find ways to responsibly recruit and manage older workers and workers with varying lifestyles. In addition, beginning with Lotus Development Corp. in 1982, companies have begun to extend benefits equally to employees, regardless of sexual orientation. In particular, that means the company offers benefits like health insurance to unmarried domestic partners if it offers them to spouses of married couples. Companies that now offer these gender-neutral benefits include Boeing, Citigroup, Disney, General Mills and Prudential. This treatment reflects the view that all employee groups deserve the right to work in an environment that is non-discriminatory.
Sexual Harassment and Sexism
Every employer has a responsibility to ensure that all workers are treated fairly and are safe from sexual harassment. Sexual harassment refers to unwelcome and inappropriate actions of sexual nature in the workplace. It is a form of sex discrimination that violates the Civil Rights Act of 1964, which gives both men and women the right to file law suits for intentional sexual harassment. More than 15000 sexual harassment complaints are filed with the EEOC each year of which about 12 percent are filed by men. Thousands of cases are either handled intentionally by companies or never reported.
Two types of sexual harassments exist. The first type occurs when an employee is pressured to comply with unwelcome advances and requests for sexual favors in return for job security, promotions, and raises. The second type results from a hostile work environment in which an employee feels hassled or degraded because of unwelcome flirting, lewd comments, or obscene jokes. The courts have ruled that allowing sexually oriented materials like pinup calendars and pornographic magazines at the workplace can create a hostile environment that interferes with an employees’ ability to do the job. Preventing sexual harassment can be difficult as it involves regulating the conduct of individual employees.
Sexual harassment is often part of the broader problem of sexism – discriminations against members of either sex, but primarily affecting women. Some examples of sexism are blatant, as when a woman earns less than a male colleague in the same job or when a male employee gains a promotion over better qualified female.
Responsibilities to Investors and the Financial Community
Although fundamental goal of any business is to make a profit for its shareholders, investors an the financial community demand that business behave ethically as well as legally. When firms fail in this responsibility, thousands of investors and consumers can suffer. State and federal government agencies are responsible for protecting investors from financial misdeeds.
Besides honesty, social responsibility to investors includes proving for highly qualified management talent to run the company successfully. Before listing company on its exchange, New York Stock Exchange requires that it have an auditing expertise in financial management. A recent study of 39 internet companies revealed that their board of directors are smaller, have fewer outside directors, and have smaller audit and compensation committees than non-dot com firms of similar size.
The decisions and actions of business people are often influenced by outside forces such as legal environment and society’s expectations about business responsibility. Firms are also affected by the economic environments in which they operate. Addressing social issues facing the community the business operates in has become of immense importance to the business, due to legal, social and environmental pressures. Not only do these results in employee and customer satisfaction but also generate a positive image for the company whilst making an entire community happy with a little act of charity and social responsibility.