Unraveling Corporate Social Responsibility: Beyond Legal Compliance

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RESEARCH PAPER

Critically Evaluate the Social Responsibility

of Organisations

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Introduction

In dynamic business world, it is challenging for the companies to conduct business ethically. There is

high involvement of government and consumers in the decision making that any unethical activity of

the companies is right away caught by the stakeholders. In this essay, the focus is on defining business

ethics and social responsibility of companies in business decision making. The key aim of the essay

will be to examine whether the companies have responsibilities beyond obeying the laws and paying

the taxes or not. Also, the core focus will be to analyse the influence of their activities on overall

society. A company is required to fulfil its financial objectives but also consider its responsibility

towards the society. In this, we will be defining business ethics and then defining the role of ethics in

business. Then the focus will be on analysing the corporate social responsibility of organisations and

some steps that company can adopt to improve their ethical behaviour in organisations.

Business Ethics and Social Responsibility

As per (Frederick, 2007), business ethics are defined as the principles and standards determining the

conduct of the organisation which should be acceptable and adhere to the standards set by institutions.

The following of business ethics is mandatory and are determined by the stakeholders including

customers, employees, government, competitors, interest groups and the personal values of the

management. For instance, a company based in Canada called Akzo Nobel Chemicals BV was

sentenced to a fine of $2.9 million by Competition Bureau of Canada on grounds of setting prices of

an animal feed additive unethically 1. As per (), it has been argued that companies should not only

focus towards achieving their financial objectives and making profits but also on the social

implications of their activities. The most basic ethics to be followed in business are laws and

regulations encouraging a business to adhere to the standards of society and adopting ethical values 2.

As far as minimum ethics are concerned, managers are expected to adhere to laws and regulations

during work. However, when action of managers is not acceptable to the society, it is often deemed as

unethical. But it is important to note that the actions which are taken by society as unacceptable may

or may not be unethical. Hence, it is important for the business owners to have knowledge about the

business ethics. (Frederick, 2007) define business ethics as the laws and regulations that govern the

1 Frederick Bird, Joseph Smucker. The Social Responsibilities of International Business Firms in

Developing Areas. Journal of Business Ethics (2007) 73:1–9.

2 Jean-Pascal Gond, Assâad El-Akremi, Jacques Igalens, Valérie Swaen, Corporate Social

Responsibility Influence on Employees

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attitude of business in society 3. In order to avoid much of the problems, the managers should be well-

versed with the business ethics and legal system. As part of a compliance system for a business,

ethics, social responsibility encourage the business owners to adhere to them

As far as obeying laws and regulations are concerned, obeying the laws is not enough to be known as

ethical. Many organisations may have a conception that following the laws, paying taxes and being

ethical makes them socially responsible. Also, they do not have any other responsibility towards the

organisation. However, this conception is wrong as argued by (Anselmsson, 2010). As per him, it is

believed that in order to be socially responsible, an organisation has to be part of the society and

contribute towards building a better society. However, a common source of ethical insensitivity is

legalistic attitude towards ethics as per which it is said that a company which adhering to the laws and

regulations are considered ethical. This notion explains that companies which are accused of

wrongdoings are often hidden behind the technicalities of laws. Due to laws and regulations, these

organisations explain that they are not accused. One of the faults in this approach followed by most

organisations is that they consider following laws as everything and treat them as ethical principles.

As per (Anselmsson, 2010), obeying law is important and considered an important obligation of being

responsible but these just a minimal standard. However, these laws do not tell us about what an ethical

company ought to do. Hence, there is an urgent need to understand the difference between following

laws and being socially responsible.

It has been observed that in many organisations that they have a compliance program wherein the

employees are taught about following the laws and adhering to the ethical standards. This leads to a

mentality of ‘following something to stay out of trouble’. This mentality leads to the disregard to

ethical implications of conduct and consider ethical standards as just obstacles. The key focus of the

compliance program on what employees ‘must’ do. However, the responsible employees must possess

a mentality that these ethics ‘should’ be followed. Hence, this makes it clear that many companies do

not focus on following the business ethics by being socially responsible instead they focus to adhere

to the laws and regulations.

