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Hochschule fr Wirtschaft und Recht Berlin Berlin School of Economics and Law

Nilay BIAKCIOLU 310978

Title of Essay: Why are Corporate Social Responsibility strategies important for enterprises?

Prof. Dr. Jose M. Magone LV 400591.01 Work, Business & Society

Berlin, 2011

Abstract
Nowadays, the importance of social responsibility activities is growing awareness for companies.It is directly related to your business and if you want to have long term business success, you have to create value for the society.People are aware of the social and environmental problems of society.In this technology time, it is so easy to reach the information whatever they want They always follow the daily news from the world and care about them.Due to the fact that paying for the strategies of CSR increases attention to the corporation.Companies understanding of social responsibility should always be the part of their investment strategy.They should regard the Corporate Social Responsibility as a business management philosophy not as a social activity.It definitely provides sustainability to the business.The purpose of this essay is to explain why Corporate Social Responsibility strategies are so important for enterprises.Firstly I will explain the theoretical information about criterias and framework of CSR and then I will support the facts by giving examples from the international companies to clarify the reasons of importance well.

Index of Abbreviations
The abbreviation used throughout on this essay is presented below; CSR Corporate Social Responsibility

OUTLINE
Chapter 1: Theoretical Background...4 Introduction..........4 Definitions of CSR...4 Level of CSR Engagement...5 Legal criteria.6 Economical criteria...6 Ethical criteria...7 Philanthrapic criteria.7 Chapter 2: Importance of CSR .7 The reasons for companies to engage in CSR .8 Chapter 3: Areas of CSR....8 Governance...9 Risk Management.9 Social and Employees......10 Environment10 Chapter 4: Conclusion...10

Chapter 1: Theoretical Background


Introduction This chapter will present the theoretical background of Corporate Social Responsibility. Firstly, definitions of CSR will be presented and then a well-known CSR model in business area will be shown to understand the background knowledge of CSR well. Definitions of CSR There are infinite number of definitions of CSR that are ranging from the simplistic to complex and many names for the same concept such as Corporate Citizenship, Corporate Responsibility, Corporate Social Performance and Business Sustainability. Generally, CSR is doing the right thing when nobody looks at you. It is an obligation to have a resposibility for providing more benefits to your employees, environment, corporate governance, human rights, cultural differences, non-disciriminatory activities and fair trade than profit for your shareholders.European Commission defines CSR as , A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. (European Commission 2001, p. 5) and according to Aaronson, Business decision making linked to ethical values, compliance with legal requirements, and respect for people, communities, and the environment around the world. (Aaronson 2003, p. 310). The term of CSR seems new to the corporate world. Nowadays, it looks so popular.Lots of company try to emphasize that they care about it.But actually, it has taken place over than fifty years. In 1953, Bowen conceived the CSR as a social obligation and also Peter Drucker emphasized the importance of society in his book which is called The Practice of Management in 1954 by writing that The social dimension is a survival dimension. The enterprise exists in a society and an economy. Within an institution one always tends to assume that the institution exists in a vacuum. And managers inevitably look at their business from the inside. But the business enterprise is a creature of a society and an economy, and society or economy can put any business out of existence overnight. The enterprise exists on sufferance and exists only as long as the society and the economy believe that it does a necessary, useful, and productive job. (Drucker 1954, p. 28). Lots of people say that Bowen and Drucker are the modern fathers of CSR term because their writings still keep its freshness and durability although they wrote them in 1950s. In 1991, Carroll developed a model as a pyramid for CSR and according to Carroll , 4

Corporate social responsibility involves the conduct of a business so that it is economically profitable, law abiding, ethical and socially supportive. To be socially responsible then means that profitability and obedience to the law are foremost conditions when discussing the firms ethics and the extent to which it supports the society in which it exists with contributions of money, time and talent (Carroll A.B. 1983, p.608). After different and basic perspectives of CSR, I agree with the suggestion of Blyth and it should take place the last comment for the definition of CSR. There is no one definition of what it takes to be a responsible corporate.The key is to have a rigorous process for identifying those responsibilities and fulfilling them. (Blyth 2005, p. 30) At the present time, finding gaps in society and filling them by providing the most benefits for society has to be key for enterprises to create value for society and at the same time by having success in business area. Level of CSR Engagement The most well-known model in CSR is Carrolls CSR Pyramid.It has four different components and is easy to understand it and forms a pyramid as Figure 1 shows it.After proposing the model, Carroll always reproduced it by himself or in some years with someone.But it kept the model durable with the changing marketing area.Firstly he explained the four different category in 1979 and then the pyramid model was introduced in 1991 and he modernized it six times until now.The last one was in 2004 by himself and he rechanged the term of the functions to follow social changes in the world and he emphasized global word for all responsibilities.For example, economic responsibility is that do what is required by global capitalism, legal responsibility is that do what is required by global stakeholders and ethical responsibility means do what is expected by global stakeholders and philanthrophy responsibility means do what is desired by global stakeholders.

