Corporate Social Responsibility in a Recession

10/12/2009 Student Name: | Niall Byrne | | Corporate Social Responsibility In A Recession | Table of contents Introduction3 Brief overview of CSR………………………………………………………………………………………… 3 CSR is an unnecessary expense 3 Reasons for continuing CSR5 What exactly does CSR improve about business Strategy6 Is there a happy middle ground8 Conclusion9 Reference list:………………………………………………………………………………………………… 10 Appendices12

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Appendix 1: different stances companies have on CSR and their relationship with stakeholders12 Appendix 2: Nike Respect 12 Introduction In times of economic down turn many businesses will want to cut unnecessary expenditure. This paper will look at two viewpoints related to CSR (Corporate Social Responsibility): 1. Is CSR a unnecessary expense for the modern day business 2. Is CSR a necessary expense for the modern day business The paper will include real life examples and view points from many sources, and then come to a conclusion regarding the effect which the economic down turn has had on CSR.

Brief overview of CSR According to (1)Johnson et al (2008) CSR is concerned with the ways in which an organisation exceeds its minimum obligations to the company stakeholders, normally each firm will have a different view point on its approach to CSR. Appendix 1 shows the different approaches business have and how they manage their stakeholder. CSR is an unnecessary expense: This point of view leads on from the definition of Corporate Social Responsibility, which states that CSR is concerned with the way in which the organisation exceeds its minimum obligations.

The word exceed leads one to think that CSR is carried out as a process which is done as an extra on top of normal goals of the company/business. An article (2) (Economist, Nov 19th 2008) wrote that many companies pretend that their CSR strategy runs deeper in their organisation than it really does, and if pressed they would only be able to name a few ways in which the company is truly socially responsible. With companies viewing CSR in this way then they may see it as an expense that yes it would be “nice” if we done it but it doesn’t really make financial sense to incorporate or carry in on with the current business strategy.

This way of thinking would apply most definitely in a period of economic down turn (3) Caulkin, (2009) “An economic recession would also be bad news for the CSR industry, parts of which might be seen as a luxury companies could live without” (2) (Economist, Nov 19th 2008) Example of businesses cutting back on CSR in recession time: Asda/Wal-Mart in 2008 didn’t even mention the environmental factors in their company report. Instead they focused more on the “profitable growth”, “Staff retention” and “customer focus”.

This is a change according to (4) Macalister (2008) who said that in the past this organisation never refused an opportunity to stress the importance of the green movement. The second example is that of BP. (4) Macalister (2008) talked about the fact that BP were considering the sale of its renewable-power business, and instead setting its focus on getting their profits and share price back on track. An interesting article written by (5) Tim Breitbarth (2009) argues the point that high levels of CSR can be seen as an international trade barrier. The reason why he says this is that some countries within the EU nd also outside the EU don’t have as highly developed CSR culture, in other words some countries CSR development is still in its infancy stage compare to the EUs more developed understanding of it. This can be seen as a way in which CSR in the EU can prevent the global economy taking advantage of new opportunities and in turn slow down the movement out of the economic down turn. The World Bank (2002), WTO (2003) and the US-centred Institute for Trade Standards and Sustainable Development (2005) raise several concerns about the way this may lead to restricted market access for foreign companies.

Over the past year the recession has been seen as global and it is said that increased trade will aid the turnaround of events, this leads to the question is CSR preventing certain countries from improving their situation? Will it lead to these countries abandoning CSR because is seen as too costly? Another effect the economic down turn has had on CSR, the reduction of trust the public has in companies/organisation. According to (6) Quelch (2009) when the company sees the company reducing their CSR in times of recession they will assume that the companies only reason for using CSR was a “publicity stunt”.

This type of reputation can really damage a company in the long run because they have lost all customer support and more importantly their trust. Example of company using CSR but not fully supporting it: A high profile case is that of Nike sportswear. At one time Nike was supporting the respect campaign see appendix 2 ( the black and white wrist bands) but at the same time they were using sweatshops to make their footwear (7) Holmes (2003) Cases like this will seriously damage customers trust in the brand To sum this section up as CSR being an unnecessary expense, the view of (8) Jack and Suzy Welch (2009) will be looked at.