As per (Jones, 2008), a company can be dishonest, untrustworthy, uncaring and unfair without

breaking the rules. In organisations where ethics are very important, the companies measure the

conduct of employees with ethical values instead of laws and regulations. In such organisations, the

distinction between ‘must’ and ‘should’ follow the ethical values is clearly defined. As per the above

3 Anselmsson, Johan; Ulf Johansson "Corporate social responsibility and the positioning of grocery

brands: an exploratory study of retailer and manufacturer brands at point of purchase". International

Journal of Retail & Distribution Management (10): 849.

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analysis, it is clear that the obeying laws is not enough to be called socially responsible instead

contributing towards the welfare of the society is important.

Ethics in Business

In the above section, we have focussed on examining the importance of concentrating on ethics

instead of laws and regulations. This section is concerned with analysing the importance of ethics in

business. There are plenty of news programs focussing on increased awareness programs related to

the misconduct in organisations which is generally overlooked 4. This is due to the fact the

misconduct is not observed since the laws and regulations are not broken and hence this is treated as

ethical. As per HRM survey which was conducted on US employees by Ethics Resource Centre

Society, there are numerous instances of misconduct in the organisations 5. On being asked about the

factors that had led to the misconduct of employees in organisations, it was quoted that aggressive

financial objectives and increasing pressure put on them to achieve were responsible for the

misconduct. Some of the misconduct activities on an average were lying to supervisors, falsifying

records, alcohol and drug abuse, conflict of interest, theft of data or anything confidential and

entertainment against the policy of the organisation.

Conflict of interest: It is one of the common ethical issues realised in organisations which is a serious

misconduct but not recognised due to the fact it does adhere to the laws. Conflict of interest generally

refers to the conflicts which usually arise when a person chooses the personal interest or others

interest in decision making. For instance, the responsibility of the manager is to build strategies in

order to generate profits and provide return on investment to investors. If he does not do it, the

conflict of interest will develop. Wal-Mart has one of the strict conflict of interest policies in retail

sector wherein the group does not allow the buyers to accept gifts. This is one of the factors which is

helping the company achieve success 6.

4 A.B. Carrol , A three dimensional conceptual model of corporate social performance . Academy of

management Review , 4 pp. 497-505.

5 A.B. Carrol , The pyramid of corporate social responsibility : toward the moral management of

organizational stakeholder . Business Horizons, pp 39-48.

6 A.Dahlsurd, How corporate social responsibility is defined :an analysis of 37 definitions. Corporate

Social Responsibilty and Environmental Management.

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Acquiring honest attitude: Second ethical issue is the acquisition of honesty which should be in the

values of the organisation. A business person should follow laws and regulations but also ensure to

treat the stakeholders calmly and not hurt them in any case. Many times, companies follow unethical

practices to gain the competitive edge in the market 7. For instance, competitors of Microsoft have

accused the company of adopting unfair practices to maintain the position of market leader and

association with Microsoft Network web browser. Hence, being honest is highly critical for an

organisation to remain socially responsible and following ethics.

Communication: The third ethical issue normally encountered in organisations in communication. In

organisations, the marketing team might adopt false and misleading advertising methods to lure

consumers. But this disappoints consumers and hurt their sentiments once they get to know about the

misconduct. Hence, it should not be followed at any cost. The business which is not true to its

consumers about the products is not ethically sound even if adheres to all laws and regulations. The

communication made with the consumers should be true and not deceptive. Hence, communication is

one of the common issues encountered in an organisation.

Business relationships: The fourth ethical concern is the business relationship which is developed by

the business owner with the stakeholder. As per (Jones, 2008), the ethical behaviour generally include

keeping company’s secrets, meeting responsibilities and treating stakeholders honestly. For instance,

in a software company, a manager might order his employees to use duplicate software which will put

the organisational in legal trouble. It will also pressurise the employees to undertake unethical

practices to achieve the goals of the company. Hence, this is a common type of misconduct found in

organisations which is ignored since it appears as it does adhere to the laws and regulations.

These are some of the ethical issues usually found in an organisation but not taken in focus due to the

notion that every activity should be as per law and regulation. Hence, being ethical, these issues

should not be overlooked. Managers can adopt a five-step framework given by Markkula Centre for

Applied Ethics 8. The five steps of the framework as under.

1. Determining the moral issue: It involves determining the problem effectively which is

prevailing in organisation related to the organisation.

