Importance of CSR in Today’s World

INTRODUCTION

Corporate Social Responsibility (CSR) is old but dynamic concept which cannot be given any straight-jacketed definition. It emerged in 1930s to 1940s but was formalized by Howard Bowen in his book “Social Responsibilities of a businessman” in 1953. However, the term CSR was popularized in 1990s. Broadly, it is a concept whereby organizations being a part of Society has to participate & take responsibility for their actions towards society. It is a business strategy where Company undertakes to analyze the impact of its activities on customers, investors, creditors, employees & environment.

Corporate entity utilizes resources available in society (Human resources, planet’s resources etc) for developing its wealth[1], hence, it is its responsibility to return those profits by way of contribution in the improvement of society. The objective of setting up a Company is to ensure that benefits arising from the business can be reaped in long-term, if a company neglects the needs of society & focuses on profit-making, its survival in the long run cannot be guaranteed. CSR practices are adopted all over the world, it has become an integral part of business strategies. The media & consumer awareness have subjected corporations to a higher transparency. It has remarkable impact on the brand recognition & profit generation of Companies.

Some Critics argue that CSR is just a method to divert the Corporate organization from its primary role as economic entity, & it is nothing more than artificial window-dressing or a strategy to cover evil-actions. But, still the impact & importance of CSR could not be undermined just because some out of many organizations choose foul play.

IMPORTANCE OF CSR

CSR plays a vital role in smooth functioning of an organization. Incorporating the social obligation into the firm’s strategy and creating relevant value to all stakeholders is in best interest of the business itself.[2] It is important to note that every Company has its own way & reasons for adopting & implementing CSR policies. Thus, a precise sense of social responsibility is difficult to be interpreted. However, from the point of view of various stakeholders the importance of CSR can be identified & they are:

• For employees: Corporations are the major generator of employment in an economy.Employees are considered as internal stakeholders of a company; hence, their effective participation & working attitude is necessary for the growth of Company. It is well-established norm that performance of employee is directly linked to their engagement in organization. CSR policies help not only to retain the present talent but also to attract new one. Job seekers & current employees tend to work in an organization which is aware of its responsibilities towards its employees & society at large. CSR increases the Company’s appeal in job market. The responsibility towards them exceeds well beyond the terms & conditions of formally executed contract.[3] Organizations have to ensure both professional & personal growth of its employees. They have to secure their interests by providing just treatment & equal opportunities for all employees without any discrimination. This improves morale within the workplace and encourages teamwork.

• For Customers: Customer behavior is widely driven by the actions of organizations & consumer loyalty is one of the primary goals of organization. To establish a balance firms, have to adopt such strategies which could not only retain old customers but also to increase its base. Ethics, environment & economic viability are the sources of protecting consumer trust & CSR plays the role of an effective tool to fulfil these requirements. By ensuring service standards, ecological & social requirements organizations tend to develop positive brand image which attracts customer attention. In today’s world customers are much more actively involved in engaging with organizations actions. CSR has a proved to have positive effect on brand image and customer trust, as well as each brand image and customer trust directly influences customer loyalty.[4]

• For Investors: It is a basic notion that if an organization fails to engage its stakeholders, it can jeopardize investor’s ability to create wealth.financial markets perceive and assess policies such as those related to CSR.[5] Market indexes and professional firms tend to provide information to mutual funds, private equity funds, venture capital funds, commercial banks and other financial market investors about a wide range of corporate characteristics, including governance, human resource management, health and safety, environmental protection and community development initiatives taken by an organization.[6] According to The World Business Council for Sustainable Development (WBCSD), CSR based on integrity, sound values & long-term approach offers economic benefits in addition to contributing to society. CSR policies work as catalyst while attracting investments in market place.

• For Suppliers: The CSR policies of an organizations have opened both challenges & opportunities for suppliers. It is so, because suppliers now have to compulsorily abide by the CSR norms like product quality, certifications, & compliance requirements which might fall beyond their corporate boundaries but on the other hand it has provided a platform in market by where supplier’s capabilities in terms of superior quality is ensured, hence, opening the prospects of providing services to new buyers.[7]

• For Government: Governments are interested in protecting health, safety & environment integrity. Their goal is public good via sustainable development. It is important to note that many sustainable development goals are similar to CSR goals of corporations, hence the common ground is to create social value for their stakeholders. CSR can be viewed as business contribution towards sustainable development. [8] It reduces the burden of Government in terms of expenditure, expectations & constantly changing requirements of its stakeholders. Due to these overlapping interests, it is natural that it is beneficial for government to promote CSR for corporations.

