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LAM A Reduced
LAM A Reduced
The concept of corporate social responsibility as discussed earlier means that organizations have
moral, ethical, and philanthropic accountabilities in addition to their responsibilities to earn a fair
return for investors and act in accordance with with the law. A traditional view of the corporation
suggests that its primary, if not sole, responsibility is to its owners, or stockholders. However, CSR
requires organizations to adopt a broader view of its responsibilities that includes not only
stockholders, but many other constituencies as well, including employees, suppliers, customers, the
local community, local, state, and federal governments, environmental groups, and other special
interest groups. Collectively, the various groups affected by the actions of an organization are called
"stakeholders."
Freemans Stakeholder
Freemans classical definition of a stakeholder as any group or individual who can affect or is
affected by the achievement of the organizations objectives (1984: 46) Freeman was mostly
interested in the is affected category to the extent that they could potentially affect the firm. To be
an effective strategist, Freeman wrote, you must deal with those groups that can affect you, while to
be responsive (and effective in the long run) you must deal with those groups that you can affect
(1984: 47) .There are three branches of stakeholder theory: the descriptive (how firms behave), the
normative (how firms should behave), and the instrumental (how behavior affects performance)
One of the main basis of the normative stakeholder theory is that the all decision making has to take
into account the impact on all its stake holders and must have moral worthiness of its own outside of
the firm's financial profits (Donaldson and Preston 1995 as cited in Parmar et al 2010).
Hence, he cautioned managers to take into account all of those groups and individuals that can
affect, or are affected by, the accomplishment of the business enterprise (Freeman, 1984: 25). He
further proposed that the segmentation techniques of marketing should be used to categorize
stakeholders, better understand their interests, and predict their behaviors. He detailed four generic
stakeholder management strategiesexploit, defend, swing, reinforcethat could complement
Porters (1980) list of generic business strategies Stakeholder theory needs to be seen as
managerial, as intimately connected with the practice of business, of value creation and trade. That
was its original impetus, in the sense of re-describing the practice of value creation and trade to
ensure that those with a stake in this practice had attention paid to them. (2000: 173)
The stakeholder idea fits into the mindset of strategically-minded corporate managers; in its latest
phases, some companies are now justifying broader social policies and actions, not for normative
reasons but for strategic purposes (personal communication, March 17, 2008). However, later years
would also see authors suggesting a moral basis for stakeholder management. At its simplest level,
stakeholder theory has been proposed as an alternative to stockholder-based theories of
organizations (Freeman, 1994).
Looking Inside Out: Mapping the Social Impact of the Value Chain
The value chain depicts all the activities a company engages in while doing business. It can be used
as a framework to identify the positive and negative social impact of those activities. These insideout linkages may range from hiring and layoff policies to greenhouse gas emissions, as the partial list
of examples illustrated here demonstrates.
Looking Inside Out: Mapping the Social Impact of the Value Chain
corporate and regional competitiveness fade,wages stagnate, jobs disappear, and the wealth that
pays taxes and supports nonprofit contributions evaporates.
Leaders in both business and civil society have focused too much on the friction between them and
not enough on the points of intersection. The mutual dependence of corporations and society implies
that both business decisions and social policies must follow the principle of shared value. That is,
choices must benefit both sides.To put these broad principles into practice, a company must integrate
a social perspective into the core frameworks it already uses to understand competition and guide its
business strategy.
program between 1989 and 1999, nearly all showed significant improvement, while the graduation
rate in four of the five worst-performing schools doubled from an average of 30% to 60%.Effective
corporate citizenship initiatives such as this one create goodwill and improve relations with local
governments and other important constituencies.
The second part of responsive CSRmitigating the harm arising from a firms value chain activities
is essentially an operational challenge. Because there are a myriad of possible value chain impacts
for each business unit, many companies have adopted a checklist approach to CSR, using
standardized sets of social and environmental risks. These lists make for an excellent starting point,
but companies need a more proactive and tailored internal process. Managers at each business unit
can use the value chain as a tool to identify systematically the social impacts of the units activities in
each location. Here operating management, which is closest to the work actually being done, is
particularly helpful. Most challenging is to anticipate impacts that are not yet well recognized. For
most value chain impacts, there is no need to reinvent the wheel. The company should identify best
practices for dealing with each one, with an eye toward how those practices are changing. Some
companies will be more proactive and effective in mitigating the wide array of social problems that the
value chain can create. These companies will gain an edge, butjust as for procurement and other
operational improvementsany advantage is likely to be temporary.
