Corporate Social Responsibility: The case for Defensive CSR00

Introduction

Corporate Social Responsibility (CSR) can be defined as the integration of ethical values that respect communities, people, and the environment with a company’s business operations (Aaronson 2010). It is a voluntary commitment by a business to implement practices that benefit society (Kotler & Lee 2005). Many multinational corporations have adopted such practices through codes of conduct, eco and social labels, and philanthropy in order to reconcile with their critics. This trend has seen a gradual retreat of this state and global firms are now expected to show evidence of accountability in economic, social, and environmental progress. In response to inadequate resources in communities where they operate, firms often incorporate CSR voluntary strategies in their operations. These may include the provision of healthcare, education, and infrastructure. Anglo-American, for instance, promoted safe sex through NGO led educational projects in South Africa, and provided its employees with anti-retrovirals (Aaronson 2010).

Advocates of CSR posit the view that it is necessary and demanded by society while critics take the position that maximizing shareholder wealth is the primary responsibility of the firm, not social welfare (Kristoffersen, Gerrans & Clark-Murphy 2005). According to the authors, CSR has been integrated into company operations as a necessary evil, driven by the need to reconcile critics and advocates, and the emergence of stakeholder groups in the operating environment.

According to the authors, the common definitions of CSR mainly focus on an organization’s commitment to the community, employees, and the environment. However, defining CSR as “social good” is weak because it gives the message that it is a non-commercial activity. A good definition should be acceptable to practitioners and academics, and work under the commercial model. Thus, it should be fluid and inclusive of economic, ethical, and legal expectations that a community has of an organization. It is a business-society relationship.

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However, where CSR is pursued, it must be clearly stated to the stakeholders whether it is done so to complement objectives of wealth creation, or at no cost to shareholders. This is crucial because there may be a conflict between what a business assumes and what society wants. CSR is thus clearly contentions and it is the purpose of this paper to pursue two forms of CSR, defensive CSR, and aggressive CSR in order to ascertain the relevance of each, and what model may best serve the interests of all stakeholders.

Defensive CSR

According to Archer (n.d.), stakeholder theory is more concerned with the wishes of stakeholders rather than shareholders. Citing Clarkson (1995), the author defined stakeholders as employees, investors, supplier, customers, governments, and communities. Further, media and special interest groups fell under this category since they could significantly influence an organization’s course of events (p.2874).

Fang, Huang & Huang (2010) cite the resource dependence theory which emphasizes a firm’s reliance on valuable resources for its success. Thus, stakeholders, whose demands are a key factor, can determine a company’s competitive advantage. Consequently, when an organization is dependent on stakeholders, the latter’s influence increases and is a major focus of the manager’s attention. According to the authors, a company may opt for a defensive CSR strategy which pre-empts the allocation of resources to stakeholders in anticipation of changing environmental needs. Thus, a defensive strategy in CSR looks to the future and puts protocols in place that may be demanded by stakeholders. In this way, a company can maintain efficiency, its relationship with stakeholders, and market position. In essence, it offers a first mover advantage.

According to the authors, the consciousness of stakeholders is on the increase in the global management environment, deeming it crucial for companies which have links in the global supply chain to be part of this global trend. Companies which do not do so will face increasing difficulties due to interlinked management issues of CSR, in particular a firm’s dependence on the interaction it has with stakeholders for its success. For instance, down stream customers in a global supply chain may reject products based on environmental regulations in their particular regions. In this instance, competitors who respond expeditiously capture the market.

Nowhere is defensive CSR more exemplified than at General Electric (GE). The organization’s “Ecomagination” project cuts emissions and costs while boosting sales through lighting efficiency which is environment conscious, a position in line with the company’s objective to promote cleaner technologies. In most of GE’s facilities, high intensity lighting that consumes large amounts of electricity has been replaced with the company’s T5 and T8 fluorescent bulbs, providing more light and less heat. In addition, there fixtures last longer, require less maintenance, and save GE in excess of $2 million annually (World Resource Institute 2006)

There is evidence that the retrofits have boosted employee morale and productivity. Further, the Environmental Protection Agency has issued a certification under the Toxicity Characteristic Leaching Procedure (TCLP). With such positive results, the company aims to roll out similar procedures at more than 100 other plants worldwide. Thus, GE has positioned itself to meet the increasing demand for low carbon products (World Resource Institute 2006).