7 Jones, Peter; Daphne Comfort; David Hillier . "Corporate social responsibility and the UK's top ten

retailers". International Journal of Retail & Distribution Management 33 (12): 882–892.

8 Martinuzzi, André; Robert Kudlak; Claus Faber; Adele Wiman "CSR Activities and Impacts of the

Retail Sector". RIMAS Working Papers No.4: 2.

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2. Get the facts: The second step is to get the facts about the issue.

3. Evaluate the alternatives actions from various moral perspectives: The third step is to assess

the alternate actions from different moral perspectives. To be socially responsible, this step is

crucial.

4. Take a decision: The fourth step is to take a decision using the actions of various perspectives.

5. Implement decision and then reflect on it: The final step is to implement the decision and

effectively reflect it.

This is a five-step framework which can be used by organisations to monitor their activities and be

ethically sound. This framework and related approaches enable the organisation’s management to

think beyond following laws and regulations 9.

Importance of Being Socially Responsible

Various economists have performed various studies in the past in order to realise the responsibilities

of firms as part of the social surrounding and the most common debate in this regard has always been

the issue of Social and Ethical Responsibility of a corporate firm. (Sternberg, 2000) argued that it is

enough to maintain an ethical relationship and transparency within an organization. According to this

view, low level employees of a firm should be treated with as much respect and dignity as the higher

level officials, with fair wages and security. Also, within the work force, gender equality should be

enforced with deserved treatment to each employee 10. A firm which cares more about profits than its

employees ends up losing employees’ motivation which leads to loss in the long run.

However, some others debate that the broader concept of “stakeholders” should be considered, letting

organisations take responsibility for a wider range of environmental, economic and social situations

which rise from the firm’s operations. Owing to this view, questions about what factors decide the

social considerations of the firms again rise. In a research Paper “The Social Responsibilities of

International Business Firms in Developing Areas” published by Frederick Bird and Joseph Smucker,

three approaches are discussed which can give direction to firms to act as socially responsible. First,

the locality of operation must be considered. Second, the importance of communication must be

realised. Third, the social and economic assets of the community must be sustained and enhanced.

9 Agle, B. R. (2008). Dialogue: Toward superior stakeholder theory. Business Ethics

Quarterly, 18(02), 153-190.

10 Solomon, R. C. (1992). Ethics and excellence: Cooperation and integrity in business.

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According to (Leader, 2005), the basic ethical responsibilities can be taken care of by resolving

contradictions which arise between buyers, sellers, consumers and employees. The contradictory

objectives of Buyers and Sellers should be settled with agreements and competitive pressure on the

firm for low prices should not lead to low wages for labours. In order for a firm to be termed

“responsible”, it has to efficiently balance its private profit against public welfare 11.

Another question which rises in this quest for social responsibilities is whether fulfilling these

responsibilities is profitable for the firms. While some claim that social responsibility and

sustainability pay an important role in long run profits, others believe that efforts at social relations is

a waste of both energy and money. However, both the above situations have been witnessed in the

market. Starbuck’s, which justifies its high prices as a benefit to its’ coffee growers, has high

reputation and impressed consumers. At the same time, Foxconn, with its underage workers and poor

factory conditions and yet high profits showcase the opposite phenomenon as proved by Starbucks’.

Society now believes that a business is not only responsible for quality products but welfare of

environment and its’ employees as well. Its’ perception of a reputed business concerns its’ social,

ethical and environmental conduct and in the long run, a good reputation has positive impact on its

relationships with other customers and sellers which lead to enhanced business opportunities. In

today’s market, business firms hold an impressive grasp over the society and as it is said, “With great

Power come great responsibility”, it becomes the responsibility of these firms to maintain sustainable

development by taking not only economically but environmentally and ethically sound decisions as

well.

Corporate Social Responsibility

Corporate Social Responsibility is a term which has been in used over the decades. This is a concept

which is growing at a very fast pace with its own significance and importance. As of now, no precise

definition of concept of Corporate Social Responsibility is available in the text which can cover it's

total concept. Corporate Social Responsibility is a term which is explained as, the responsibility of an

organization to do such activities as they can impact the society positively 12. There are several efforts

an organization makes in interest of its several stakeholders. The stakeholder of an organization who

11 Stark, A. What's the matter with business ethics?. Harvard business review (1992), 71(3), 38-40.

12 Donaldson, Thomas, and Thomas W. Dunfee. "Toward a unified conception of business ethics:

Integrative social contracts theory." Academy of management review 19, no. 2 (1994): 252-284.