Strategic CSR.For any company, strategy is about choosing a unique positiondoing things
differently from competitors in a way that lowers costs or better serves a particular set of customer
needs. These principles apply to a companys relationship to society as readily as to its relationship to
its customers and rivals. Strategic CSR includes a small number of initiatives whose social and
business benefits are large and distinctive. Strategic CSR involves both inside-out and outside-in
dimensions working in tandem. It is here that the opportunities for shared value truly lie.
Many opportunities to pioneer innovations to benefit both society and a companys own
competitiveness can arise in the product offering and the value chain. Toyotas response to concerns
over automobile emissions is an example. Toyotas Prius,voted 2004 Car of the Year by Motor Trend
magazine, the hybrid electric/gasoline vehicle, is the first in a series of innovative car models that
have produced competitive advantage and environmental benefits. Hybrid engines emit as little as
10% of the harmful pollutants conventional vehicles produce while consuming only half as much gas..
Strategic CSR also unlocks shared value by investing in social aspects of context that strengthen
company competitiveness. A symbiotic relationship develops: The success of the company and the
success of the community become mutually reinforcing. Typically, the more closely tied a social issue
is to the companys business, the greater the opportunity to leverage the firms resources and
capabilities, and benefit society.
diet, which in turn depended on adequate feed crop irrigation. With financing and technical assistance
from Nestl, farmers began to dig previously unaffordable deep-bore wells. Improved irrigation not
only fed cows but increased crop yields, producing surplus wheat and rice and raising the standard of
living.
When Nestls milk factory first opened, only 180 local farmers supplied milk. Today, Nestl buys milk
from more than 75,000 farmers in the region, collecting it twice daily from more than 650 village
dairies. The death rate of calves has dropped by 75%. Milk production has increased 50-fold. As the
quality has improved, Nestl has been able to pay higher prices to farmers than those set by the
government, and its steady biweekly payments have enabled farmers to obtain credit. Competing
dairies and milk factories have opened, and an industry cluster is beginning to develop.
Today, Moga has a significantly higher standard of living than other regions in the vicinity. 90 % of the
homes have electricity, and most have telephones; all villages have primary schools, and many have
secondary schools. Moga has five times the number of doctors as neighboring regions. The
increased purchasing power of local farmers has also greatly expanded the market for Nestls
products, further supporting the firms economic success.
Nestls commitment to working with small farmers is central to its strategy. It enables the company to
obtain a stable supply of high-quality commodities without paying middlemen. In this case, as Nestl
has prospered, so has the community.
reported abusive labor practices at some of its Indonesian suppliers in the early 1990s. Shell Oils
decision to sink the Brent Spar, an obsolete oil rig, in the North Sea led to Greenpeace protests in
1995 and to international headlines. The legitimacy which in the past was granted on the basis of
ownership and managerial expertise is being attacked. Consumers, environmentalists, civil-rights
groups, and modern feminists are placing new requirements on business for social responsibility.
Workers are demanding . . . a voice in the policy-making and decision processes hitherto reserved for
management. . . . The emergence of huge multinational corporations with economic powers
comparable to those of nations has brought awareness that these private-sector institutions have
impacts on human lives comparable to the impacts of political governments, and hence should . . .
assume responsibility for the welfare of those over whom they wield power. (Stanford Research
Institute, 1982: 58).Activist organizations of all kinds, both on the right and the left, have grown much
more aggressive and effective in bringing public pressure to bear on corporations. Activists may
target the most visible or successful companies merely to draw attention to an issue, even if those
corporations actually have had little impact on the problem at hand. Nestl, for example, the worlds
largest purveyor of bottled water, has become a major target in the global debate about access to
fresh water, despite the fact that Nestls bottled water sales consume just 0.0008% of the worlds
fresh water supply. The inefficiency of agricultural irrigation, which uses 70% of the worlds supply
annually, is a far more pressing issue, but it offers no equally convenient multinational corporation to
target.
Debates about CSR have moved all the way into corporate boardrooms. In 2005, 360 different CSRrelated shareholder resolutions were filed on issues ranging from labor conditions to global warming.
Government regulation increasingly mandates social responsibility reporting. Pending legislation in
the UK, for example, would require every publicly listed company to disclose ethical, social, and
environmental risks in its annual report. In India, recognising the concerns of the ever increasing
divide between the vast majority of the masses and the increasingly powerful and endowed
corporations, the government has today legislated CSR as mandatory with provisions for the
corporations to report the reasons, in the event of non compliance. The mandatory limits have been
defined by an amendment to the Companies Bill 2011 that was passed in the Lok Sabha in December
2012. Public sector companies and private companies earning over Rs.5 crores in net profit must
spend a minimum of 2 % of their profits on CSR or report the reasons for their failure to do so (Goel,
Sanghvi, Dahiya 2013).