In November 2008, General Electric’s (GE) Jeffrey Immelt spoke on CSR at the “Business for Social Responsibility Conference” in which he highlighted the role of CSR in today’s business climate. He noted the increasing relevance of stakeholder involvement and the organization’s commitment to public accountability. Further, he was of the view that CSR must align with business goals, including profit. Thus he posited four important operations which are based on good governance, trust, and transparency, a commitment to people and company culture, and an interest in the solution of social problems. In his opinion, GE uses a pragmatic approach that is better able to engage with environmental NGO’s and other activists.

Aggressive CSR

In contrast to defensive CSR, aggressive CSR has been used as a powerful tool against critics. Multinational Corporations use extensive PR to “engage activists in a battle for public legitimacy” (McTaggart 2004). Armed with a large budget and PR staff, they are able to exercise a politically correct position and an aggressive anti-critic offensive. Thus, activists often feel powerless in the fact of Multinational Corporations which rarely give priority to human rights or environmental concerns; instead, they take a militant stand to protect their shareholders. The community, on the other hand, fears a loss of jobs and continues to re-affirm the benevolence of its employer.

Thus, aggressive CSR only works to the shareholder’s advantage, and where the entity has vast resources, opposition is silenced with PR campaigns and intimidation of employees and the community through threats of layoffs and reduced funding of ineffective and barely sufficient social projects.

A case of aggressive CSR is evidenced at Exxon Mobil, whose reputation and responsibility took a back seat to the bottom line and only re-emerged when profits were affected and shareholders showed concern (Archer n.d, p.2873). In the company’s “2005 Citizenship Report”, the organization posits the view that its mandate is to provide superior returns to its shareholders. Further, the same report showed a cavalier attitude toward global warning and its origins, clearly stating that it was not unanimous that the burning of fossil fuels was responsible for global warning. In addition, Exxon Mobil has sponsored major PR campaigns to inject uncertainty into the public’s perception of climate science (p.2876).

One instance of corporate social irresponsibility exercised by the company was the Exxon-Valdez oil tanker spill of 1989 in Alaska. In this tragic accident, the Exxon Valdez supertanker run aground in Alaska’s Prince William Sound, spilling over 250,000 barrels of oil. Thousands of Alaskans and employees of ExxonMobil were involved in the clean up exercise which took three years. Consequently, the company has spent over $4.3 billion to settle claims and compensate more than 11,000 Alaskans and businesses affected by the spill (ExxonMobil 2010).

According to Archer (n.d., p.2876), the corporate response was arrogant and lukewarm at best; instead the company continued to focus on maintaining its position as one of the most profitable companies in the world. Despite the company’s recent acknowledgement of global warning, it has principally been concerned with shareholders and only shown corporate social responsibility when profits are affected.

As a result of this accident, the company has modified tanker routes, adopted drug and alcohol testing of personnel, strengthened maintenance procedures and training, and used new technology for navigation. Further, the company has created and manned rapid response centers worldwide (ExxonMobil 2010). In retrospect, the company should have put these measures in place from the beginning.

Analysis

Because activists, the media, and governments hold companies accountable for the consequences of their activities, the latter have been pitted against society, in effect forcing them to adopt generic CSR strategies which are ineffective and disconnected from business and strategy (Porter & Kramer 2006). Further, the criterion used to rank CSR varies widely. The Dow Jones Sustainability Index, for instance, weighs customer service more than it does corporate citizenship. The FTSE4 Good Index, in contrast, does not have any measure of customer service. Thus, despite the fact that these rankings have an effect on corporate behavior, companies do not view them favorably as they appear adversarial. Hence, they only use CSR as a necessity demanded by society. According to the authors, businesses should view CSR as much more than a cost or philanthropic need; it can be an opportunity for competitive advantage.

