What does the concept of CSR mean? PDF

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Since the Corona crisis, many companies have devoted themselves to various corporate strategies to ensure their existence. The concept of 'corporate social responsibility' is currently a hot topic. Several companies or organizations such as Sportheads GmbH, the Federal Ministry of Labor and Social A...

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FOM Hochschule für Ökonomie & Management Studiengang: International Management (B.A) Berufsbegleitender Studiengang im Studienzentrum München

Scientific Essay in the module Business Ethics

To the topic

What does the concept of CSR mean?

Professor: Dr. phil. Harald Bergbauer Author: Edlira Berisha Semester: 3 Matriculation number: 498074 Submission date: 29.04.2020

Table of Contents 1.

Introduction ..................................................................................................................................... 3

2.

Corporate Social Responsibility ...................................................................................................... 3

2.1

3.

Definition..................................................................................................................................... 3

Scientific concepts........................................................................................................................... 4

3.1

MILTON FRIEDMAN................................................................................................................ 4

3.2

Carroll's CSR Pyramid ................................................................................................................ 6

4.1

Sustainability ............................................................................................................................... 7

4.2

Advantages .................................................................................................................................. 7

5.

Conclusion ....................................................................................................................................... 8

1. Introduction

Since the Corona crisis, many companies have devoted themselves to various corporate strategies to ensure their existence. The concept of 'corporate social responsibility' is currently a hot topic. Several companies or organizations such as Sportheads GmbH, the Federal Ministry of Labor and Social Affairs and Beiten Burkhardt address the topic of 'corporate social responsibility'. But what exactly does 'corporate social responsibility' mean and what advantages does it bring to the company?

2. Corporate Social Responsibility

2.1 Definition Corporate social responsibility (CSR) represents the independent responsibility in different areas of the company towards society. Social, ecological and economic aspects are considered i.e. the environment, economy, employee relations in general as well as the competition ethics itself. Corporate social responsibility serves the company as a 'moral compass' with the aim of positive ethical development of the company.1 Various reference documents on corporate responsibility explain all the included aspects including the ILO - Declaration of Principles on Business and Social Policy, the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights and the UN Global Compact.2 “More specifically, CSR for example involves fair business practices, staff-oriented human resource management, economical use of natural resources, protection of the climate and environment, sincere commitment to the local community and also responsibility along the global supply chain.”3 Many companies use the term 'corporate social responsibility' as a synonym for sustainability. However, in contrast to the sustainability strategy the CSR strategy deals with the specific amount that the companies make to achieve sustainability.4

1 Parry-Selmes, N. P.-S. (2014). CSR provides the moral compass that willempower good corporate governance. Retrieved from https://www.academia.edu/5998565/CSR_provides_the_moral_compass_that_will_empower_good_corporat e_governance 2 Federal Ministry of Labour and Social Affairs. (n.d.). CSR - Sustainability and CSR. Retrieved May 19, 2020, from https://www.csr-in-deutschland.de/EN/What-is-CSR/Background/Sustainability-and-CSR/sustainabilityand-csr.html 3 Federal Ministry of Labour and Social Affairs. (n.d.). CSR - Sustainability and CSR. Retrieved May 19, 2020, from https://www.csr-in-deutschland.de/EN/What-is-CSR/Background/Sustainability-and-CSR/sustainability-andcsr.html 4 Deloitte.. Sustainability and Corporate Social Responsibility (CSR). Retrieved May 19, 2020, from https://www2.deloitte.com/ru/en/pages/risk/solutions/sustainability-and-csr.html#

2.2 Structuring according to areas of responsibility CSR activities can be structured in different ways. According to Hiß a possible assignment is made via the different areas of responsibility of a company.5 The scope of internal responsibility describes the company's obligations towards the market and the law. This area can only be assigned to CSR if you participate voluntarily. This is the case e.g. if the law is strictly observed although it is usually not enforced in the country of production or the location can be easily changed. This area of responsibility also includes the company's profitability.6 Public discussions generally assume that corporate social responsibility generally means giving up corporate profits. This has to be refuted by the fact that the company cannot compete with the profits that are generally given up in the name of corporate social responsibility, thereby accepting the competitive disadvantage. There are some methods of making profits that are not compatible with CSR e.g. For example, ignoring security standards, exploiting employees, or violating human rights.7 The company's value chain is one of the areas of responsibility. This area includes obligations regarding compliance with labor and environmental standards as well as supply chain management. The stakeholder dialogue appears to be crucial for successful corporate social responsibility. All activities that weren’t mentioned in the two areas responsibility above are part of the third or the ultimate responsibility.8 This includes areas in which corporate social responsibility has a high priority e.g. donations, sponsorship or release of employees to participate in social activities.9

