Why do organisations adopt CSR?

How Corporate Social Responsibility can effect Human Resource Management: critically evaluate and analysis the reason why organisation adopt Corporate Social Responsibility

1. Introduction

Generally, there are two types of CSR aspects: defensive aspect and proactive aspect. Defensive aspect is connected with organisational strategy such as protects reputation, profits and share price. This aspect makes organisation have bargaining power with government. Proactive aspect is more about HR issues: such as recruitment and retention, as well as redefines corporate mission, builds credibility and trust.

There are several key aspects of CSR

1. Ethical standards: corporate activities may be legally compliant but morally or ethically suspect. For example: health and safety, discrimination, child labour, bad working environment etc.

2. Corporate citizenship: equated with ‘global corporate citizenship’ in MNCs; also associate with corporate philanthropy. Such as: protect environment, global worming; or being a good person doing good things in a country.

3. Stakeholder interests: MNCs always face unstable environments of multiple stakeholders (e.g. shareholders, employees, customers, local communities, wider societies and so on) with different agendas. Multiple stakeholders have different interests, hard to balance; as well as companies have to aware of the most powerful stakeholders.

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There are four parts in my article: introduction, background of CSR, main debate of CSR and conclusion. I will briefly introduce CSR and the relationship with HRM in the background. Then I will introduce the debate: why company adopt CSR: is it necessary to improve ethical standard to the company? Does the organisation really want to improve ethical standards (such as working conditions, health and safety etc) or they adopt CSR just for superficial reasons (such as obey the laws and regulations, and even saving organisation’s reputation).

2. Background

2.1 What is CSR

Current situation

l 44% of the British public believe it is very important that a company shows a high degree of social responsibility when they buy the company’s product.

l 58% of the general public across Europe feel that industry and commerce do not currently pay enough attention to their social and environmental responsibilities.

l Corporate Responsibility offers a means by which companies can manage and influence the attitudes and perceptions of their stakeholders. (Little 2003)

So what is corporate social responsibility (CSR) and why people in different parts are care about this? CIPD (2009) defined CSR as covers all aspects of corporate governance. It is about how companies conduct their business in ethical way, taking account of their impact economically, socially, environmentally and in terms of human rights.

And the definition in Business Link (a) is about understanding business impact on the wider world and considering how people can use this impact in positive way. CSR can also be good for bottom line.

The EU definition of CSR is: ‘A concept whereby companies integrate social and environmental concerns in their business operations and interaction with their stakeholders on a voluntary basis.’ (cited in Danish Commerce and Companies Agency, 2009)

2.2 Why CSR is important?

CSR can related with almost everything organisation do and everyone organisation deal with. Such as deal with customers and suppliers responsibly; how to treat your employees; how your business affects local community and how you do to affect environment and how can you use resources reduce pollution and waste effectively (Business Link, b), so the company has to adopt successful CSR policies if they want to develop and keep moving.

There is another definition which emphasises on: The definition helps to emphasise that: CSR covers social and environmental issues. CSR is not or should not be separate from business strategy and operations: it is about integrating social and environmental concerns into business strategy and operations (Danish Commerce and Companies Agency, 2009). It means CSR should develop with an organisation’s strategic plan, integrate with other objectives of organisation. Or it says in another way: CSR can make organisation’s objective in some aspects.

Just like what had mentioned before, CSR can balance different stakeholders and different interest groups. It could find the best solutions for each part and make the best of them. An article can give us the best suggestions of this:

CSR is an important business strategy because, wherever possible, consumers want to buy products from companies they trust; suppliers want to form business partnerships with companies they can rely on; employees want to work for companies they respect; and non-governmental organisations (NGOs), increasingly, want to work together with companies seeking feasible solutions and innovations in areas of common concern. Satisfying each of these stakeholder groups allows companies to maximize their commitment to another important stakeholder group—their investors, who benefit most when needs of these other stakeholder groups are being met (CSR).

Fiorina, the CEO of Hewlett-Packard Development Company (HP), made a speech in 2001, he announced that ‘I honestly believe that the winning companies of this century will be those who prove with their actions that they can be profitable and increase social value – companies that both do well and do good. Increasingly, shareowners, customers, partners and employees are going to vote with their feet – rewarding those companies that fuel social change through business.’ He confirmed the importance of CSR in the contemporary society.

2.3 Relationship between HRM and CSR

In a respect of HRM, most companies involve CSR because of employees. A company with a good CSR, can attract talent employees, retain employees and motivate employees. That is the reason why HRM need do CSR than other department; because employees are the most important business resources in the now days.