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get benefited by Corporate Social Responsibility activities are customers, shareholders, employees,

suppliers and communities. This is one of its kinds of obligation as there is no statutory binding over

the organizations it’s just that the organizations need to voluntarily work about these concerns which

affect the society.

Corporate Social Responsibility is largely a debated topic since 20th century. If the ideas of charity

and stewardship would not have worked then it would have been difficult to shape the thinking about

Corporate Social Responsibility 13. Over a past few years there have been so many definitions of

Corporate Social Responsibility given by different scholars. One recent study has identified 37

different definition of Corporate Social Responsibility ( Dahlsurd, 2006) .A very popular definition of

Corporate Social Responsibility given by (Carrol 1991) is also known as a four-part definition, as it

identifies four categories of a responsibility which are Economic, ethical, legal and discretionary.

These responsibilities are nothing but the expectations of stakeholders from an organization.

The need for corporate social responsibility was felt due to a number of reasons. Some of those

reasons include improve the standard of living and quality of work life of the employees working in

organizations , the waste disposed off by the organization was causing harm not only to the human

beings and animals but to the environment as well, the shareholders and suppliers were not taken care

of in a fair manner, the organizations used to exploit customers by providing lower quality and higher

rates.This way all the stakeholders were dissatisfied with the policies of organisation.

Due to the above reasons, there was a need to have such a mechanism which can resolve all the issues

of stakeholders. Along with these reason the most important reason for an organization to adopt

Corporate Social Responsibility is that it is very helpful in building its image in society. All these

reasons were enough to push an organization to go for Corporate Social Responsibility. There is no

fix scale for an organization to do Corporate Social Responsibility Activities all these measures

depend upon the size and nature of an organization. It also depends on the profit of an organization.

There are a number of activities which an organization do as part of Corporate Social Responsibility

such as free medical facilities, education initiatives, poverty reduction, employment generation,

providing drinking water and sanitation facilities, women empowerment, cultural activities, social

awareness etc 14. There are some organizations which taking remarkable steps as part of their

13 Carroll, Archie B. "A three-dimensional conceptual model of corporate performance." Academy of

management review 4, no. 4 (1979): 497-505.

14 Giacalone, Robert A., and Kenneth R. Thompson. "Business ethics and social responsibility

education: Shifting the worldview." Academy of Management Learning & Education 5, no. 3 (2006):

266-277.

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Corporate Social Responsibility. There is a private global consulting firm called Reputation Institute

which is based in New York which has done a research on corporate social responsibility. It has

invited almost 47000 consumers from 15 markets to this study which ranked 100 most prestigious

companies in the world for Corporate Social Responsibility 15. The findings of research revealed that

Microsoft is best company which is doing Corporate Social Responsibility. The initiatives which

Microsoft has taken includes working with government, nonprofit organizations, investors, Boston

college centre for corporate citizenship , the World Economic Forum ,CSR Europe ,Net Impact etc.

After Microsoft, No. 2 Company which was found in research was Google. Despite its lower profits

Google continued to do Corporate Social Responsibility efforts.

There are some companies that do not have clearly defined program for Corporate Social

Responsibility but are able to perform it very well. The companies are successfully running all the

Corporate Responsibility initiatives because they also get benefited from it. It helps in recruitment and

to attract competitive students and talents into the organizations. An organization’s social

responsibility as a corporate citizen policy plays a dominant role in getting potential candidates

recruited. Besides these matters, social responsibility policies also improve the perceptions employees

have towards their organization. While jotting down the benefits of CSR for organizations

Anselmsson and Johansson in 2007 identified three areas from where the organization get benefits

from the performance of Corporate Social Responsibility which are Human responsibility,

environmental responsibility and product responsibility. Further in their research Martinuzzi et al.

explained the above three concepts. While explaining they said Human responsibility means that the

organization has to deal with the suppliers who are very strict to the values of good and natural

breeding 16. At the same time for animal's farming, maintaing positive and justified conditions of work

and an ideal work-place atmosphere for their employees. With this they explained the responsibility of

product as every product shall accompany a fair chart of its content, the name of the country where

product is originated is stated on the product. It also includes the upholding of a company with its

declaration by assuming the liabilities towards its products. Finally the meaning of Environmental

responsibility is that an organization is obliged to develop environmental-friendly, on-harmful,

products which are fit to ecology.