3. Scientific concepts

3.1 Milton Friedman

In 1970 Milton Friedman published a new yorker times article with the statement that “there is one and only one social responsibility of business – to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and

5

Hiß, Stefanie: Warum übernehmen Unternehmen gesellschaftliche Verantwortung?: ein soziologischer Erklärungsversuch. [Why do companies take on social responsibility?: a sociological attempt to explain] Frankfurt am Main, New York: Campus, 2006. 6 Martin Müller, Stefan Schaltegger: Corporate Social Responsibility: Trend oder Modeerscheinung. Munich 2008, S. 21 f. 7 Nick Lin-Hi: Eine Theorie der Unternehmensverantwortung: Die Verknüpfung von Gewinnerzielung und gesellschaftlichen Interessen. Berlin 2009, ISBN 978-3-503-11478-8, S. 87 ff., 112 ff. 8 Was ist Corporate Social Responsibility (CSR)? [What is corporate social responsibility?]. (n.d.). Retrieved May 26, 2020, from https://www.it-business.de/was-ist-corporate-social-responsibility-csr-a-660496/ 9 What is corporate citizenship? | Meaning & Examples. (2019, July 19). Retrieved May 24, 2020, from https://wiki.optimy.com/what-is-corporate-citizenship/

free competition without deception or fraud”.10 Friedman believes that corporate social responsibility is pure, impeccable socialism, and compared corporate social responsibility organizations to government agencies. There are several reasons why Friedman determined against social responsibility. In fact, there are several reasons. Starting with an overview about organizational structured of most large companies. For financing reasons many companies are structured as C companies. To understand Friedman's point of view the composition of the C Corporation has to be defined at first: The main participants in Company C include the shareholders, the board of directors and the corporate officers.11 A shareholder describes someone who invests money in a company to get a certain percentage of ownership and usually voting rights. Therefor shareholders are also actual owners of the company but do not necessarily have the time to make any business decisions.12 Primarily they elect directors who designate corporate officers to run everyday life operations. The responsibility of the corporate officers is the best possible implementation of the interests of the shareholders and these are mostly the maximization of the profits. The company's managers are responsible for making as much money as possible while complying with the rules of the law.13 The assumption of so-called social responsibility is in direct contradiction to the shareholder model since it distributes the resources and the energy of profit-maximizing behavior. For example, donations to charitable organizations. On the one hand it’s a miracle to find an argument that all shareholders agree with and secondly to use energy and resources to fulfill social responsibility and to give up alternatives that can possibly be solved.14 These alternatives can bring more business benefits. On the contrary, Friedman believes the company should strive to maximize profits in order to generate as much profit as possible for its shareholders. With this extra money, shareholders can donate to any organization they want. Friedman's viewpoint is of course only one of two views on social responsibility.15 The second perspective is called the stakeholder model. It points out that companies are not only responsible for the profit, but also for the interests of several stakeholders. These stakeholders represent individuals or groups who are interested in the company's actions and behaviors. The idea behind the stakeholder model is that managers have to maintain a positive relationship with society and the environment in order to work effectively.16 This could harm 10

Friedman, M. F. (1970, September 13). A Friednzan doctrine-. Retrieved May 25, 2020, from https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-isto.html 11 Kagan, J. (2019, July 2). How C Corporations Work. Retrieved May 25, 2020, from https://www.investopedia.com/terms/c/c-corporation.asp 12 How, S.-M., Lee, C. G., & Brown, D. M. (2019). Shareholder Theory versus Stakeholder Theory in Explaining Financial Soundness. International Advances in Economic Research, 25(1) 13