A key potential benefit from CSR initiatives involves establishing the conditions that can contribute to increasing the commitment and motivation of employees to become more innovative and productive. Companies that employ CSR related perspectives and tools tend to be businesses that provide the pre-conditions for increased loyalty and commitment from employees. These conditions can serve to help to recruit employees, retain employees, motivate employees to develop skills, and encourage employees to pursue learning to find innovative ways to not only reduce costs but also to spot and take advantage of new opportunities for maximizing benefits, reduce absenteeism, and may also translate into marginally less demands for higher wages (Industry Canada).

Further good relationships with employees also allows a company to gain additional benefits including improving their public image, increasing employee morale, and support from the community (Zappala and Cronin, 2002).

3. Main debate:

People always confused about the reason why organisations doing CSR. Because most private organisations exist to gain maximise profit, so it seems like there is no justification for organisations and CEOs to do CSR. Each business strategy should have a clear objective, same as CSR.

Moss, Head of Corporate Social Responsibility at BT Americas suggest that every CSR initiative should have a clear and commercially compelling objective, whether it is employee retention, risk mitigation, customer loyalty, cost reduction or others. Additionally, every manager should be worrying not only about today’s profit but about tomorrows and next year’s profit (2009), so doing CSR is a long-term objective which hardly can see some benefits in a short period.

Fraser (2005) examines the theory behind CSR is that companies can be profitable while at the same time minimizing their negative impact on stakeholders.

The 2004 Cone Corporate Citizenship Study shows that the value of company’s long term is seen as dependent upon their ability to meet their expectations of social responsibility. And companies recognised that the need for CSR is to minimize their negative impacts on stakeholders and thereby protect their valuable reputations and good will (cited in Fraser 2005).

Ostros (2005) make his comment about CSR in FT: the main road to economic growth and prosperity in times of globalisation goes through free and open trade combined with a strong engagement for CSR.

So it shows CSR is really important in the process of globalisation and human right, as well as a long-term invest for organisation to operate CSR.

Generally, the debate for CSR policies in HRM is about whether organisations use it to improve employment rights (such as working conditions, health care etc), or companies engage to improve employees’ rights, just based superficial reasons; such as pretend a good organisation to gain reputation, attract talents, retain employees etc.

3.1 CSR does have effect on HRM and changes working conditions, makes better health care, gain more employee rights etc.

First we shall see the debate about CSR can have a good effect on HRM in the part of employee right. There are host of good information in this field.

Through the report of Loew et al (2004), the companies have already intended to improve working and living conditions for employees even since 1930s.

Hussain gave a debate: CSR perspective which providing by a socio-economic perspective. Stakeholder management is closely allied to socio-economic principles (1999). Freeman provided a definition about stakeholders: the organisation will cease exist without stakeholders support (1984, p31). Hussain also mentioned stakeholder management shows us the configuration of an organisation should be planned to its business environment (1999).

Ostros argued that responsible business codes and practices are not a short-term cost, but a long-term investment. More and more governments realise that sustainable development requires the business community to get engaged in both employer in the traditional sense, and contributes to the advancement of decent working conditions, human rights, the fight against corruption and a sound and healthy environment (2005).

Many articles show authors try to demonstrate that organisations give budget to CSR and help employees to gain their human right and health care. This is a win-win situation because employees have been motivated after get those benefits, then create more benefits for organisation. And the money for employees is just a long-term investment which can get higher rate of repay. Also, many companies are provides their CSR report in the final year report. CSR plays more and more important role in an organisation.

In fact, companies doing well CSR voluntary, could gain lots of advantage. Such as Marks and Spencer (M&S), it did really successful during 1970s to 1990s. The company take care employees and give many benefits for them. However, this is more ideal situation mostly exists in the developed countries, and only few companies willing to do it, most companies still not. Nevertheless, bad working-conditions, low pay and other problem always exist in the developing countries. The other debate I am going to open up is companies adopt CSR just for superficial reasons.

3.2 Companies adopt CSR just for superficial reasons

Large amount of organisations totally comply with the CSR laws and regulations and doing everything totally good in their home country. However, this is just superficial movement. Because they try to pretend as a good organisation to gain reputation, to attract and retain employees then get competitive advantages in home country or even across the world.

It is all about economy. This is how the market works. If they can find people that would work and do their job well for lower price they will hire them instead of spending much more money. The truth is companies do hire cheap labour in third countries. For example, if a company engage employees in a developed country, they have to obey lots of regulations, need spend time with training, then provide insurance and other benefits for employees, of course, they need pay much higher salary rates compare with developing countries.

