IS CSR MERE WINDOW DRESSING?

Corporate Social Responsibility is subject to much debate and criticism. Some argue that it is sheer window dressing, companies should stick to the aim of profit making and that companies use CSR as a tool to divert attention of stakeholders from much more serious issues while the supporters of the concept think that since organisations have a major impact on the social and physical environments in which they operate, therefore, companies should be held accountable to societies and communities in which they operate. Also, they believe that by engaging in CSR activities, organisations benefit in multiple ways and can enjoy strong relationships and sustainability. In this blog, I will discuss some arguments related to this issue.

Corporations are only responsible to its shareholders
Milton Friedman and others have argued that a corporation's purpose is to maximize returns to its shareholders, and that corporations are only responsible to their shareholders and not to society as a whole. They also support the fact that companies should obey the laws of the countries within which they operate but they assert that corporations have no other obligation to society.

While shareholders are definitely one of the most important stakeholders in any business model, but just think for a second, can an organisation really survive by not paying attention to the interests of other stakeholders like customers, communities, activists groups and employees etc? Those who support this view reject Friedman’s ‘stockholder’ or ‘shareholder’ model in favour of what is usually referred to as the ‘stakeholder’ model where corporate managers need to balance the interests of all the different groups who have a ‘stake’ in the company. These groups might include shareholders, employees, customers, suppliers, the local community and even broader society.

Corporations use CSR to distract the public
Critics of CSR believe that CSR programs are undertaken and publicised to distract the public from the core issues. They also argue that corporations use CSR as a tool for their commercial benefit for example, by building relationships and reputation.

If companies genuinely engage in CSR activities, the benefits will be substantial and visible for example, increase in sales or image or reputation. Thus, if companies are undertaking CSR activities to distract publics, they will themselves stand at a loosing end. Also, effective governmental and international regulations and enforcement can ensure that companies operate in socially responsible manner.

CSR is the responsibility of the government and politicians
There is also an argument that CSR is the responsibility of government and politicians since they are there to ensure the welfare of people and the state so why should companies engage their time and resources to do CSR.

Although government’s primary role is to ensure welfare of the state but there are certain areas where it has been ineffective or incapable of creating and implementing solutions to some of the societal problems. This is where big corporations or multinationals come in to the picture. They have the resources and means to create and implement solutions which benefit their stakeholders.

This can be particularly true in the case of developing countries, for example, where the government of India has been incapable of providing education, food and shelter to children in rural areas, TATA group through its corporate social responsibility initiatives has supported many causes ranging from education, healthcare, reuse, recycling, energy saving and employing people with disabilities etc. Rather the very existence of this group is to provide community support.

Conclusion
CSR as a concept is gaining value and importance. If companies genuinely engage in CSR activities then the results will be substantial and if companies use CSR as a tool for window dressing not only they will loose the potential benefits but will also put their reputation at stake. This is because of the emergence of new media which demands more accountability and scrutiny from stakeholders. Window dressing might work for short term but if corporations want to enjoy long time sustainability, they need to integrate CSR in the way their business is being managed.

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UNDERSTANDING CSR

Corporate Social Responsibility as a concept has evolved over a period of time. The Public Relations handbook by Alison Theaker defines CSR as voluntary actions that business can take, over and above compliance with minimum legal requirements, to address both its own competitive interests and the interests of the wider society. The term ‘social responsibility’ implies that business is motivated by more than just self-interest and is in fact, an activity that aims to promote the interest of society at large.

While formulating CSR policies, corporate organisations need to ensure that it is well integrated into the way their business is being administrated. It should not be considered as a separate set of activity that needs to be undertaken in order to build a strong and credible image. CSR is not only about donating money to charities, it is a much more holistic and comprehensive approach which organisations need to incorporate into their business strategy to develop and maintain partnerships with its stakeholders.

Benefits of doing CSR

After discussing some of the characteristics of CSR, the next obvious question which comes to the mind is why do CSR? Although there are lot of benefits of doing CSR, here are some of the key ones:

• Building Good Reputation: Corporate organisations can build their reputation through CSR. They can also enhance their image of being honest and trustworthy. Once they build this image, organisations can develop a strong bond with their stakeholders. Johnson & Johnson’s chief executive officer, James Burke, demonstrates that companies with a reputation for ethics and social responsibility grew at a rate of 11.3% annually from 1959 to 1990 while the growth rate for similar companies without the same ethical approach was 6.2%. As Warren Buffet says, “It takes 20 years to build a reputation and five minutes to ruin it.” Ralph Tench and Liz Yeomans in their book Exploring Public Relations explain the importance of a good reputation:

• Risk Management: CSR helps organisation to develop a protective shield in the times of crisis. It enables businesses to operate in communities and act as a social license, a form of insurance against unforeseen risks to corporate image, reputation or profits for example, in the case of Cadbury, the company had such a strong reputation that even in times of crisis (salmonella discovery in their chocolates in 2006 in the UK), public still maintained their trust in the company. This does not mean that the company can escape from its responsibilities, it simply means that all its stakeholders would be more willing to listen and understand an organisation’s point of view during a crisis situation.

• Human Resource: Another direct benefit generated by CSR is related to Human resource selection process. Studies done in 2005 have shown that over 75% of the MBA graduates would set aside the financial benefits in order to work for an organisation that has a better reputation in CSR and ethics. It also helps to improve employee morale.

• Enhance and add value to the organisation products and services: For example, Sainsbury’s announced in Dec06 that it would switch to 100% fair-trade bananas by July 2007. They did it within the specified time frame and the result: 5% increase in banana sales (35 million bananas) since they switched to Fair-trade.

• Brand Differentiation and competitive advantage: In today’s competitive market, companies strive for a unique selling proposition that can separate them from the competition in the minds of consumers. This brand differentiation and competitive advantage helps build customer loyalty and generate sales. Several major brands, such as The Co-operative Group, IBM and Cadbury etc. are built on ethical values. "Companies with their eye on their 'triple-bottom-line' outperform their less fastidious peers on the stock market" - The Economist.





Conclusion
Hence, we conclude that corporate social responsibility should not been as a distinct or a separate function, it needs to be integrated in to the day-to-day operations of the business. Also, companies can benefit in a lot of ways if they engage in genuine and consistent CSR activities.

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