Upcounsel. (n.d.). Corporate Officer Duties: Everything You Need to Know. Retrieved May 25, 2020, from https://www.upcounsel.com/corporate-officer-duties 14 Friedman, M. F. (1970, September 13). A Friednzan doctrine-. Retrieved May 25, 2020, from https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-isto.html 15 How, S.-M., Lee, C. G., & Brown, D. M. (2019). Shareholder Theory versus Stakeholder Theory in Explaining Financial Soundness. International Advances in Economic Research, 25(1) 16 Stakeholder theory: FOM Hochschule Online-Literatursuche. (n.d.). Retrieved May 25, 2020, from http://eds.a.ebscohost.com/eds/detail/detail?vid=4&sid=37876818-1b23-4b67-a2f1-

the company's reputation and its operability. Since not all stakeholders have the same impact on the organization, they are usually divided into two categories: primary and secondary stakeholders. Stakeholders are individuals or groups who have a greater influence on the organization. This includes local communities of customers, employees, investors, suppliers, government agencies and companies.17 These companies are vital because they rely on them to survive in the long run. Consider the impact on the company when customers stop buying products or investors withdraw their investments. According to the stakeholder model, company managers should have the highest priority in order to serve the different interests of these groups.18 Although the secondary factors are not as important as the primary factors, they still affect public perception of the company. General secondary includes the media and certain interest groups. These groups and organizations do not have regular businesses, but the content of their communication can affect public awareness.19

3.2 Carroll's CSR Pyramid American economics professor Archie Carroll proposed a four-tier pyramid to assess corporate social responsibility. It serves to differentiate between the business, legal, philanthropic and moral responsibility that a company bears. The first two levels are essential for the company. This is the requirement of society. The company gains acceptance of society through the third level, moral behavior. The fourth level is voluntary but is well regarded in society.20 These mean the following for the company: “Be profitable”: The company's primary responsibility is to achieve its business goals, maximize profits, maintain a good competitive position and ensure its long-term existence. “Obey the law”: The company is responsible for complying with its legal obligations regarding products and processes. “Be ethical”: An important part of corporate responsibility is that it does not violate social morality and moral expectations in the course of work.

70014c6b15ce%40sessionmgr4007&bdata=Jmxhbmc9ZGUmc2l0ZT1lZHMtbGl2ZSZzY29wZT1zaXRl#AN=896776 39&db=ers 17 BusinessDictionary. (n.d.). What comes after those ellipses? Retrieved May 25, 2020, from http://www.businessdictionary.com/definition/stakeholder.html 18 Weitzner, D., & Deutsch, Y. (2019). Why the Time Has Come to Retire Instrumental Stakeholder Theory. Academy of Management Review, 44(3), 694–698. https://doi.org/10.5465/amr.2018.0342 19 Juneja, P. (n.d.). Role of the Media in Championing CSR. Retrieved May 24, 2020, from https://www.managementstudyguide.com/role-of-media-and-corporate-social-responsibility.htm 20 Baden, D. (2016). A reconstruction of Carroll’s pyramid of corporate social responsibility for the 21st century. International Journal of Corporate Social Responsibility, 1(1), 1. https://doi.org/10.1186/s40991-016-0008-2

“Be a good corporate citizen”: The company should also assume responsibility by voluntarily supporting philanthropy in education, culture and welfare.21

4. CSR as a corporate strategy

4.1 Sustainability

The sustainability of the company is based on three different pillars which are necessary for a successful CSR strategy: ecology, economy and social issues.22 Environmental protection is the focal point from an ecological perspective. From a social perspective sustainability increases employee motivation and satisfaction through e.g. good working conditions and the establishment of codes of conduct. Corporate social responsibility and sustainability also represent a social market economy. It is about the responsibility of the companies for the general society and the participating environment.23 CSR provides an opportunity to pursue broader social goals and set standards that go beyond politics and legislation. The company requires suppliers in developing countries to only manufacture their products without child labor. This is only an example. If the ecological and social aspects of a corporate social responsibility strategy and the sustainability of the company are examined, the associated economic benefits become clear. A company saves in a sustainable way and assumes social responsibility in a way that protects the environment, saves resources, treats its employees fairly and ensures that it is produced in a socially and ecologically responsible manner along the entire value chain, thereby continuously improving its image and thus the image customer loyalty.24