3.2.1 The first standpoint I am going to demonstrate is: organisations operate a good CSR in their home countries but seeking reduce production cost else where.

Many reports form from International Labour Organisation (ILO) mentioned the essential of increase working conditions, increase welfare and health care. It shows how hard the battles of employees gain human right especially in Africa, Latin America and Asia.

Far too many European employers still believe that employing cheap women workers is the best response to international competition, although many studies have shown that the competitiveness of the European Union depends on other factors not related to production costs (creativity, ability to adopt rapidly to the market, ‘niche’ products, etc.) (International Labour Organisation, 2000).

In another report of International Labour Organisation (2006), it introduces a special group in Thailand: migrant children in Mae Sot are faced with excessive working hours, lack of time off, and unhealthy proximity to dangerous machines and chemicals. For example, they have to work in a bad condition for 7 days a week, 11 hours a day – that ‘regular’ worker would receive a minimum 1,586 baht (US$ 39.65) a week, which is 3 to 5 times more than the overall wages paid to a Burmese migrant child labourer.

Child labour always has been a big problem in the present world. ILO approved that there are more than 200 million children in the world today who are involved in child labour, doing work that is damaging to his or her mental, physical and emotional development (International Labour Organisation, a).

Kent (2008) wrote a news which published by the Daily Telegraph – Workers at Tesco paid just 8p an hour. It has discovered that dozens of people subcontracted to work up to 80 hours a week in Tesco’s supermarkets in Malaysia, and found the circumstances meet the United Nations’ definition of forced labour. A Bangladeshi migrant in this case, work up to 360 hours per month for no more than £50 as a cleaner in Tesco in Kuala Lumpur, capital city of Malaysia. This labour was been introduced by labour agency and had to live with 12 fellow in order to reduce cost. Although, Tesco declared that they operated with highest standards of welfare for workers.

But even in 2005, Tesco has already worked well with CSR in the UK. For example, they look after its employees so that they can look after the customers, and emphasises the importance of recruitment and retention. The company report offering its staff an attractive benefits package including wages, flexible hours and leave, profit sharing, free uniform, subsidised meals, staff discount, childcare vouchers and a pension etc (Jones et al, 2005).

We can see clearly that Tesco’s CSR policies are really different between UK and Malaysia. It is clear that Tesco’s CSR policies are really different between UK and Malaysia. Why it is so different? You may know that’s just because employees’, customers’ and investors’ recognition were higher than Malay; as well as regulations and laws are mature than Malaysia; employees protection in Malaysia is just in the beginning stage, far more not enough compare with UK; furthermore, living standards and price level is quite different, Malaysia is quite low, while UK is in one of the highest ranking all over the world.

Across the world, millions of people are on the move – doing jobs ranging from menial labour such as harvesting to computer programming. At least 12.3 million people around the world are trapped in forced labour. Sweatshop or farm workers kept there by clearly illegal tactics and paid little or nothing. While wages may rise in many countries, they often remain too low for many workers to meet their basic needs (International Labour Organisation, b). In the war of CSR, people still have many work to do.

3.2.2 The second standpoint of this debate is: company doing CSR because of the restriction of regulations and laws.

Many governments realised that CSR is important (not only for employment rights, stakeholders’ interests, but for protecting environment, improving of R&D and others as well), so many countries decreed regulations or lows to ‘enforce’ organisations to do it.

Here is a specific example. Denmark is ahead other countries to making CSR in their law.

According to the documents of Danish Commerce and Companies Agency. Danish businesses are free to choose whether work or not on CSR, but new statutory requirement from 2009 that large businesses in Denmark must take a position onCSR in their annual reports. The Danish Parliament adopted the proposed ‘Act amending the Danish Financial Statements Act (Accounting forCSR in large businesses)’ on 16 December 2008. The aim is to inspire businesses to take an active position on social responsibility and communicate this. The statutory requirement is part of the Government’s action plan for CSR (May 2008) and is intended to help improve the international competitiveness of Danish trade and industry. (Danish Commerce and Companies Agency, 2008)

The situation now is 60 percent Danish companies meet demand from their customers about CSR; around 70 percent Danish companies work with CSR; 60 percent Danish consumers have bought sustainable products during the last week; 75 percent of the Danish companies see CSR as a more important part of their business today, than they did five years ago. (Danish Commerce and Companies Agency, 2009)

So we can see CSR plays more and more important role in Danish organisation. Many companies doing CSR voluntary, but regulations and lows can make more companies join this. Government’s low merit and improve the course of CSR in Denmark. In other words, government’s regulation kind of force especially big companies implementing CSR; because costumers are used to choose the company who can work well with CSR. Therefore, companies work with CSR not only comply and response to the laws and regulations of government; but be good to build reputation for customer, attract/ retain employees as well.

