This report is conducted based on the recent debate of corporate social responsibility (CSR) becoming a part of modern business. Escudero (2011) has pointed out that “sustainable and responsible value creation” should be inherent in the corporate activity of the 21st century. He suggested this as part of his role as a lecturer in a business school and he also mentioned that business education is not just about the theories, it should be updated throughout the recent CSR approach. This report suggested that there must be a balance whether it is legal binding or strategic planning, sustainability and responsibilities toward value driven of a company's strategic program are essential. This report will critically analyze CSR based on the PESTLE approach. Many companies are attentive to CSR policies for various benefits such as reducing cost as well as risks, acquiring their reputation against their competitors, and in search of “win-win outcomes through synergistic value creation” (Carroll and Shabana: 2011).
As contemporary global issues continue to increase, greater corporate activities are required. There should be integration and coordination between business leaders and the government (Haynes et al., 2013; Horrigan, 2010) since nowadays, the emergence and growth of multinational organisations has had significant global influence. Responding to the impact of multinational companies, Visser (2011) suggests that CSR should be integrated into the company's regulations. Currently, however, it is often limited to the practice of social enterprises and NGOs (non-government organization). Researchers have provided many reports and analysis on the difference between theory and practice of CSR (Rangan et al., 2015, [online]; Prieto-Carrón et al., 2006). This report will again conclude the need for CSR to become a fundamental top list on a company's strategy.
II. Theoretical framework and findings:
1. The concept of CSR
Definitions of corporate responsibility vary depending on different perspectives and organizations' framework. However, this report will focus on five interpretations of CSR which are most coherent and suitable for the aspects discussed in this report.
The first definition quoted from Visser (2011:7) has covered quite enough aspects that a company's CSR policies must be aware: “CSR is an integrated, systematic approach by business that builds, rather than erodes or destroys, economic, social, human and natural capital.” The second one is from the World Business Council for Sustainable Development by Lord Holme and Philip Watts also share the same idea but explain CSR more clearly:
Corporate Social Responsibility is the continuing commitment by business to contribute to economic development while improving the quality of life of the workforce and their families as well as of the community and society at large.
The third definition from Financial Time in which CSR is “a business approach that contributes to sustainable development by delivering economic, social and environmental benefits for all stakeholders” has taken it into another deeper level with stakeholders' approach. The fourth definition from the European Commission look at it as “voluntary basis” which will be discussed further in this report: “A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis”. The last definition will be from Mallen Baker, Founding Director of Business Respect who suggests “CSR is about how companies manage the business processes to produce an overall positive impact on society.” Generalizing all the points of view above, this report suggests an overall definition of CSR as the framework of an organization in which a company creates values over benefits and knows how to balance the positive impacts on society.
At first, CSR approach tended to focus solely on tackling environmental issues (Horrigan, 2010), however, CSR is a broad concept and cover many aspects that are human-related activities. CSR is interpreted, understood and implemented differently for each company and country. Despite all different notions, the main approach of CSR is the drive of value creation towards sustainability as demonstrated by PwC, 2015 [online]: 40% of companies either in public and even private sector now consider their sustainability strategies over the medium or long term as well as the short term.
The aspects that CSR covers can also be demonstrated based on the 4-level pyramid of Carroll's (1991) and Visser's (2008) (Figure 1, Appendix). However, researchers (Huniche and Pedersen, 2006; Zabin, 2013) have argued that Carroll's pyramid model is appropriate for developed countries. Whereas, Visser's model is more suitable for developing ones (Zabin, 2013; Omran & Randoni, 2015; Crane, 2008). Both models have the first layer as economic responsibilities, however the interpretation is different. When corruption is still considered a chronic anxiety, legal responsibilities in developing countries seem to be put after the philanthropic of the social norms, in which values driven are ignited through this level.
2. Context of CSR with PESTLE approach (political, economic, social, technological, legal and environment paradigms)
Below, this section will explain the context in which CSR is affected.
2.1. Political aspect - the power shift happens
The shift in power in the political world with the emergence of globalization has changed the whole concept of a common Earth in within. Every nation and organization is now in a join table when counterfeiting imperative environmental and social matters. However, with the political power changes started to shift from West to East (Cox, 2012, ), business in its relation with politics will be affected and corporate capitalism will also be reformed (May et al.,2007).
It is common to argue that the United States is only superpower, but increasingly the corporate responsibility has to recognize growing differentiation between the United States and much of the Europe on social and market issues. Also, sitting quietly at every table in every board room, on every university campus, and in every manufacturing plant is the presence of China (May et al., 2007:47).
