Ethics and Corporate Social Responsibility

Introduction

Without ethics and social corporate responsibility businesses can become exploitative. A few years back organizations were concerned about making profits; only without concern for sustainability. In this era of globalization, businesses cannot afford to ignore the issue of ethics and social responsibility because with the media highlighting unethical behavior such as polluting the environment, oppressing workers the general public demands that the organizations conduct their business ethically. In addition, for the businesses to attract customers as well as retain employees they have to incorporate the new acceptable practice of corporate social responsibility.

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Corporate Social Responsibility

Corporate social responsibility means a voluntary step that businesses take to fulfill the expectations of their shareholders (Andreasen, 2001, p.16). They do this by integrating ethical, social and environmental concerns with their normal practices of striving to get a profit, revenue as well as meet their legal obligation (Corporate Social Responsibility, para 1). Corporate social responsibility requires businesses to behave ethically and promote economic development and at the same time improve the quality of its personnel together with their families, community and the society at large (Sims, 2003, p43; Kotler & Lee, 2005, p. 7). Corporate social responsibility is a social obligation. The obligation is ‘to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society’ (Bowen in Magna & Ferell 2004, p.4; Beesley & Evans, 1978, p. 13).

Therefore, business leaders must take responsibility for all their actions. Organizations, it is urged should take steps that will protect them as well as enhance the society’s welfare. Some people have suggested that the organizations present in society are there to serve the needs of that society. Hence, stewards of social businesses are socially responsible. This means that the leaders and must consider their decisions not only from organizational perspectives but from the society’s as well (Sims, 2003, p. 43; Subhabrata, 2007, p. 31).

Another definition of CSR is the idea that an individual ought to consider his or her actions in light of the whole society or system. The system holds an individual responsible for the impact of their actions on the system (Berumen, 2003, p. 7). Social responsibility can be described in the context of legal vis-a -vis economic objectives. This means that the notion of social responsibility assumes that an organization not only has economic obligations as well as legal obligations, but other responsibilities in the society that goes beyond the two obligations (Sims, 2003, p. 43; Farmer & Hogue, 1985, p.1).

“Corporate social responsibility relates primarily to achieving outcomes from organizational decisions concerning specific issues or problems which have beneficial rather than adverse effects upon pertinent corporate stakeholders. The normative correctness of the products of corporate action has been the main focus of corporate social responsibility.” (Sims, 203, p. 43).

The society expects corporations to be socially responsible economically, legally and philanthropically at any given time. This definition puts the legal and economic expectations of business in a social context by relating them to issues that concern the society (Rich & Enderle, 2006, p.57). The concerns include philanthropic and ethical responsibilities. Businesses are supposed to obey the law. This is because the law defines what is acceptable or not in society. On the other hand, businesses should be ethically responsible which means the obligation to do the right thing, be just and fair. They should also avoid or reduce harm that may befall its stakeholders such as consumers, employees and the environment. Lastly, a business is expected to be a corporate citizen that is good so as to fulfill philanthropic responsibility. Thus, it contributes financially and gives human resources to the society to enhance the quality of life (Sims, 2003, p. 43).

Social responsibility goes beyond fulfilling the law. It has the obligation to contribute to the welfare of the society. An organization’s social responsibilities are shaped by the historical period as well as the culture of the society in which it operates. The society’s norms and values change over time and likewise what is socially responsible behavior of the society changes (Renz, 2007, p.34).

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Business ethics

The interest in business ethics has increased recently. However, the subject has been around for a long time and was present during the medieval period (Chryssides & Kaler, p. 4; Dennison, 2007, p 1). For example, there were laws concerning wages and an employee was not supposed to pay a worker a wage that was below the set standard. In the biblical times the Law of Moses required harvesters to leave behind crops for the poor to feed on. Servants had to be given a rest during the Sabbath, debts were canceled every fiftieth year during the Jubilee (Chryssides & Kaler, p. 5; Natale & Fenton, 2007, p 45).

Business ethics is seen from the perspective in which an organization makes decisions. Ethics is very important in business. This enables a business to act in the right way in a particular situation. Such a business is able to impress its clients and this leads to a harmonious relationship with its customers. A business that has high standards of ethics is able to build the trust of its clients and they become loyal. On the contrary, when businesses fail to make decisions that put the society into consideration they risk being disapproved by the society (Chryssides & Kaler p.19; Carter & Clegg, 2007, 8). To illustrate this point, Barclays Bank was forced to withdraw its operations in South Africa after UK student unions went on boycott. This means those businesses that have unethical practices pay a very high price.