Corporate social responsibility is very vital in increasing customer loyalty because it is based on a

distinct feature of organization’s ethical values and norms. This is the one reason why organizations

should be very strict towards their ethical norms and Corporate Social Responsibility activities.

Though a number of challenges are there in front of organizations but they have to overcome them for

15 Schoenfeldt, Lyle F., Don M. McDonald, and Stuart A. Youngblood. "The teaching of business ethics: A survey of AACSB member schools." Journal of Business Ethics 10, no. 3 (1991): 237-241. 16 Trevino, Linda Klebe, and Michael E. Brown. "Managing to be ethical: Debunking five business ethics myths." The Academy of Management Executive 18, no. 2 (2004): 69-81.

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the reason of doing Social Responsibility as a corporate citizen. The major challenges for

organizations are tariffs, trade restrictions, areas which are environmentally sensitive, restrictions of

government, limited resources, globalization etc. In this series of issues Jones et al. in 2005 reported

that the issues related to the environmental are the most popular depicted CSR programs when it

comes to the top retailers. Amidst all these Corporate Social Responsibility opens up a new horizon

for the organizations.

Social Responsibilities Ignored by Organizations

It’s a commonly debated issue whether and what social responsibilities a business holds. Society and

social advocates these days believe that businesses are as much responsible for the society and

environment as much as for its own profits. Social and ethical responsibility of a firm is its obligation

to reduce its negative effect on the society and increase the positive ones. Even though, most basic

social responsibilities of a firm are often stated as laws, a lot of others which are legal but unethical in

society’s view have to be taken care of personally by the individuals involved 17. A lot of legal issues,

internal conflicts and societal issues can be solved if firms fulfil these simple responsibilities and

follow these basic Business Laws. These organisations need not only work in a sociable manner to

impress the consumers or society in general, but also because of profitable reasons. Companies with

ethical approach often earn more profit due to satisfied employees and consumers. Taking legal and

responsible decisions leads to simpler and less stressful lives for the employees involved. Ethical

behaviour enhances leadership; whereas its alternative is generally demanding and costly.

The basic issue about complying with social responsibilities is ignorance among the people

concerned. Either employee don’t find it useful enough to follow the basic rules or have hard time

deciding what decision would be ethical and sociable and which won’t be. Such situations often

involve comparing monetary profits against social or appropriate conduct. The easiest way to take

such decisions is to view the decisions from the view point of consumers. The culture of locality of

operation must also be considered. There are a lot of basic social issues which are often ignored by

firms but are easy to work on 18. Situations involving employees to make a decision about choosing

either personal interests or those of others are the most common ones. At the lowest, every employee

should at least follow the legal laws and regulations which restrict them from harming the consumers,

employees or client by deception. If unethical actions are considered, monopolistic practices and

gaining control over the market are often assumed unfair. These not only rule out the chances of

competitors but also lower the company’s own urge and motivation to improve itself.

17 Jones, Thomas M. "Ethical decision making by individuals in organizations: An issue-contingent model." Academy of management review 16, no. 2 (1991): 366-395. 18 Epstein, Edwin M. "The corporate social policy process: Beyond business ethics, corporate social responsibility, and corporate social responsiveness."California management review 29, no. 3 (1987): 99-114.

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Exaggerated and false advertisement of it’s’ products also leads to defaming of the company and

dissatisfied consumers. This not only is deceptive, but also leads to loss. A company should be

truthful and honest about the quality and features of its products if it wants to operate in the long run.