Horrigan (2010) mentioned the interlinks between geopolitics and corporate responsibility especially after the G8 summit in 2007 in which CSR has stepped out from its shadow into the light and become a main focus of international issue. According to the CIA World Fact Book, G8 is considered the representative of the “Great Powers” including the world's eight prosperous nations. Even if they only represent about 14% of the world population, they account for nearly 60% wealth of the world. With their dominant military and economy powers, they are sure have their powerful voice in the international forum. Leaders of G8 has declared to keep “promoting and strengthening corporate and other of forms of social responsibilities” as one of their “four priority for action” (G8 Summit 2007: 3-8). The world leaders' talk of G20 including rising developing countries in 2009 also stressed the importance of a joint principles forum to reinforce the implementation of CSR as the Financial Stability Forum (FSF).
On the other hand, the balance of the world power, however, has shifted from state to non-state players. Horrigan (2010) himself also mentioned the survey in the beginning of the 21st century that out of the 100 biggest economies in the world, slightly more than a half are corporation with 51, the rest is governments. Another report conducted by the Global Trend, out of 150 top economic entities (150 not 100) in 2012, 58% of them are corporations. These giants, naming Multinational Corporation are not only enormous in their origin country but also in their subsidiaries and branches in other countries.
Alongside with the rising power of corporation, the world have to deal with corruption and questionable transparency of these big co-op. (Blowfield and Murray, 2008; Horrigan, 2010) as well as social unrest or terrorism as the new threat to sovereignty and social stability (following the terrorist attack in Paris, October 2015, many European countries have strengthened their policy toward refugees as well as tighten policy to trade, which will also have an effect on the global economy).
2.2. Economic challenge
After the global financial crisis in 2009 with many companies went bankrupt including big companies, organizations are now taking more cautious and focusing on stability development. With the fluctuation of inflation rate especially in Europe, as well as the currency volatility, global trade would be endangered. As director of the International Monetary Fund (IMF) stated in her article that the world economy stability depends largely on the wise selection of the organizations' policy makers:
While the worst fears have faded, the emerging economies face new policy challenges. In responding to slower demand, policymakers must be wary of financial excess, especially in the form of asset bubbles or rising debt. They should also focus on strengthening financial regulation, in order to manage credit cycles and capital flows more effectively, and on reestablishing fiscal room for maneuver (Lagarde, 2013, [online]).
However, globalization trend still open up more market access to other regions as Haynes et al., (2013:10) suggested corporations “create wealth, provide employment, consume natural resources, and require investment at unprecedented levels.”
Furthermore, Blowfield and Murray (2008) provided different perspectives of both liberal and socialist sides on capitalism as the dominant economic system nowadays. “Business” is tend to be engaged in capitalist model in which “business and industry are controlled and run for profit by private owners rather than by the government” (Oxford Dictionary's definition of “capitalism”). Meanwhile “corporate responsibility” is attached with norms, principles, ethics and values. Despite different interpretation of capitalism, there are still common themes that influence the business such as notion of profit as the argumentative discussion raised about maximizing profits by Adam Smith on “the Wealth of Nations”. The questionable discussion is that out of the business objectives as increasing and creating profits and benefits, which one will then be the true measure of value creation?
Another viewpoint is from Mulgan (2013: 62-65), where he called capitalism as predator. One particular reason is the competitive patterns within the economy. The stronger companies will be able to take advantages of such imbalance in powers and therefore destroy the weaker ones. Yin (2015) also discussed the pressure of external factors such as competitors that influences the policies on CSR of a company. Lastly, to sum up, it is the competitive factors that urge companies to perform better than its competitors. In order to compete, they must be able to create some stream values that the customers and the society expect in them (Reidenbach and Goeke, 2006).
2.3. Social issues and risk management
Cameron & Green (2004: 1) suggested that:
The economics of globalization seems to dominate much of our political and corporate thinking, while the shadow side of globalization refugees, exploitation, terrorism and the like – develops at an equally alarming pace.
With the development of the society in the 21st century, issues such as human rights and equality, racism and religious , child labour or slavery are still being raised everywhere, from developing countries where the living standard needs to be enhanced to developed countries with already great social benefits. There are many cases where the interlink between economic growth and society improvement has been ignored. In order to achieve their targets, many companies have crossed through the human rights barriers. Controversial issues at Foxconn - a large company in producing technologies that “imprisoned” their staff with strict working environment (Köster, 2013) or Coca Cola's scandal about violating human rights in Guatemala (Fisher et al., 2013) or Nike corporate raging over using child labor (Smith et al., 2006) have raised certain awareness so far. The question would be why companies are reluctant to these issues. In order to compete with other competitors, firms would have put pressure on their suppliers to lower any cost that can increase the purchase efficiency. Suppliers then have to economical balance and juggle with the expense of any natural, social and human resources, including farmer incomes, natural environment, ecosystem and even the involvement of child labour. Firms were often not aware of these consequences as they lost track of their supply system (Smith et al., 2010).