Business ethics is fundamental in the leadership of a business. Leaders in business are very important and the kind of image they portray to the public reflects on the businesses they lead. If leaders are unethical their values permeate their organizations (Pearson, 2009, para.4). Thus, they have to be morally upright to gain approval of the public. Ethics can cause an executive his or her job or even impede their success (Ciulla, 2004, p. 25). It is believed that executives’ unethical behavior often leads to falling of business standards, success as well as the productivity. The low perception of executives by workers often causes them to respond through absenteeism or just goofing at work. Therefore, it can be said that business leaders have to set high standards for themselves that the workers will imitate. Unless this happens it will be very difficult to change the perception that people have about the workplace. Moral leadership cannot be separated from business ethics (Ciulla, 204, p. 26; Knapp, 2007, p. 59).

CRS and Ethics context

Organizations operate in different societies and therefore in different contexts. Due to this fact organizations are required to maintain social legitimacy. However, due to the differences in societies what is acceptable or not also differs. There are two main things that influence CRS in a society. These are economics and democracy (Wueste, 1994, p.3).

The relationship between a business and the society is defined differently. Different expectations arise from various factors. For instance, in a wealthy society the expectations from businesses are high because they have greater resources. On the other hand, in poor societies people have fewer expectations of businesses this is because the focus is on basic necessities such as food clothing and shelter, medicine, transport and others. However, as societies progress their expectations change and CRS is also forced to be responsive to the changes (Minus & Bassiouni, 1993, p.27).

The differences between poor and rich societies expectations are proprieties. For example, in a poor society people are concerned about getting transport and pollution is not an issue even though they value a clean environment. Other the contrary, in a rich society people are concerned about the pollution caused by a certain type of transport. Therefore, they will demand the type of transport that causes less pollution or none at all. These expectations may even become laws and mandatory (Wueste, 1994, p. 13).

Factors that push for CRS

Corporate social responsibility encourages accountability in business to all its stakeholders. The main areas of concern are: the community, employee’s wellbeing, environmental protection, the community and the society. CRS notion is underpinned by the concept that organizations cannot act in isolation as economic entities and detached from the society. The traditional views of profitability, competitiveness and survival are being abandoned. There are factors that have led to the abandonment of the traditional views.

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To begin with the role of the government is shrinking. Governments used to regulate businesses using regulation and legislation to meet their environmental objectives. The resources of the government dwindled and distrust for the regulations grew. This led organizations to incorporate CRS on a voluntary basis. Secondly, the demand for transparency from stakeholders led to CRS adaptation in organizations. Thirdly, customers increased interest. Customers have an increased interest in the companies that produce the goods and services they consume (Minus& Bassiouni, 1993, p.15; Subhabrata, 2007, p. 23; Filho & Idowu, 2008, P.1). Therefore, they are able to buy goods from companies that are socially responsible and shun those that are produced by socially irresponsible companies. Fourthly, there is pressure from the investors and other shareholders (Megone, 2001, p.9). Investors have changed the way they used to assess companies and are now assessing them based on ethical concerns. A survey done in the USA in 1999 showed that investors made decisions on where to buy shares depending on the social responsibility of the company. Those with more social responsibility attracted more investors. Fifthly, labor markets have become competitive. Employees are looking for employers who offer more than paychecks. They are looking for employers who have philosophies that are similar to their own and this has led organizations to improve the working conditions (Kleinig, 1996, p. 67). Lastly, supplier relations have changed and they are more interested in the affairs of businesses. Some have introduced codes that the business must follow or practices that cannot stain their reputation (Corporate Social Responsibility CRS, para. 1, 2, 3; Mintzberg, 1998, p.13).

Importance of CRS and Ethics

CRS influences all the operations of a company. To begin with, consumers are interested in buying products from reliable companies. The suppliers prefer to form partnerships with people and companies that are respectable. Employees desire to work for companies they believe are socially responsible. Non- Governmental Organizations are interested in giving their support to companies that are socially responsible and are committed to solving the problems in the society. Therefore, when companies satisfy their stakeholders they are able to maximize their profits and their shareholders are satisfied (Werther & Chandler, 2006, p 19).

When CRS and ethics are given importance in a business it does well commercially due to the goodwill it gets from its stakeholders. In addition, it is the proper conduct of business (Social Responsibility and Ethics, para. 2). Not only is business ethics fashionable, but it is the glue that holds business together. Business ethics provides support to the business “for maximizing long-term owner value” (Malachowski, 2001, p. 9).