4.2 Advantages Corporate Social Responsibility has many advantages for the company. Starting with the reduction of risks and costs. The risks regarding compliance and liability are minimized, strategic undesirable developments can be avoided and the brand can be protected. This automatically increases a company's

21

Figiel, Markus: Corporate Social Responsibility: Unternehmerische Philanthropie oder nachhaltige Unternehmensstrategie? [ Corporate social responsibility: entrepreneurial philanthropy or sustainable corporate strategy?] Hamburg: diplom.de, 2015. 22 Das Drei-Säulen-Modell.[The Three Pillars model] (2012, April 21). Retrieved May 24, 2020, from https://www.bund-bin.de/nachhaltigkeit/saeulen/ 23 Schulz, S. C. (2020, March 30). Die drei Säulen der Nachhaltigkeit – verständlich erklärt. [The three pillars of sustainability - clearly explained]. Retrieved May 24, 2020, from https://utopia.de/ratgeber/drei-saeulen-dernachhaltigkeit-modell/ 24 Benefits of Becoming a Sustainable Business. (n.d.). Retrieved May 24, 2020, from http://www.ecoofficiency.com/benefits_becoming_sustainable_business.html

chances as well as revenues. The company can be differentiated from its competitors25, at the same time it attracts and hires new talent and promotes innovation. This benefits the credibility of a company and ensuring acceptance in its environment, among partners as well as in general society.26

5. Conclusion

Corporate social responsibility offers the company several advantages and ensures, among other things, sustainability and thus successful living together from an entrepreneurial, ecological and social perspective. The coming time will clarify the development of the corporate social responsibility concept in the post-corona period and will most likely be more of a focus.

25 Shah, S.S.A. and Khan, Z. (2019), "Corporate social responsibility: a pathway to sustainable competitive advantage?", International Journal of Bank Marketing, Vol. 38 No. 1, pp. 159-174. https://doi.org/10.1108/IJBM-01-2019-0037 26 2018), "The role of CSR in business strategy: Maintaining competitive advantage with a clearly-defined CSR programme", Strategic Direction, Vol. 34 No. 10, pp. 13-15. https://doi.org/10.1108/SD-07-2018-0156

Bibliography

(2018),"The role of CSR in business strategy: Maintaining competitive advantage with a clearlydefined CSR programme", Strategic Direction, Vol. 34 No. 10, pp. 13-15. https://doi.org/10.1108/SD07-2018-0156

Baden, D. (2016). A reconstruction of Carroll’s pyramid of corporate social responsibility for the 21st century. International Journal of Corporate Social Responsibility, 1(1), 1. https://doi.org/10.1186/s40991-016-0008-2

Benefits of Becoming a Sustainable Business. (n.d.). Retrieved May 24, 2020, from http://www.ecoofficiency.com/benefits_becoming_sustainable_business.html BusinessDictionary. (n.d.). What comes after those ellipses? Retrieved May 25, 2020, from http://www.businessdictionary.com/definition/stakeholder.html

Deloitte. Sustainability and Corporate Social Responsibility (CSR). Retrieved May 19, 2020, from https://www2.deloitte.com/ru/en/pages/risk/solutions/sustainability-and-csr.html#

Das Drei-Säulen-Modell.[The Three Pillars model] (2012, April 21). Retrieved May 24, 2020, from https://www.bund-bin.de/nachhaltigkeit/saeulen/ Federal Ministry of Labour and Social Affairs. (n.d.). CSR - Sustainability and CSR. Retrieved May 19, 2020, from https://www.csr-in-deutschland.de/EN/What-is-CSR/Background/Sustainability-andCSR/sustainability-and-csr.html

Figiel, Markus: Corporate Social Responsibility: Unternehmerische Philanthropie oder nachhaltige Unternehmensstrategie? [ Corporate social responsibility: entrepreneurial philanthropy or sustainable corporate strategy?] Hamburg: diplom.de, 2015. Friedman, M. F. (1970, September 13). A Friednzan doctrine‐. Retrieved May 25, 2020, from https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-ofbusiness-is-to.html

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