Figure 1.The Pyramid of Carroll

These four components can be thought as a whole strategy for organisations.If we summarize the components like an equation, according to Carroll, the order of them is too influential. Also in 1991, he pointed that all these responsibilities have some extent but ethical and philanthropic functions will take more important place in recent years in the market. CSR= Economic + Legal + Ethical + Philanthrophic Responsibilities

When we focus on these four components, they are separated into two main divisions.Economic responsibilities and legal responsibilities generate zone of compliance that companies make commitments to avoid the contrary results.On these criterias, they focus on shareholders by getting more profit, reaching maximum profit earning, having competitive advantage in the market. Firstly, all other responsibilities are predicated to the economic responsibility.If we go back back to think about the main purpose of establishing a firm, we can easily notice the reasons of this.Companies produce goods or services that are desired and had demand by their customers and naturally their main purpose is making profit to continue their business, to be alive in highly competitive market.After achieving this purpose, it transforms into having maximum profits in competitive area.Maintaining strong competitive position and being profitable are significant factors for enterprises.Rationally, the other responsibilities dont make sense without this main purpose.If a company can not have considerable profit in long term, it is unavoidable to go bankrupt for it. Second component is legal responsibility.It means that companies are expected to obey the state laws and regulations which are published by government.Business should be operated under these rules and continue their economic missions by complying with the law.It is conceivable that there is an unvisible, social contract between the enterprises and government as code of ethics.Nowadays, some firms create their own code of ethics and it reflects to the public that they have their own ethical rules and always comply with the rules and fulfill its legal obligations, do their business legally. Another division is zone of conviction that consists ethical responsibility and philanthrophic responsibility.On these criterias companies should act to create positive impact to the society and they should behave in a voluntary manner by doing right things and contributing to the community.The first division is like an obligation that every firm has to comply to continue 6

their business and not to do illegal things that would cause bankruptcy or bad public reputation.But second division is directly related to the firms volunteering efforts.If they do ethically right and contribute to the broader community, these performances will turn them positively in their financial performance and provide them sustainability in their business.But on the other hand, they have always choice not to do the right things.There is no obligation, it is a strategy that should be applied as one of their corporate strategy. Third criteria is ethical responsibility and Carroll said that The Economic and legal responsibility shaped into ethical responsibility. (Carroll,1991. p. 5). Firms are expected to conform not only for legal expectations but also for the broader values and moral expectations of society in a voluntary manner.All the organisational stakeholders who are employees, customers, community and shareholders have obvious norms, standards and expectations.For example, these standars includes to be fair, support what is right and good, have respect to the human rights and protect the stakeholders moral rights, environmental standards.Shortly they reflect the concern of what they expect.Ethical responsibility personify these norms, values, standarts and expectations in a concrete way for the businesses. The last criteria is philanthrophy responsibility.These responsibilities are completely voluntary.They are contributions that are expected to do by organisations. These activities should involve benefit of whole community. For example, donating money to the charities to increase communitys welfare, education and health level or protecting environment as using natural resources, making product recycling. But if the companies dont provide financial help or philanthrophy , it does not mean that they are doing unethically.It is not about ethical behaviour, it is all about to be a good corporate citizen.Also, these activities motivate employees to work more efficiently and make company more loyal with their customers.Ethical and philanthropy activities are always being considered together.as a social responsibility of business. Summarily, according to Carrolls pyramid, companies firstly have an aim to make high profit, behave ethically and then follow the law and orders, obey the obligations and as a final stage, they endeavor to be a good corporate citizen by donating money, protecting environment, providing benefits to the society.

Chapter 2: Importance of CSR

This chapter will review the reasons why companies have CSR activities.Nowadays awareness of social responsibility is getting higher but the actual question is why it is getting higher. Communities expect some beneficial things from the companies and if the companies follow this way, which results they will have in future and what benefits actually companies gets from participating CSR. At the end of this chapter you will have an answer of importance of corporate social responsibilities for organisations. The reasons for companies to engage in CSR As it is mentioned in Chapter 1, the importance of CSR is growing in business area.There are lots of reasons that cause to this growth. In general, CSR benefits to the society and this turns into as a gain for enterprises.The first thing is that companies have public trust which is one of the most significant component to provide brand enhancement.After having public trust for the brand, it brings directly increased sales and market share to the business.Due to the fact that if companies earn the trust of society, it enhances corporate image.Also, after they have seen the social activities of company, it increases the awareness of brand for customers and strenghtens brand positioning. On the other hand, enhancing the image increases the ability to motivate employees and provides higher employee morale, commitment and investor satisfaction. Consequently, all these reasons are related to financial performance of company.Increasing brand awareness, customer satisfaction and earning trust of society gain competitive advantage to enterprises. Summarily, CSR activities provide main tangible benefit to the companies by increasing sales and market share.On the other hand, it provides intangible benefits such as customer satisfaction, brand enhancement, brand awareness, strenghened brand positioning, more effective operation, higher employee morale, investor satisfaction and confidence of society. Therefore, enterprises should care about the social problems within changing welfare environments and balance the profit and social goals to be a good corporate citizen.As Michael Porter suggested, companies should regard CSR as a business management philosophy, take it into their corporate and business strategy to create competitive advantage.It must be seen by companies as a responsibility not as a social case.

