Corporate Social Responsibility and Stakeholders

The analysis of relationship between the corporation and the stakeholders helps in identifying the field and scope for change and improvement and for collaboration between the two. The aim of collaboration is creation of business value for both.

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Since the corporation receives money from the shareholders the main interest of the corporation is to benefit the shareholders. The corporation is the integral part of the society therefore to generate wealth it has to interact with other sections of the society, i.e. stakeholders who are affected by and have interest in the corporation but are not necessarily shareholders. The modern corporation must therefore create value by establishing higher standards for other sections of the society; the demand for higher standard will create supply and hence create new business opportunities.

  • Market stakeholders – Also known as corporate primary stakeholders (CPS) they have direct economic interest and enjoy monetary benefit from the primary business of the corporation, e.g. Cisco employees, suppliers for office and product material and Cisco product customers.
  • Non-market stakeholders – Also known as corporate secondary stakeholders (CSS) they have no direct financial interaction with the corporation, but have affect relationship and enjoy monetary benefits through primary stakeholders of the corporation (CPS), e.g. the suppliers to office product manufacturers and government that receives benefit in the form of tax.

Question: Analyze the affect relationship between corporation and non-market stakeholders

The affect relationship between the corporation and non-market stakeholders can be defined as: the corporate decisions, policies and operations affect the primary stakeholders (CPS), this affect is propagated to the stakeholders of these primary stakeholders, and hence it can be deduced that affect on primary stakeholders sways secondary stakeholders (CSS). The primary stakeholder of a corporation has a network of business associations who are not directly associated with the corporation. These are suppliers, employees and stakeholders of the CPS. The benefits such as more business and high standards that CPS receives from corporate are propagated to CSS. The affect of this relationship is rise of higher standards in the social and business network. This leads to better living status, better healthcare, cleanliness in surroundings, higher efficiency and productivity of all humans, etc. The relationship is reciprocal, i.e. if CSS adopts higher standards prior to demand from the corporate it may put pressure on corporate for higher returns, corporate may have to redefine its product/services to incorporate new standards imposed by CSS. E.g. introduction of 3G/4G mobile services by government (CSS) shall put pressure on mobile phone manufacturers i.e. the corporate through consumers (CPS) to produce compatible instruments.

The development of relevant … enforcement of the firm’s licence to compete (Sachs).

The managers involve with CPS to exchange value standards. A CSS shall choose to partner with a CPS who is associated with a profitable, large socially responsible corporation, so that profits of the corporation are propagated to it.

Corporations must provide information … or risk to the corporation (The Sunshine Standards).

Case Study: Cisco in the Coyote Valley

  1. Cisco has proposed to acquire and develop 400acres of undeveloped land to grow its office facility in order to accommodate its employees for business expansion.
  2. The market stakeholders are the local workforce who will have an opportunity to become an employee of Cisco and suppliers who will supply products for new office space. The non-market stakeholders are CSS of these market stakeholders, locals & government who shall benefit from the development of the area.
  3. The CPS is in favor of the development, but some CSS the local residents are not in favor for the fear of economic burden due to loss of agriculture land and environmental pollution.
  4. The collaboration with market shareholders is a direct business relationship for mutual benefit. The collaboration with non-market shareholders is to mitigate the opposition to the development plans.
  5. Development of the land with compensation for those who are directly affected by displacement due to development.

Corporate Social Responsibility

The corporate social responsibility (CSR) is the affect of corporate influence on the society. The corporate that has power of money, intelligence and technology must use it not only for generating profits for corporate managers but to create better life opportunities for the public. The corporate must involve beyond its primary business to contribute to the development of society by sharing its intellectual property1 and finances2. The expectation of high quality standards from its stakeholders is reciprocal. The transparency is required to eliminate fraud & deception, after Enron and Worldcom scandals, the Sarbanes-Oxley Act provides necessary rules for accountability by audits (Marlin).

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Better health and education institutions, transport, energy, communication, etc. infrastructure is required. The tax and corporate charities are not sufficient; the development has to be powered by appropriate stewardship, i.e. by being involved in governance and by finding new business opportunities. Philanthropy must not be limited to giving money but must include stewardship, i.e. seek accountability by being responsible about how the money is spent for the development of society.

What is ultimately needed is an internal moral gyroscope … because the very survival of the corporate system is at stake (Carroll).

The corporate may consider CSR as disadvantage to business because they may consider it as additional cost and extra-curricular activity. But, quality management in all aspects of business and life is the simplest method of implementing CSR. Quality is the intersection of economic, legal and social responsibilities; (Corporate social responsibility: a new partnership).

Corporate social responsibility: a new partnership
Figure 1. Corporate social responsibility: a new partnership

Multiple Responsibilities of Business

New laws are formed for new quality standards. Quality standards help regulate business processes and thus reduce operational cost this is contrary to the idea that quality implementation shall add to operational costs. Therefore abiding by law is the basic CSR. The corporate may define CSR to generate wealth for itself and stakeholders without inappropriate use of shareholder money. The methods for CSR are: compliance with regulatory laws, philanthropy, involvement with NGOs and governance.

Question: How can companies adopt CSR without sacrificing profits?

Investing shareholder money in CSR activities may not be directly approved by shareholders. The philanthropic activities can not be enforced. The implementation of legal requirements not only discipline the business processes but also contribute to the overall development of the society. Office discipline reduces operational costs by saving misuse of office stationary, electricity, transportation cost etc, PDLC3 and implementation of quality standards reduce development time and produce high quality product with less operational cost and high profit. The corporate that interacts with many other businesses in the society demands that quality standards are implemented by them as well. This enlightened self-interest brings together economic and social goals. Corporate also adopt CSR by business expansion in under-developed areas and new products/services thus creating business wealth for the development of the society. Thus corporate can wield CSR for profit rather than considering it as obligation.