Also creating an ethical environment within the organization is necessary. It is a well known that a

firm with unhappy employees, not only end up being of no advantage to the organization, but become

a disadvantage as well. Employees should not only behave appropriately with the clients, but also be

honest and sincere with fellow employees and even subordinates. Also the employees should feel

obligated to keep firm’s secrets and make firm’s overall profit their primary objective. Employees

should avoid misbehaving and manipulating others or putting undue pressure over them. It is the

responsibility of higher level officials to create a non hostile and friendly and yet productive and

sincere environment for the work force 19. Disregard for fellows may lead to misconduct by them in

the form of deception. Also a very common and still social issue is that of Plagiarism. Taking credit

for others’ work and gaining the respect or reward others’ deserve may again lead to hostile feelings

in the actual owner of the credit. Each employee should be treated equally and should be paid as much

as they deserve, avoiding any kind of gender, class or background inequalities.

A business that works for the welfare of environment and society as much as it works for profit often

runs better in long term period, gaining better reputation and better investments. On the other hand,

irresponsible companies might earn a lot right away, but lose their momentum in the long run with

dissatisfied customers and employees. Also, once a consumer gets involved in a firm, it becomes the

responsibility of the firm to protect his rights with satisfactory and safe products, and take their

feedbacks and complains seriously.

With changing times, welfare of environment and sustainable development, have also acquired an

important role in a firm’s responsibility. Today, society demands the firm to take responsibility for the

environmental harm done by them and work on its betterment. These include basic hazards of

pollution, or even animal extinction. In economics, the concept of sustainable development is gaining

a lot of attention, advising firms’ to exploit resources in a manner that leaves the future generations

with enough resources.

Also a significant issue for a firm involves considering the welfare of community and society, making

its locality of operation a better place. A firm which earns millions has a social responsibility to make

fair payments to not only their labours, but also the raw product producers as well. It is also

considered their moral responsibility to work for charity and providing employment opportunities for

the sake of general public. Companies which let everybody take a share of their profit, often end up

profiting enough for everybody. Conclusively, even though it is hard to decide what can be considered

19 Fukukawa, Kyoko, John MT Balmer, and Edmund R. Gray. "Mapping the interface between corporate identity, ethics and corporate social responsibility."Journal of Business Ethics 76, no. 1 (2007): 1-5.

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a sociable decision, it is easy to understand it every time we feel the need to hide the decision from

co-workers or consumers. According to a survey, one fourth of employees of a firm get an

opportunity to engage in unethical activities and 41% take it.

Simple traits like honesty, generosity, and sincerity are the ones at play in these circumstances. A five

step framework by Markkula Center for Applied Ethics involve the following steps which might help

firms take ethical decisions: Recognize a moral issue, Get the facts, Evaluate the alternative actions

from various moral perspectives, Make a decision, Act, then reflect on the decision later.

Ethical decisions are influenced by moral standards, influence of managers and opportunities of

misconduct. Understanding what motivates a person to make ethical choices and what forces them to

participate in the alternative is the best way to plan strategies for ethical approach and environment.

Conclusion

As per the evaluation done above, it can be noted that organizations generally overlook the ethics and

only concentrate on following laws and regulations, paying taxes as their sole responsibility.

However, this attitude does not make them socially responsible and it does not determine whether

they are influencing the growth of the society or not. There have been many economists who have

performed studies in the past in order to realise the responsibilities of firms as part of the social

surrounding and the most common debate in this regard has always been the issue of Social and

Ethical Responsibility of a corporate firm. Also, it is critical for the organisations to maintain an

ethical relationship and transparency within an organization. For instance, the low level employees of

a firm should be treated with as much respect and dignity as the higher level officials, with fair wages

and security. The issue of gender equality should be enforced with deserved treatment to each

employee. The organisation that focuses on generating only profits than its employees end up losing

employees’ motivation which leads to loss in the long run. Hence, the organisation need to focus

towards being corporate socially responsible instead of just considering laws as the criteria to be

responsible. There are several efforts that should be made by an organization in the interest of its

several stakeholders. The stakeholder of an organization who get benefited by Corporate Social

Responsibility activities are customers, shareholders, employees, suppliers and communities. This is

one of its kinds of obligation as there is no statutory binding over the organizations it’s just that the

organizations need to voluntarily work about these concerns which affect the society. Hence,

companies should not only focus towards achieving their financial objectives and making profits but

also on the social implications of their activities. The laws and regulations are just basic ethics

encouraging a business to adhere to the standards of society and adopting ethical values. However,

managers are expected to adhere to laws and regulations during work.