CRS is very relevant today. This is due to new trends that are growing and will continue to do so in the twenty-first century. The first trend is affluence which allows consumers to choose a brand that they trust even if they have to pay a premium for it. Secondly globalization, requires companies to be more accountable to the people and the environment they operate in.

Controversies

The shift in societal values leads to the change of the public opinion. For instance, this change in attitude can be seen in the tobacco Industry. A few years ago the thinking was that whoever smoked cigarettes was responsible for whatever happened to their lungs and heart. This thinking was shaped by the fact that cigarettes are legal and consumers purchase them voluntarily. Therefore, they could not go to court after they were diagnosed with diseases caused by smoking. On the contrary, the thinking changed towards the end of the twentieth century. The new thinking shifted the blame towards tobacco companies for selling products that contain harmful substances knowingly and after being consumed as intended it leads to addiction which eventually causes diseases and death. The tobacco companies have been taken to court and they have paid millions of dollars (Fort, 2001, p. 43). selling of tobacco products which earlier was considered legal and acceptable is now taken to be socially irresponsible and billions of dollars have been pain as fine.

In the United Kingdom the department of Trade and Industry CRS stands for “the integrity with which a company governs itself, fulfills its mission, lives by its values, engages with its stakeholders, measures its impact and reports on its activities.” (Globalisation, para 2). Some people agree that some corporations have advanced in terms of incorporating CRS but they are still not doing enough or they act in self-interest. Some of the multinationals only act ethically in areas that are regulated highly such as North America and act in the opposite in areas that are not highly regulated. In these parts they have unethical practices like using cheap labor as well as child labor (Joyner & Payne, 2002, p.37).

Organizations are required to have good policies towards CRS so at to maintain their reputation in the eyes of the general public. At the same time they have to make a profit for their stakeholders. This makes businesses not put enough effort into achieving the promises outlined in their CRS policies. In addition companies are expected to do well in non-financial domains such as workplace issues, community governance, philanthropy, and business ethics. In the case of workplace issues the organizations are supposed to provide a safe working environment, contribute to charities, be environmental stewards; however they rarely do this because and hence do not keep the promise of being socially responsible. Therefore, there are many companies that promote the image of being socially responsible without really implanting their CRS policies and lack results to show that they have incorporated the practice (Koehn, 2001, p. 45; rich & Enderle, 2006, p. 67; Stackhouse, 1995, p 4).

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CRS practice has caused a major debate and sparked criticism. Those in support of the practice say it is good because organizations that practice it benefit in many ways when they operate in a way that includes the interests of others other than they own. The critics of CRS say it distracts businesses from their core role. The organization’s role is to make maximum profit for its shareholders (Luetge, Koslowski & Homann, 2007, p.2; Schwalbach, 2008, p. 34). They believe that only people should be socially responsible and that organizations should only be responsible to their shareholders and not the society at large. However, they believe that organizations should follow the laws of the societies in which they run (Van Horne & Wachowicz, 2008, p.58). They strongly believe that organizations have only an obligation to the shareholders; follow laws and no other. Bowen is said to be the father of corporate social responsibility (Carroll 1999, p.270). He posited that the management has an obligation to make a profit and this is the main objective of corporations. Nevertheless, the management should take into consideration the impact of every policy they make in business upon the society (Joyner & Payne 2002, p. 302; Van Horne & Wachowicz, 2008, p. 56).

Some feel that the practice of CRS conflicts with the aim of business as well as becomes a hindrance to free trade (Milton, 1970, para 4). They become concerned with the society at the expense of making profit and when they fail to implement policies that are socially irresponsible that would have been good for the business. Others say that those who propose CRS do so to usurp the power of the government as the watchdog of multinational corporations (Ferrell & Peterson, 2005, p.32; Lozano, 2000, p.45).

Some critics of CRS say the programs are incorporated by multinationals such as British American Tobacco (BAT) to divert the attention of the public from their main operations which are an ethical issue. They only start CRS programs because of the benefits they get by improving their reputation in the eyes of the government and the public (Parker, 2005, p.54). For instance, BAT products cause death of about five million smokers per year. It has over 300 brands of cigarettes in the market and controls about 15% of the market. On the other hand, the company says it is socially responsible for all these deaths (BAT’s Big Wheeze, 2004, p. 2).

BAT says it has a high priority on environmental issues yet It encourages the use of harmful pesticides which destroy communities. This is seen in communities in Kenya and Brazil. BAT claims to have unique relationship with tobacco growers yet it charges high prices for the implements it gives on loan to farmers and pays them low prices. In Uganda forests are destroyed to get wood to cure the tobacco and so on. Therefore, BAT is hypocritical in its CRS programs because it continues to market its products aggressively to a new market target of females and youths. This is despite their policy that is against getting children addicted to nicotine. Their cigarette adverts in Pakistan appeal to teenagers (BAT’s Big Wheeze, 2004, p. 2). Corporate social responsibility can be used as a cover-up for antisocial behavior (Reed, n.d).