However, the strategy used for CSR plays a major role in positive public perceptions and improved company performance. An aggressive CSR as evidenced at Exxon-Mobil cannot be of benefit to the organization in the long run and only creates antagonism with stakeholders. If the company has engaged in defensive CSR right from the beginning, the Exxon Valdez accident may have been prevented with its accompanying huge costs in compensation and paying for a clean up which took three years and thousands of personnel. Further, the consequent loss of image dealt a serious blow to the company.

However, the company has realized the need to embrace positive CSR and now concedes that its operations, and those of companies that use significant amounts of fossil fuels, have a significant impact on the environment. Defensive CSR, as illustrated at GE, pre-empts an environmental need by conducting research into energy saving products that work in positive synergy with the environment. Jobs are created and money is saved through the use of products which are energy efficient and which meet environmental regulations.

Despite the need for CSR, it is unproductive to view it as performing a social good without taking cognizant of the fact that it must be enshrined in the company’s mission and vision. Thus, CSR should not be implemented without aligning it with a company’s objective of profit and the inclusion of stakeholders in its formulation. GE is a positive example of a company which has been able to align its objectives with those of the wider community and regulations which are required to maintain harmony with the environment.

Conclusion

According to Kramer, Kania & McBreen (2006), multinationals make little impact in eradicating social problems because they have ceded this role to the non-profit sector. The latter accepts funding from the former, who only rise to the din of public relations, never intervening directly to address societal problems. Thus, powerful and sophisticated organizations remain on the sidelines, spending ever larger amounts on defensive advertising, lobbying, and public relations. The authors posit the view that, since businesses have vast resources, they have the ability to find solutions which have otherwise been left to ill-equipped non-profits which are struggling for daily survival.

The genesis of this problem is the public mistrust of businesses to solve societal problems, and the lack of resources in the non-profit sector. One unfortunate consequence is that businesses only focus on CSR that will defend their operations, and that which repels activists. The authors cite the Tsunami relief effort as an example; there was lack of expertise in logistics, and despite the $576 million received by the Red Cross in donations, the organization only managed to spend $400 million. This poor delivery of aid to victims of the Tsunami may have been done better and more efficiently by the donor companies who have vast resources and expertise (Kramer, Kania & McBreen 2006).

CSR is therefore not just philanthropy. It needs to be used in a manner that will be of most benefit to society. In the Tsunami case, the majority of companies made donations as part of a PR campaign to assuage critics. Their role ended there and left the onus of distributing the aid to an ill equipped non-profit sector. Consequently, CSR must show evidence of commitment. Defensive CSR which merely anticipates a need that will be of benefit to society must also show sustained commitment by not only making donations to the non-profit sector, but by also offering expertise where it is needed.

However, society must also play its role. Governments, the media, and the activists must seek ways to interact positively with multinationals in trying to find solutions for societal ills. Their role must not be adversarial, but rather one where they look for common solutions that address the myriad social problems and at the same time recognizes that companies need to make a profit. The involvement of stakeholders, in particular, communities, must also take center stage. People in regions where multinationals operate must appreciate the role these companies play in offering jobs and social amenities, including healthcare and education. Thus, they should balance their needs with those of their employers, bearing in mind that their success is interlinked with that of their employer.

Corporate Social Responsibility has a significant impact on the livelihoods of communities all over the world. Half the people on this planet live on less than $2 a day but the private sector aid to address poverty is often just a publicity stunt, driven by actors and pop singers, e.g. live aid (Hopkins 2007). Further, companies have been pitted against society by the adversarial role of activists, the government, and media (Porter & Kramer 2006). In order to embrace defensive CSR, these institutions must work together with companies as partners in formulating good CSR strategies. In this way, CSR will be viewed as an opportunity for competitive advantage that takes into consideration the needs of all stakeholders.

As noted by Fang et al. (2010), the consciousness of stakeholders is on the increase worldwide. This is a trend which all multinationals must recognize. Maximizing shareholder returns was held to be part of the problem that brought the recent financial crisis where incentives for top performers encouraged innovative and unscrupulous ways to increase profit by increasing risk (Werther & Chandler 2006). Thus, stakeholder engagement is becoming even more important so that operations within a company can be kept in check for the benefit of all.