Chapter 3: Areas of CSR


There are many areas of business operations that are influenced by CSR.The most common areas are governance, risk management, value chain, social, employees and environment.This chapter will review the areas of CSR detailed in business environment and give real company examples which are bad at or good at CSR to emphasize the importance of it again. Governance These activities are related to shareholders directly.They are basicly transparency of operations and compliance with law. Companies insure transparency of operations towards shareholders, respect of their rights, obey to the list of rules and corporate law. Companies are supposed to obey the rules and law and have openness to their shareholders to prove that they are doing right.Transparency is important for companies due to the fact that it builts a trust between shareholders and company.If they have already known every operation of company, they do not have any suspicious ideas. Also, especially it is more critical in that kind of situations.For example, if a company had a bad reputation in public, it is really difficult to rebuild the trust and the most important thing is to be open.In 2009, Toyota had a global crisis about unintended acceleration problem in one of their car series and after that they had to extirpate the cars from the market.This caused seriously critical trust problem in public.In one year, Toyota has published lots of news, reliable reports to rebuild the trust.Now, they are more transparent to the public. Risk Management In fact, risk management activities include main operations of business.They are basicly responsible business practices that include non-involvement of childwork, safety at work, social and health insurance and product safety. Also, these activities are directly related to financial performance of enterprises.According to Carrolls pyramid, economic responsibilities consist of them.For example, if a company produce unsafe products, it will be bad reputation for them and they will lose their customers unavoidencely. There is good example for this concept from Volkswagen that is German automobile is involved in the International Labour Organisations SafeWork program to provide safety conditions to their employees at work.

Another example is an unsuccessful operation about CSR from Coca Cola that is the largest beverage company in the world.In 1999, it launched a mineral water brand is called Dasani.After they launched it in UK in 2004, British media searched it and wrote that the source of Dasani is tap water.It decreased the sales directly and caused a crisis for Coca Cola. Social and Environment Social and environment areas of CSR are one of the significant factors to be a good citizen in communities.According to Carrolls pyramid, ethical and philanthropy responsibilities consist of these activities.They are about human rights, charitable donations, staff volunteering, social investments, educational and health care improvement, waste and pollution avoidance, ecoefficiency, product recycling and resource reduction for environment protection. These activities that are social investments and environment protection are directly related to provide benefits for society.Nowadays, the enterprises which realize the importance of CSR help the children who live on the street, donate huge amounts of money especially to South Africa and try to improve the social conditions of world, organise anti-smoking campaigns, fight against AIDS with their contributions. There is a well-known crisis of Shell Oil Company in 1995 about environment protection.They wanted to dump obsolete technology of oil to the Nord Sea but it caused a strong environment protest by environmental organisations. Employees These CSR activities are for providing equity and satisfaction at work to improve the efficiency of operations and reputation of company.They include the issues like work life balance, diversity, training, equal opportunities, internal culture and remuneration. There is a well-known and unsuccessful CSR example for discrimination and unfair labor practises from Wallmart.It has been subjected that they pay for women not being equal to men over the years and it is expected to work overtime without payment. Another important issue on this concept is diversity at work.Companies are expected to hire every kind of people regardless of the race, gender and nationality.

Chapter 4: Conclusion

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First of all , the concept of CSR changed continuously on the time period and nowadays, it requires for enterprises to integrate voluntarily social and environmental concerns in business operations and to contribute for a higher level of life expectancy,better society, cleaner environment. However, the important thing is that enterprises should care about these activities as a business case, not as a social case. Because CSR engagement affects the companys business operations positively in a direct way. As we think that CSR is a guideline of activities that should be done continuously for society , it is the best way to communicate customers directly, to increase reputation of company from the view of society. Consequently, enterprises should regard these activities seriously as a responsibility for their sustainable development, competitive advantage to maximize performance and profit and to create a better world for the society by contributing voluntarily.

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BIBLIOGRAPHY
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