The continuous violation of labour rights and the declining in working standards inside factories are astonishingly alarming. In countries like Bangladesh, Nicaragua, African countries, Asian country like Indonesia, China and even in the UK, women especially normally “have little alternative but have to work inhumane hours and under precarious conditions that are determined by powerful buyers in global supply chains” (Burnett and Games, 2005: 205). Though the world forum of International Labour Organization (ILO) has endless speech on human rights and equality, breaches are still found even in big leading corporations.
Addressing these issues is finding the key and solving these issues are opening up the door to business success. Smith (2011) have demonstrated a multifaceted business case in which many corporations seem to follow that direction such as having community relations management, creating equal employment opportunities and practices in order to enhance shareholders value in the long term and reduce risk of employee turnover. Through the lens of Baylis et al., (2014) as demonstrated in figure 2 (See Appendix), the interrelationship within the world economy is often show evidences of inequality, and the gap between the rich and the poor is still widening. Minimizing this gap need a long-term process, in which CSR also participate as a contributor toward positive changes (Visser, 2011).
2.4. Technology and innovation
Alongside the fast-paced evolution of technology, it is now easier for world trade community to have various types and methods of goods transportation. Never before, communication infrastructure can be as easy as just simply through a click of a computer screen, or a gentle touch on their “smart” objects. People from different parts of the world can now work together despite their different time zones and distant geographical boundaries.
Many theories would agree that the more developed human being is, the more technologies we can create. It is hard to deny the fact that people are investing in creating more advances to improve and maximize the resources as well as minimize time and efforts in doing tasks.
IT known as Information technologies is a drive to convenient and advancement but also can be treated as backfire to the society. When having access to too much information, people start to doubt the source of information that they obtain (Barker and Angelopulo, 2006). Mulgan (2013:56) argued that there is no evidence to say that innovation is speeding up despite numerous efforts. Nevertheless, the truth that innovative inventions and technologies are still going to be a key tool for accelerating sustainable improvement within an organization as Alan McGill – PwC's partner stated:
Technology is accelerating the use of sustainability as a driver of growth, particularly information technology, as it allows greater monitoring, independent verification, transparency, and accuracy of resource usage and its impact (PwC, 2015 [online]).
2.5. Legal identity
Law can interact with CSR through these pathways: corporate or non-corporate law will reflect some CSR concerns, the hierarchy system of any particular country all has certain laws that control what businesses are able or unable to do (Friedman, 2000). There are also international and regional agreements on trade, investment and environmental impact (Horrigan, 2010). However, only the United Nations Global Compact and OECD Guidelines held accountable for their human rights performances (Haynes et al., 2013). Government of each country is yet to have any mandatory regulations and law towards enforcing CSR because of its morality scheme. Again, Horrigan (2010: 29) proposed that:
The limits of law for CSR also relate to regulation beyond law [...] In addition to accepting legally mandated corporate obligations, market influences and business ethics as important constraints on corporate behaviour in their own right, we need to see them also as paradigmatic manifestations of wider regulatory, economic and socio-ethical systemic influences that work in combination to produce socially responsible business orientations and behaviour.
May et al., (2007: 114) also pointed out that “the Asian region is far from alone in suffering from such corruption, cronyism, and poor corporate governance”. Crises arise from these regions basically due to a weak and poorly enforced legal system or framework. However, despite the weak legal system, Visser (2011:269) stated that CSR will still be “a way to plug the ‘governance gaps' left by weak, corrupt or under-resourced governments that fail to adequately provide various social services”. Additionally, Horrigan (2010) suggested possible outcomes that a government brings CSR into the public sector policy which can stimulate effective corporate framework for CSR standard-setting initiatives. Smith (2011) also proposed on developing reputation and legitimacy through methods called corporate philanthropic (for example, McKinsey & Co. offers consulting services for free to nonprofit organizations activating in socio-cultural and educational fields) and corporate disclosure with transparency practices through corporate social reporting.
2.6. Environment factor - the most fundamental issue
Not long ago the concerns of ecologists were as irrelevant to business planners as those of ethicists are today. "Green" has gone from being a disparagement to becoming a badge that no smart company would risk being without. Ethics are similarly en route to becoming a strategic imperative. - John Dalla Costa, Ethical Imperative (The CSR Company International, 2013, [online]).
Over the last decades, environmental issues have steadily impinged upon businesses' capability to create value for customers (Lubin and Esty, 2010 [online]). Numerous dramatic and disastrous evidence of the environmental impacts correlating with economic cost can be found through various climate change incidents. Terms like global warming and climate change are becoming more than just a mere concept, it is a catastrophic threat and an aspect that any manufactures have to take in consideration when operating their factories (Kielstra et al., 2008; Nidumolu et al., 2015).