There view point is that: “Tough economic conditions underscore a blunt reality. A company’s foremost responsibility is to do well. That may sound politically incorrect, but the reason is inexorable. Winning companies create jobs, pay taxes, and strengthen the economy. Winning companies, in other words, enable social responsibility, not the other way around. And so, right now—as always—companies should be putting profitability first. It’s the necessity that makes every other necessity possible. ” (8) Jack and Suzy Welch (2009 Reasons for continuing CSR:

The second point of view for companies in a recession is to continue to invest in CSR. According to (9) Bentley (2009) CSR is seen as a good business strategy, to be sustainable, businesses are now embracing a relatively new objective: optimising their operations to minimise environmental impact and improve social outcomes in a manner that also maximises performance. This works on two fronts: 1. The company is seen to have increased their CSR which will keep certain stakeholders happy 2. The companies have implemented a CSR system which will increase their performance through the economic down turn.

According to (10) Hanson (2008) although businesses need to watch costs and spending during a downturn, it may not be the time to cut your CSR budget. Companies have to be concerned about keeping staff and their customer base, keeping a sound stance on where the company stands is really important and is especially important in an economic down turn. Example of business continuing investment in CSR: Intel, the world’s largest chipmaker, says it plans to increase investment in energy efficiency this year because the $23m it has poured into green energy since 2001 cut its fuel bills by $50m over the same period. 14) (Economist, Nov 19th 2008) Self-interest also explains why many companies are intent on creating greener supply chains, in spite of the costs. Mars and Cadbury have separately announced plans to increase the amount of cocoa they source from sustainable sources because both are concerned about future shortages if production practices do not change. IKEA who is also fretting about one of its most important raw materials, agreed a plan to increase the amount of wood in its products that comes from responsibly managed forests between 2010 and 2012. (14) (Economist, Nov 19th 2008)

This example illustrates the point that CSR activities can aid companies in improvement of general business activities and ensure future security. What exactly does CSR improve about business Strategy? The paper has looked at the incorporation of CSR as a business strategy and the benefits of it for a business as a whole in a recession, but how exactly does the strategy work: (11) Franklen (2008) states the following are the benefits of having a CSR Strategy: * Good CSR will ensure that the company’s reputation will remain untainted; this can be seen in the previous example about Nike using sweatshops.

CSR will improve the risk management side of the business i. e. the business will understand the concerns of the stakeholders and will know what direction to go in order to keep the company’s reputation good. * CSR has become a big part of the “talent war”, the growing struggle to attract and retain the people that businesses need to remain competitive. At business schools, MBA students are flocking to courses on ethics and social entrepreneurship. When they emerge many of them are keen to join companies with values they admire.

A common denominator of conversations with business executives is that CSR matters more and more for both recruitment and for motivating staff. * As mentioned before CSR has become a global barrier, therefore a company will have to have a CSR system in place to enter new foreign markets. With the Kyoto agreement in place companies will have to meet standards in order to enter new markets. This will be key for international companies who view the movement into new markets as a key growth method and the best way to combat the recession.

Another key issue to consider by businesses when deciding to keep or get dispose of their CSR programmes is the stance which the government will take on the situation. An article in the (2) (Economist, Nov 19th 2008) writes about that governments face their own test on “sustainability”. A summit in Copenhagen at the end of the year is supposed to hammer out a post-Kyoto agreement to cut greenhouse gases. Already pressure is growing to avoid the growth-inhibiting restrictions needed to meet ambitious carbon-cutting targets. The outcome of this can go either two ways: 1.