Denmark is following the lead of other European nations that have mandated CSR reporting, the Ministry of Economic and Business Affairs said. For example, all listed companies in France have had to divulge information about social and environmental conditions in their annual reports since 2001. United Kingdom companies have been required to report on social and environmental conditions since late 2007 (Staff, 2009). Once the companies report their CSR, they have to make it ‘perfect’, otherwise, it will harmful for companies’ reputation. The word mandatory means company not willing to do it voluntary. This is not only in Denmark, but in other EU companies as well (such as France and the UK).

United Nations declared initiative about Human Right, which concerns of particular interest for businesses and their employees include core labour standards, management of security forces, and indigenous people’s rights (Calder and Culverwell, 2004. United Nations).

Same regulations are in different countries such as Canada, UK, Germany, France, Asia, etc. they have different laws and regulations that can make sure CSR work well. But without those laws and regulations, how many companies are willing to do CSR? How far CSR can go especially in third world countries? In other words, because companies did not do CSR as good as what we expected, so different non-profit organizations and countries have to promulgate laws and regulations to make organisations do.

3.3 International supply chain and International labour organisation

3.3.1 International supply chain

The Business Link made some comment about choosing suppliers. Choosing suppliers carefully can be an important part of CSR approach. For example, use local suppliers as much as possible can help to support local community and reduce energy waste in deliveries. Large organisations often audit their suppliers to ensure they follow responsible working policies. Treat suppliers fairly is another move for CSR. Especially for small business rely on it. For example, paid on time can give them big help (Business Link, c). If a company did CSR well enough inside of organisation, they should make CSR broader and longer, try to make more contribution to make sure they afford enough responsibility for society.

3.3.2 International labour organisation (ILO) and international labour standards

International labour standards are conventions, treaties and recommendations which cover a broad range of subjects concerning work, employment, social security, social policy and related human rights. It designed to eliminate unjust and inhumane labour practices. The primary international agency charged with developing such standards is the International Labour Organization (ILO). Established in 1919, the ILO advocates international standards as essential for the eradication of labour conditions involving “injustice, hardship and privation”. According to the ILO, international labour standards contribute to the possibility of lasting peace, help to mitigate potentially adverse effects of international market competition and help the progress of international development. (ILO 2003, ILO c and Roozendeal, 2002)

4. Suggestion/ Conclusion

CSR plays more and more important in organisation in the contemporary society. It can influence organisation’s objectives/ strategy and help organisations gain more benefits if CSR was been done appropriately.

CSR also can improve organisation’s reputation, build better image to stakeholders, mainly costumer, employees and suppliers. Costumers/ investors would pay/ invest even more money to a company which have good reputation; employees would stay in a company with better working-condition, health care etc; people would willing to work for a high responsible company, this can attract talent works and employees; productivity is improved via employees motivation.

However, the real problem obsessed us is motivation that the organisation set CSR policies and work with it. There are full of reports show the benefits of CSR, but a little show the real motivation of doing this. It is not difficult to distinguish real motivation of organisations doing CSR, most of them are just for superficial reasons as I mentioned before.

Reason for companies doing CSR is because laws and regulation. Different non-profit organisations helps people to gain employee right; such as ILO set various regulations to make employees have their human right, as well as UN. Government sets lows/ regulations and agencies one after another; they try to make sure numerous companies work well with CSR.

Various regulations and laws make CSR come to organisations’ attention much more alone with the benefit after doing CSR. No matter the start, companies are already in a right direction – put more attention on CSR and realised the importance. Now, many big organisations in the world start set CSR department in order to implement and monitor CSR policies; put CSR with sustainable business strategy (Silberhorn and Silberhorn, 2007) together.

The good way to make CSR more clearly is publishing annual report. Using clear numerical so that can compare with other organisations. Some companies in Britain have already publicized report for public and put it onto official website. The example has been given in appendix 1, we can see only two out of ten retailers put CSR in annual report and only one out of ten put CSR information on the website. This is far more not enough, there is a long way need to improve in this field.

Reference

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Appendix 1: UK’s top ten Retailers.

Jones, P. Comfort, D. and Hillier, D. (2005)

Corporate social responsibility and the UK’s top ten retailers