CSR essay

This essay, will endevor to explain why companies should take care of stakeholders interests as well as shareholder interests. This will be done by firstly assesing the definition behind CSR, its pro's and cons along with thoery to back them up and examples used throughout to demonstate the effects CSR has on companies and its stakeholders. 

This essay will explore the classical free market view of milton friedman, which contrasts with freemans and carroll's view that it is more important for business's to consider stakeholder and shareholder interests. 

CSR origninated with Bowen's book social responsibilites of businessmen, this book however places more emphasis on the indiviual 'social conscience' rather than the company itself (valor,1974)  

However slack (2013) suggests that CSR can be defined as 'a company's commitment to operating in a economically, socially and environmentally sustainable manner whilst balancing the interests of diverse stakeholders' Thus essentially arguing that a business must take into consideration how it affects a diverse amount of stakeholders as well as just making a profit. 

Similarly, caroll's (1979) definition states that CSR is the 'economic, legal, ethical and discrectionary expectations society has of organisations" suggesting again that society expects more from a business other than just supplying a product or service. CSR has therefore postioned itself as a challenge to the modern day business model that must be addressed. 

there are two main theoretical views when it comes to the arguement of whether a company should focus on stakeholder or shareholder when operating thier company, these are the classic and socioeconomic view. 

The classical by milton friedman (1970) who coined the phrase 'the business of business is business" and then the socioeconomic view, or otherwise called the stakeholder theory by freeman (1984) and caroll (1991) 

milton friedman is often seen as one of the modern advocates of the free market. His argument is that the role of the business is the creation of wealth and thus the prime responsibility of business is to make a profit for its owners, usually the shareholders. With the executive director acting as an agent serving the interests of shareholders, profit maximisation can take place. This takes president over any other responsibility because there is no moral or legal obilgations on the company to be more socially involved, and if they were to be more socially responsible it would come at an extra cost, and this extra cost would be passed onto the customer and or shareholders 

furthermore, friedman argues that the executive of the company isn't the most qualified or mandated person to pursue social goals and that it is the job of the local government and social concern groups to understand the needs of the area better.

furthermore, friedman argues that the executive of the company isn't the most qualified or mandated person to pursue social goals and that it is the job of the local government and social concern groups to understand the needs of the area better.

The co-op exemplies friedman's point as in 2017 the company lost £2.7bn (financial times,2017) after investing too much time and money into CSR practices. The Co-operative bank is now being sold which has led to a warning of branch closures and shareholder losses. The company has lost foucs of the main aim of the organisation therefore resulting in heavy financial loses. 

suggesting that a company needs to haave secure finances before embarking on a CSR programme and not to let CSR deplete financial resources Essentially friedman's classical theory recognises the drawbacks of CSR in that it is massively costly and add's extra and often unnecessary expenditure for the business. 

countering friedman's (1970) classical arguement, is the socioeconomic view of freeman (1984) and caroll (1991) this is commonly known as stakeholder theory. Freeman aruges that buinesses can only maximise their profits in the long term through apoting a CSR strategy and taking care of stakeholder interests.as well as shareholder interests, this will aid the future development of the company. Therefore, according to freeman spending moeny on CSR can be seen as an investment rather than a development. 

Freeman (2009) suggests that there is only one responsibility of business, and that is to use resources to make a product or service whilst staying within the 'rules of the game'. Which is to say that the business should engage in open and free competition without deception or fraud.  

Starbuck's is prime example of how avoiding a CSR policy can affect the reputation of a business. As Admist the tax shaming scandal of 2011, starbuck's was found guilty of having paid no corporation tax to HMRC, despite having had sales of £400m in the previous year (bbc, 2013)  This affected the customer base in the uk as the government lost out on millions while starbucks benefited by having less expenditure. Thus because of public backlash the company voluntarily began to pay corporation tax, however their repuation has been forever tarnished. 

Caroll (1991) developed the 'CSR pyramid' this shows the responsibilites businesses should have when it comes to being socially responsible. The pyramid has four levels' the bottom being "economic responsibilites", This is the foundation upon which all others rest, without this a compnay cannot begin to be socially responsible. Ontop of this is the 'legal responsibilites' that the comapany holds, then the obligatory "ethical responsibilites" such as choosing right from worng. Then at the top of the pyramid is "discretionary responsibilites" which involves being a good corporate citizen and contributing resources to the community and improving peoples way of life. 

The two theories both argue that by acting in a socially responsible manor, companies will gain rewards through future business sucess. However, caroll's theory draws more on the aspect of corporate integrety and ethical behaviour and stresses that to achieve this the business has to go far beyond mere compliance with laws and regulations. 

this type of ethical behaviour often acts as a point of differentiation for companies like marks and spencer, who have introduced environemtal schemes such as plan A. In 2010/2011 alone the scheme delivered £70 m in net benefits (guardian, 2012) This therefore supports the idea that companies should take care of stakeholder interests as well as shareholder interests. 

Dahlstrud's (2008) investigation on the definition of CSR suggests that there are five consistent dimensions to Corporate social responsibilty: environmental, social, economic, stakeholder and voluntariness. The view is that businesses should be as environmentally friendly as possible, develop relations and contribute to society, contribute to the economic environemt by paying tax and interact with their stakeholders as much as possible, and most importantly to do all this by choice, these actions must not be prescribed by the law in any way. 

many companies do now partake in CSR activies, companies such as cadbury's and sainsburys commit themselves to selling fair trade products. The question is whether companies are doing this voluntarily from their ethical values and views or that is now a simple expectation of society, it can be viewed that companies are simply behaving in this way to be competitve and to further increase profit. Suggesting that by doing so the companies are yet again looking after the interests of shareholders and not necessarily stakeholders. 

However, we can see the benefits CSR has provided for companies such as starbucks. Operating a CSR strategy may be costly however it can enhance market postion and potentially is the only way to now compete in today's market, no matter what the industry. For international companies it is essentail for them to have some sort of CSR strategy to keep up with competitors, the expectations of society go beyond legal requirments and if companies do not adapt to this it can be difficult for them to compete.

the phrase "it takes 20 years to build a reputation and only five minutes to ruin it" (warren buffet: entrepreneur) is true in the recent united airlines scandal that saw a man being forcibly removed off one of their planes, this had a massive effect on the companies reputation and share price. Through this we can see that acting in a socially responsible manner is essential. 

however it could be argued that companies do not need to act in a socially responsible manor to be highly sucessful and therefore should not waste time on doing so. An example of this is the technological gaint apple. Because of the fast market they operate within apple have to focus on product development more than anything. The public do no requre anything more from the company other than a new innovative product. 

for example apple chose to use the notorious supplier foxconn despite it being accociated with employee suicides due to poor work conditions (bbc,2012). People still to choose to buy apple and the company remains the market leader. This example proves that freeman's stakeholder theory is wrong in that operating in a way that is not always responsible won't provide long term benefits. However, it must be stressed that apple's situation is very unique, and that the extent to which a business should or shouldn't focus on CSR is highly situational. 

in conclusion, we are able to see the benefits of taking into consideration the interests of the stakeholders as well as the shareholders as it improves reputation, customer loyalty and competitvenenss, caroll and freeman would support this arguement. However, some would suggest the cost and lack of focus is too much to give up. Nevertheless, from looking into business examples we can see it is mostly benefical to take care of both stakeholders and shareholders interests. Especially for multinational corporations such as starbucks and lush. Nevertheless, as caroll (1991) suggests, the company must have a strong financial dimension if it is going to take on further responsibilies.