These pressures clearly demonstrate the extent to which external stakeholders are seeking to hold
companies accountable for social issues and highlight the potentially large financial risks for any firm
whose conduct is deemed unacceptable.
While businesses have awakened to these risks, they are much less clear on what to do about them.
In fact, the most common corporate response has been neither strategic nor operational but
cosmetic: public relations and media campaigns, the centerpieces of which are often glossy CSR
reports that showcase companies social and environmental good deeds. Of the 250 largest
multinational corporations, 64% published CSR reports in 2005, either within their annual report or, for
most, in separate sustainability reportssupporting a new cottage industry of report writers. Such
publications rarely offer a coherent framework for CSR activities, let alone a strategic one. Instead,
they aggregate anecdotes about uncoordinated initiatives to demonstrate a companys social
sensitivity. What these reports leave out is often as telling as what they include. Reductions in
pollution, waste, carbon emissions, or energy use, for example, may be documented for specific
divisions or regions but not for the company as a whole. Philanthropic initiatives are typically
described in terms of dollars or volunteer hours spent but almost never in terms of impact. Forwardlooking commitments to reach explicit performance targets are even rarer.
FURTHER READING:
Corporate Social Responsibility and institutional theory: new perspectives on private governance
Stephen Brammer1, Gregory Jackson2,*, and Dirk Matten3
1Warwick BusinessSchool, University of Warwick, Coventry, UK; 2School of Bus iness and Economics, F reie
Universita t Berlin, Berlin, Germany; 3Schulich School of Bus iness, York Univers ity, Toronto, Canada
For a fuller discussion of the problem of CSR ratings, see Aaron Chatterji and David Levine,
Breaking Down the Wall of Codes: Evaluating Non-Financial Performance Measurement, California
Management Review, Winter 2006
Arthaud-Day, M.L. "Transnational Corporate Social Responsibility: A Tri-Dimensional Approach to
International CSR Research." Business Ethics Quarterly 15 (2005): 122.
Carroll, A.B., and A.K. Buchholtz. Business and Society: Ethics and Stakeholder Management. 5th
ed. Australia: Thomson South-Western, 2003.
Garriga, E., and D. Mele. "Corporate Social Responsibility Theories: Mapping the Territory." Journal of
Business Ethics 53 (2004): 5171.
Marquez, A., and C.J. Fombrun. "Measuring Corporate Social Responsibility." Corporate Reputation
Review 7 (2005): 304308.
Post, J.E., A.T. Lawrence, and J. Weber. Business and Society. 10th ed. Boston: McGraw-Hill, 2002.
Also read article about Corporate Social Responsibility from Wikipedia
1. An early discussion of the idea of CSR as an opportunity rather than a cost can be found in David
Grayson and Adrian Hodges, Corporate Social Opportunity (Greenleaf, 2004).
2. For a more complete discussion of the importance of competitive context and the diamond model,
see Michael E. Porter and Mark R. Kramer, The Competitive Advantage of Corporate Philanthropy,
HBR December 2002. See also Michael Porters book The Competitive Advantage of Nations (The
Free Press, 1990) and his article Locations, Clusters, and Company Strategy, in The Oxford
Handbook of Economic Geography, edited by Gordon L. Clark, Maryann P. Feldman, and Meric S.
Gertler (Oxford University Press, 2000).
Stakeholder Theory: Reviewing a Theory That Moves Us
Andre O. Laplume* Asper School of Business, University of Manitoba, Winnipeg, Manitoba, Canada Karan
Sonpar Instituto de Empresa, Spain Reginald A. Litz Asper School of Business, University of Manitoba,
Winnipeg, Manitoba, Canada
Social Capital: CSR in Large Firms and SMEs. Journal of Business Ethics 91:207221.
UNESCO. Association social responsibility working group and human rights.
Vyakarnam,S.,Bailey,A.,Myers,A.,Burnett,D.(1997). Towards an Understanding of Ethical Behaviours in
Small Firms. Journal of Business Ethics 16. 1625-1636.
Wozniak,A. (2011). The missing subject found inthe subject who does the thinking: Kierkegaard, the
ethical and the subjectivity of the critical theorists. Business Ethics: A European Review Volume 20
Number 3 July 2011.
Weblinks: x http://www.dol.gov/ebsa/publications/how_to_obtain_docs.html x
http://usequities.nyx.com/mkt-equities-regulation/listed-company-compliance/public-disclosure x
https://en.wikipedia.org/wiki/Stakeholder_theory x http://www.fsu.edu/~pea/Stakeholder_Theory.html x
http://articles.economictimes.indiatimes.com/2008-07-04/news/28387032_1_anniversary-celebrationsvizag-visakhapatnam x http://infochangeindia.org/corporate-responsibility/analysis/satyam-and-thetruth-about-csr.html