According to the report of the Intergovernmental Panel on Climate Change (IPCC 2007), human activities are accountable for these changes in the atmosphere, raising sea level, causing the imbalance of the nature diversity. Also from the Global Footprint Network, an incredibly alarming amount of humanity's carbon footprint which increased 11-fold since 1961 and showing nonstop signs of gradual increase which has been a great concern to the society (Visser: 2014).
The methods in which companies using recently are all eco-friendly products approach with commitments for environmental sustainability development (Nemetz,2013; Rangan et al., 2015, [online]). However, developing countries with growing industrialization process, are struggling with environment issues as being shown through Figure 3 (See Appendix. The amount of CO2 eliminated by developing countries is an alarming rate. Meanwhile, high-technologies or renewable energy to help clean the environment always come at an expensive cost. Whether or not firms in developing countries are willing to spend their budget that could affect their turnover revenue, it will be the debate of ethical evaluation.
3. CSR - value creation approach
3.1. Business ethics and values
“Ethics is the new competitive environment” – Peter Robinson, Co-op' CEO Mountain Equipment.
“Creating a strong business and building a better world are not conflicting goals – they are both essential ingredients for long-term success” – William Clay Ford Jr. Executive Chairman, Ford Motor Company.
Many other viewpoints see CSR with relation to “corporate lobbying”, tax avoidance and false-direct marketing and sourcing, especially in poor countries. (Blowfield and Murray, 2008:339-359) or inequality as pointed out in Visser (2011) between the salary of Walmart CEO in one month and the salary of a worker in 3 years. Comparison is always relatively comparable to a certain degree (Newton's theories on relativity).
Cultural differences trigger a question into the concept of how CSR adapt to the each cultures or can CSR be universally. The answer is yes. Fisher et al., (2013) supported the idea that there are universal business and managerial values in which against bribery, create standard relating employment practices, and protect the environment we are living in. Boundaries and challenges are visibly seen, however, it does not mean that it is impossible. CSR in the modern society has challenged managerial approach. Grant Thornton report (2014, [online]) have interviewed 2.500 business leaders of 34 economies through their International Business Report showed elements that does affect business practice in which cost management, customer demand and the “right thing to do” factors hold highest rank (Figure 4 & 5, see Appendix).
3.2. Sustainable development
"It takes 20 years to build a reputation and five minutes to ruin it." - Warren Buffet.
“Where sustainability works best is where an organization's leadership gets it and wants it to happen and enables it to happen – so everyone from the person who sweeps the floor to the finance director feels part of that conversation” – Will Day, Chairman of Sustainable Development Commission (2010).
Hockerts et al., (2008) through their studies concluded that the way a firm manage and giving strategic decision are in parallel but fragmented tracks. There could be two approaches towards strong CSR policy: value-driven and system-driven. Whether a company has a detailed prescription for CSR and a hierarchy system to reinforce the strategy or just a general management systems based on shared value, a firm committed to CSR will apparently try to demonstrate that into their company' mission statement and the time their leaders devote to this matter.
Furthermore, according to Nielsen report in 2014, 55% consumers are willing to pay extra for products and services of companies that committed to positive social and environmental impact and 52% check the product packaging to ensure sustainable impact. Also from another report in beginning of 2015, Nielsen suggested that consumers in developing countries tend to trust traditional advertising format especially on TV or through public advertisement and mobile adverts. Therefore, this will influence the strategic marketing type of the organizations. A trend in commercialize their products show that they are committed to improving the life of the people using green energy, through education in order to raise social awareness. Grant Thornton report in 2014 on sustainability showed that 45% of firm think that sustainability is considered “extremely important” in their business strategy (Table 1, See Appendix).
Nevertheless, knowing the right thing to do is different from doing the right thing. Cases where firms said that they are doing something does not always correlate with what they are actually doing, take the example of Coca Cola in Vietnam, while it is implementing the EKO project in which bring small business to local women and create value to the society (Coca-Cola sustainability report 2014/2015), its factories eliminated its untreated wages into the river causing activist's rampant in these recent years (Thanh Nien Daily, 2015 [online]). Nevertheless, Nielsen report (2015, [online]) still demonstrate a positive outlook of consumers' confidence level (Figure 6, see Appendix) which means that the society in general are still giving their trust to companies and organizations. Building trust is a long-term process that strategic leaders must understand fundamental values in order to create a solid reputation towards the society.
To sum up the whole report, the author wants to conclude that globalization is the threshold that opens up more opportunities as well as challenges to business. Since the trend of business has already shifted from mere profits to socially and environmentally benefit for the society, it is crucial for the organizations to consider their actions toward values. The concept of CSR does not lie only within the PESTLE approach or value driven approach being showed in this report. More aspects of CSR especially professional training for business education would possibly contribute to change the mindset of young entrepreneurs. Sustainability must result from the day-to-day basis of ethical and value framework. Only then will companies arise and the society thrive.
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