Case Study: Hurricane Katrina

  1. The demonstration of kindness is charity. This does not demonstrate stewardship because there is no involvement of the corporate with governance of philanthropic assets (Stewardship).
  2. The CSR arguments that apply are – improved reputation and balanced corporate power with responsibility. The arguments against are – lower profit and imposed hidden cost that may be passed on to stakeholders, the latter is because of former.
  3. These acts of corporate generosity do not represent examples of enlightened self-interest because they do not generate business value; the Papa John’s pizza chain is an exception if the company decided to open business outlets after initial philanthropy. The philanthropy in kind other than money generates business wealth for CSS.
  4. Yes, philanthropy is a requirement in times of natural disaster, because government and NGOs need charity and stewardship to confront the damages. Most corporate have separate funds approved by shareholders for philanthropy or they may sanction money without impacting the stakeholder’s profit.

CSR and Sustainable Marketing

The impact of CSR on the corporate product/service is to evolve the features and components of product and service in order to serve greater needs of the society and larger sections of the society. The evolution has to consider the stakeholders who shall be affected and the market for the evolved product/service. Before the corporation invests in new and potential requirements the long term goals and profit by sustainability of the product/service demand has to be determined. The concern about environmental factors that influence the determination of product/service enhancements and the vice versa is of paramount importance. The sustainability of the product and hence its market may be dependant upon the ecological attributes because these attributes are directly related with the life of the product, the usability4 of the product and the disposal of the product. CSR commitment of the corporate with the stakeholders has to be respected in view of materials & energy intake and outflow, disposal of waste, such as environmental pollution is prohibited, and consumption of energy by the product must consider consumer concern about billing, regional laws and energy availability. Disposal of waste may generate new business opportunity for stakeholders but CSR enforces that corporate must ensure proper disposal or recycling of the waste (Demirag).

While much corporate rhetoric abounds concerning notions of stakeholder dialogue and engagement, rigorous analysis of the governance implications of their claimed commitment to the principles of corporate social responsibility is largely conspicuous by its absence (Demirag).

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The environment also encompasses the product stakeholders; this includes raw material suppliers, product manufactures and consumers. The P2R2 principles apply to all. These principles guide the choice of raw material suppliers by manufacturers and the choice of product brand by consumers. A responsible manufacturer will associate with suppliers who have worked to eliminate toxics, improved the quality of the material for extended life and who have material that is easily recyclable according to latest technology. A conscious consumer is more likely to choose a green product or service that is P2R2 compliant. Green business is the latest trend and CSR demands environmental friendliness therefore this is the latest business passion for building corporate brand and reputation (Langert). Advertising and marketing green product/service is also essential; methods used are logos, green color, slogans and use of green vocabulary5 in conversation.

How environmental features fit in a product anatomy?

Environmental features
Figure 2. Environmental features

Green Brand Model

There are two types of environmental features that must fit into a product to define a brand attitude as green product. These are functional attributes that comply with and are dependant upon product attributes and P2R2 principles and emotional benefits that influence product stakeholder perception of product in the environment. The consideration of functional attributes such as quality, performance, reliability, appearance, maintenance, disposal and manufacturing entail determination of toxins and recyclability of the product raw material. The compliance with P2R2 principles has to be validated at all nodes in the supply chain. The emotional benefits are cost, ergonomic, ease of operation and legal requirements. These are the attributes that shall convince the consumer about the benefits of the green brand. The emotional benefits of the stakeholders are considered in all phases of PDLC.

Case Study: British Petroleum

  1. BP can build eco-values in its brand by ensuring P2R2 principle compliance by all stakeholders in the supply chain. The accusations of “green washing” can be dealt with by publishing CSR report and lobbying with activists to spread the know-how about eco-friendliness (Starbucks).
  2. BP should have identified environment risks and threats and defined and implemented security policies. The verification process must be conducted to ensure that policies are up-to-date and that they are implemented (Commissioning).
  3. BP must regularly publish its CSR report, educate stakeholders about its green initiatives, advertise and make its green initiatives transparent for verification and evaluation to ensure sustainability (Rich).

Works Cited

  1. Carroll, Archie. Iron law may guide practices. 2002. Online Athens. Web.
  2. Commissioning. 2005. Utilities & Plant Engineering. Plant Operations Division @ The University of Michigan. Web.
  3. Corporate social responsibility: a new partnership. 2007. European Parliament.
  4. Demirag, Istemi. Corporate Social Responsibility, Accountability and Governance. 2005. Global Perspectives. Web.
  5. Langert, Bob. “Greenwashing” vs. “Greenmuting” – Which is the Lesser of Two Evils? 2007. McDonald’s Corporate Responsibility Blog.
  6. Marlin, Tepper John. Three Years Later: Lessons from Sarbanes-Oxley. 2005. MHCi International.
  7. Rich, Sara. Creative Activism & The Three Types of Green Brand. 2007. PSFK UK Report.
  8. Sachs, Sybille. Engaging stakeholders – CSR equals corporate stakeholder responsibility. 2006. Ethical Corporation.
  9. Starbucks Under Fire in Europe for Greenwashing. 2005. Organic Consumers Association.
  10. The Sunshine Standards. The Stakeholder Alliance. 2007.

Footnotes

  1. stewardship
  2. charity
  3. Product Development Life Cycle
  4. utility and ease of use
  5. Vocabulary that suggests implementation of eco-friendly attributes.
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