• For Society at large: Society is complex structure made of interdependent individuals, they share some expectations like community development. Corporations & Community share close ties; hence, a collaborative approach ensures a win-win situation for both of them.[9] CSR shows the human aspects of an institution. As Corporations have to connect through humans, it is important to identify their needs. It is a thoughtful way of returning what corporation has taken from the society. Creation of social value is the foremost requirement for creating successful business. Natural environment protection, technology & infrastructure, education, environment, economic development, sense of security, better employment opportunities, higher standard of living, improved quality of products for consumers etc. are some examples of benefits of CSR policies to society.[10] It is important for organization to consider the requirements of not only present but also the future.
• For Business: The scale and nature of the benefits of CSR for an organization vary depending on the nature of the enterprise. Managing risk is important part of business strategy, reputation built in years can be ruined by news of corruption, environmental hazards etc & can attract media & regulator’s attention. So, it is important to do the right thing to avoid risking goodwill. Further, it plays role in building market & consumer base as it prescribes distinctive ethical values which help in building brand reputation. Next, by adopting environment friendly policies while producing goods, operative functions, Corporations can cut down its costs.

By addressing the social requirements & developing comprehensively inclusive approach, organizations can take advantage over their competitors. Lastly, Inclusion of both internal & external stakeholders in CSR practices ensures long-term survival of the Company.

CONCLUSION

CSR simply refers to strategies corporations or firms conduct their business in a way that is ethica land  society  friendly.  CSR  can  involve  a range  of  activities  such  as  working  in  partnership  with  local communities, socially  sensitive  investment, developing relationships  with  employees, customers and  their families, and involving in activities for environmental conservation and sustainability. CSR simply refers to strategies corporations or firms conduct their business in a way that is ethical and  society  friendly.  CSR  can  involve  a range  of  activities  such  as  working  in  partnership  with  local communities, socially  sensitive  investment, developing relationships  with  employees, customers and  their families, and involving in activities for environmental conservation and sustainability. A company’s interactions and interdependencies with society are many and complex in nature. Businesses have an impact on societies, and vice versa, so there is a need to recognize the mutual responsibilities that CSR entails. It is more about a philosophical approach adopted by businesses. Nevertheless, CSR practice has also been a subject to debate and criticism considering that there is a strong business interest in this practice as well as difference in its interpretation. While the advantages of CSR are multi-fold and many, it is also important to look at another side and understand its disadvantages as well. Firstly, when company fails to achieve its CSR objectives, it affects negatively on its goodwill. Secondly, it might be possible that Company objectives & CSR principles might not go hand in hand, thus, integrating both of them is a tricky task to achieve. Thirdly, CSR’s integration with operations can lead to rise in costs, which might result in loss of competitive edge. Fourthly, major corporations can afford to set aside huge budgets for CSR activities while it is not possible for small corporations. Hence, it can be noted that, even though CSR is a beneficial tool, above disadvantages may discourage corporations from participating in it. It is the corporation’s voluntary instincts (if not compulsorily imposed by Government) & ability to participate which drives their interests towards formulating CSR policies. Yet, it cannot be denied that CSR has become an integral part of Corporate environment &, its objectives & application are far reaching than only public good & sustainable growth.

References:

[1]Milton Friedman, “The Social Responsibility of Business is to Increase its Profits”, The New York Times Magazine, September 13, 1970.

[2] Dr. Naval Lawande, (September 2019) Importance of Social Responsibility: An Employee Standpoint, International Journal of Innovative Technology and Exploring Engineering (IJITEE), Volume-8, Issue-11S, ISSN: 2278-3075.https://thecorporate.ninja/wp-admin/post.php?post=1787&action=edit

[3] Ms Yogita Sharma, (2013) Role of Corporate Social Responsibility in Organization, IOSR Journal of Business and Management, Volume 13, Issue 4, pp 01-08, e-ISSN: 2278-487X, p-ISSN: 2319-7668.

[4] Kihan Chun and Wonseok Bang, (2016), Effect of CSR on Customer Loyalty: Moderating Effect of Authenticity, International Journal of u- and e- Service, Science and Technology, Vol.9, No. 5, pp.135-142 http://dx.doi.org/10.14257/ijunesst.2016.9.5.12.

[5] Ioannis Ioannou and George Serafeim, The Impact of Corporate Social Responsibility on Investment Recommendations: Analysts’ Perceptions and Shifting Institutional Logics, Strategic Management Journal 36(7), April 2014, DOI: 10.1002/smj.2268.

[6] Paul Hohnen, Corporate Social Responsibility an Implementation Guide for Business, International Institute for Sustainable Development, 2007, pp. 09, ISBN 978-1-895536-97-3.

[7] Leppelt, Thomas; Foerstl, Kai; Hartmann, Evi,(2013), Corporate Social Responsibility in Buyer-Supplier Relationships: Is it Beneficial for Top-Tier Suppliers to Market their Capability to Ensure a Responsible Supply Chain?, BuR – Business Research, Official Open Access Journal of VHB, Volume 6, Issue 2, pp. 126-152, ISSN 1866-8658,

[8] Louella Mathias, (2005), Corporate social responsibility and social sustainability: a role for local government.

[9] Maimunah Ismail, (2009), Corporate Social Responsibility and its role in community development: An International perspective, The Journal of International Social Research, Volume 2 / 9.

[10] Księżak, Paulina, The Benefits from CSR for a Company and Society, Journal of Corporate Responsibility and Leadership, doi:  http://dx.doi.org/10.12775/JCRL.2016.023.