The government will introduce strict rules/Laws governing the ways in which companies operate, for example laws could be introduced to tell the companies to reduce their carbon emissions. Companies which have continued to operate a CSR strategy through the recession will be better prepared for these changes than the company who decides not to invest. 2. The second consideration is, Failure to reach a deal between all the world governments will mean, in effect, that the world gives up seriously seeking to stop global warming. Instead, attention would turn to ways the world might adapt to climate change rather than prevent it.

This once again questions the company’s continuous investment in CSR policies over the recession. Businesses may see this as good business sense to adopted a wait and see approach to continuous CSR investment Is there a happy middle ground? In a situation like this a key question is there a way to embrace both view point i. e. is there a “middle” ground which can be taken advantage of? An article in the (12) (Economist, Jan 17th 2008) examines companies which are leaders and companies which choose to stay further behind in the leading pack.

Many larger companies who are seen to have more spending power may decide to embrace CSR more and become a CSR leader, and take full advantage of all the new opportunities which will come with a first mover strategy. With this in mind companies like this will have to continue to invest larger amounts of money even during times of economic down turns, for the simply reason this is the image the company has built for themselves and their stakeholders expect this. The second type of company seen to be the more “middle ground” company is the one that does invest in CSR to a certain extent but chooses not to be a market leader in CSR.

This company will wait until the first mover advantage has been removed by the leaders in the industry and then it is seen to be the norm. The advantage of this approach is that the company has moved in the CSR arena but has not fully committed large sums of finance to become a leader. During a recession this company can continue to invest in CSR but not to the extent of a market leader, leaving funds available to invest in other areas of the company. “The simple solution is that businesses should concentrate on the sweet spot where initiatives are good for both profits and social welfare.

This is the sort of “win-win” situation that executives love to talk about: the smart thing to do as well as the right thing to do. ” (12) (Economist, Jan 17th 2008) Conclusion The two approaches to how companies approach CSR introduce interesting points. From the definition of CSR it seems to read that CSR is more of an afterthought than a key strategy, and that companies in general should focus on the generation of profits instead of investing company profits in an activity that is not necessary. This view point seems to be not fully eveloped with many people saying that profits are very important for a company, and that CSR is a good way of adding competitive advantage to firms in a time where the economy doesn’t encourage trade. 85% of the FTSE 100 refers to CSR in their annual reports, according to one study. With many businesses publishing their support for CSR via many media sources and their own website, they may have very little choice but to continue their support of the movement. (3) Caulkin, (2009) Recent CAF research which found that 95% of companies thought CSR would remain as important despite the downturn.

However the recession will test the strategy at the heart of CSR: that it ought to be embedded in a company’s daily business (for example, making the giving of free professional advice part of staff-development programmes) and defended in terms of employee and customer engagement, enhanced corporate image and the bottom line (13) Braid(2009) This view point leads to the conclusion that the “middle ground” approach mentioned early maybe be the best way for businesses to operate during a recession. The key is to invest but cautiously.

Reference list: * (9) [online] Bentley (2009) [Accessed 01/12/09] information available from: http://www. cio. co. uk/article/3207150/corporate-social-responsibility-enters-the-strategic-realm/? pn=1 * (13) Braid (2009) ,Will corporate giving suffer in the crunch? The Sunday Times, http://business. timesonline. co. uk/tol/business/career_and_jobs/article5732059. ece * (5) Breitbarth,T, et al, 2009,Corporate social responsibility in the European Union: a new trade barrier?. Journal of Public Affairs. London. Vol. 9, Iss. 4; pg. 39 * (14) N/A, Business: A stress test for good intentions; Corporate social responsibility. The Economist. London: May 16, 2009. Vol. 391, Iss. 8631; pg. 69 * (3) [online] Caulkin, S, 2009, corporate social responsibility-credit-crunch The Observer, Sunday 5 April 2009 [Accessed 03/12/09] Information available from: http://www. guardian. co. uk/business/2009/apr/05/corporatesocialresponsibility-credit-crunch * (11) Daniel Franklin,2008, [online] Good company,[accessed 04/12/09] information available from: http://www. guardian. co. uk/commentisfree/2008/jan/19/goodcompany * (10)


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