Multinationals cannot hide them under dealings anymore due to the ease with which information is shared with the rest of the world. This requires them to change their ways or risk losing business from people and countries that do not approve of their conduct. Sharing of information is very important because it gives people who have been oppressed a chance to voice their concerns (Sternberg, 2000, p 2; Bird, 1996, p. 45). For example, due to sharing of information evils like oppression of workers are reported. Just recently Nestle has stopped buying milk from a farm that was taken over during Mugabe’s land reforms. The company has done that to protest against the unfair way in which white farm owners were disposed of their farms. The farm will automatically lose business which will lead to losses. They will have to look for a way forward to earn the trust of their shareholders.

An organization has a responsibility towards its employees. The employees deserve to be treated well by the organization (Stackhouse, 1995, p. 17). The kind of treatment they receive determines their morale. When they get a good treatment their morale is boosted as well as their self-esteem. The organization should compensate its personnel in monetary and non-monetary means (Campbell, Macklin & Pinnington, 2007, p. 9). For example, the organization should have a health care plan, annual leaves and other leaves that are paid. The working conditions should allow the workers to be flexible. They should be allowed to work in their own way as this makes them work better when they have basic freedom to choose the best time to do a certain task and so on.

Case study

There are companies that are known for ethics and corporate social responsibility in their day-to-day practices. Britain’s Vodafone company was ranked the best corporate citizen of the year 2009. This is due to its policy on CRS. According to the message on its website their approach in CRS is to engage their stakeholders and understand their expectations concerning the most important issues. The company responds to the issues raised and communicates regularly with its stakeholders and shareholders about their progress in a transparent manner (Corporate Responsibility Vodafone, 2009 para.1).

The company has earned the trust of its customers. This trust has been vital as it led to loyalty, which has seen the company succeed. The company has addressed its customers’ important issues such as pricing, the way they handle the customers’ privacy, protect them from inappropriate materials. In addition, they advise them on responsible mobile phone use, safe driving and mobile theft.

They have enabled their customers to access various services through their mobile phones such as internet access, downloadable video clips, games, pictures and mobile television. The company has gone the extra mile in ensuring that its customers are satisfied by tailoring its services according to the current needs of the customers. They have worked in partnership with social networks such as Facebook to avail the service through mobile phones (Consumer Issues, 2009, para. 1). Another successful service enables by Vodafone is a money transfer service called M-Pesa in Kenya. Through this service customers are able to send and receive money through their phones. This has helped a large number of unbanked citizens and transformed the way of doing business as well as lives of the ordinary citizens. These are some of the services that have endeared customers to Vodafone and will continue to be loyal to the company for a long time to come.

In terms of the environment the company is committed to a clean environment and they influence the kind of materials used when they have direct control to ensure that they are recyclable. The company recognizes the impact of mobile use on the environment and they advise their partners to use relevant raw materials. They have also encouraged the manufacturers of phones to produce smaller phones as they use less material and the impact on the environment can be reduced through the design (Environment, 2009, para. 1).

On health the company works with partners to ensure that the health of their customers is not to put at risk by the mobile phones which are used very frequently in communication. The company has a vision of leading. The company has impacted the society and improved the lives of many by offering them employment opportunities. The mobile technology has also helped in responding to disasters as people are able to communicate and ask for help. The company also pays tax and follows the set guidelines thus they generate wealth in the countries they operate in. Lastly, their employees are treated with respect and given incentives as the company aims to retain the best of its workforce. Due to the proper treatment given to workers the company has a high reputation (Our People, 2009, Corporate Responsibility).

Ethics and corporate social responsibility are very important in business. The thinking that businesses were only profit-making entities in society has changed. Today businesses are required to be socially responsible if they want to survive. Society does not tolerate unethical companies and due to the increased consumer awareness, such companies will lose their customers. Managers operating businesses need to learn how to handle the conflicting interest of their stakeholders. This will ensure that each party is satisfied and hence business will be profitable and be socially responsible at the same time. The greater burden of ensuring businesses run ethically lie with business leaders and they have to balance their personal interest with those of the companies they lead. However, it is not easy to do so with the emerging trends but this is the only way for their survival. Ethics will not bring goods things to organizations but they will do business in a way that is acceptable to the public.

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