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2. Corporate Social Responsibility
Corporate social responsibility first defined in 1960s and 1970s, when public were more aware of how the profitability of a company was also impacting the society and environment.
In 1973, Davis defined CSR as “the firm’s consideration of, and response to, issues beyond the narrow economic, technical, and legal requirements of the firm…(to) accomplish social benefits along with traditional economic gains which the firm seeks.” (Davis, 1973: 312) This becomes the classical definition of CSR as Davis pointed out how a company should also consider what they can bring to the society besides profitability.
When time evolved, other academia including Carroll and Frederick further elaborated the definition of CSR by observing “the social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given pointed of time.”(Carrol, 1979:500) and “the fundamental idea of ‘corporate social responsibility’ is that business corporations have an obligation to work for social betterment”.
(Frederick, 1986:4)
In the 90s, Donna J. Wood referred CSR to a form of corporate self-regulations integrated into a business model, in her article “Corporate Social Performance Revisited” in Academy of Management Review. (Wood: 1991). Wood stated that the CSR policy in a company serves as a built-in and self-regulating mechanism to monitor and ensure the company is actively filfiling the compliance with the spirit of the law, ethical standards and international norms.
The above definition means that a corporation or organization should have a bottom-up
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approaching in terms of business and CSR model in their operations. From the use of raw materials, employment of labor, working environment, supply-chain management, or in other words, along the value chain, corporates should consider how the business decisions made in different stages of production align with compliance, ethical and social standard. A real example is the fair trade campaign in Starbucks. Being a leading international beverage chain, Starbuck is a key player in coffee bean market. Most of the coffee beans are from developing countries in Latin America and Africa. However, coffee farmers are exploited by middlemen and wholesalers in the market. Their hard work is not paid even Starbuck is gaining huge profit. Therefore, Starbuck looked into the important element that made their huge success- the coffee beans. By purchasing the fair trade coffee beans, Starbuck manages the balance between cost and social impact to coffee farmers. This may not be the best example of corporate social responsibility, but this at least shows how a company is making an ethical consideration during their operations. In a Corporate Social Performance (CSP) Model, Wartick and Cochran (1985) reconciled the idea of CSR about public responsibility and social responsiveness by the CSP model. (Table 2.1)
Table 1: CSP model The Corporate Social Performance Model
Principles of corporate social responsibility Institutional principle: Legitimacy
Organization principle: public responsibility Individual principle: managerial discretion
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Processes of corporate social responsiveness Environment assessment
Stakeholder management Issues management
Outcomes and corporate behavior Social impacts
Social programs Social policies
For companies seeking to construct a CSR strategy, they should examine every single element in their business model. Are they offering reasonable wages and working hours to their labors?
Are they offering equal work and same wages regardless of gender, race, ages, and family status when considering candidates with the same capability and experience? Are they paying their suppliers at reasonable pricing? Do their suppliers have the same set of standard? When they are producing new products or offering new service, do all these suit the social norm and compliance as well as regulation? Are they having high quality of corporate governance? All these questions are what we view on the CSR of the company.
Besides, one important principle to formulate CSR strategy is that corporate should also put business nature and business model into consideration. For example, for a manufacturing company which energy is the key production inputs, considering energy-efficiency in production is what to be included in the CSR approach. This is to offset the side effect from its business nature when they are making profit. Other examples can be IBM. This IT giant is
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putting much effort in talent cultivation. During their transformation from an IT infrastructure company to IT consulting service, human resources is the valuable assets. In their CSR approach, cultivating talents is linked with the pillar about employee and their business model.
2.1. Benefit of CSR
For a company, with the implementation of CSR strategy, there are benefits that can be achieved besides gaining profits.
1) Staff engagement and retention
Companies can engage their staff in the CSR approach in order to help staff for a better understanding of the company. If the CSR approach is bottom-up and comprehensive, the company will provide a desirable working environment and reasonable human resources strategy, as this is one of the key elements of CSR. Besides, employees will be encouraged to participate in the community engagement event within social responsibility activities such as volunteering, fund raising for charity or staff engagement activities. Their sense of belonging will be elevated and the turnover can also be reduced.
Moreover, inclusion and diversify strategy on staff employment will also help break the limitation of selecting talents. When high quality talents are invited to join the company, this also encourages a new thoughts and sounds to break daily routine. The excitement added to the working environment offers staff a more flexible way of thinking that will attract them to stay.
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2) Risk management
As a company is constantly in line with a guideline of proper operation, this can be regarded as a daily management of operation process and the implementation of code of conduct. For example, supply chain management is part of the CSR approach. When the suicide scandal of Hon Hai erupted in 2010, critics went to Apple, its key clients. Consumers blamed for the demanding supplier that lead to the 24/7 production line in Hon Hai, making it lose-lose situation for Hon Hai and Apple.
Another example is the improper sewage treatment of ASE, one of the world largest semi-conductor manufacturers, has lead to public concerns and suspension of their production line. In additions to a flaw in image, their profit and stock price dropped. If the corporate social responsibility approach is correctly adapted in a company, this at least could minimize the impact to society, environment and employee, as well as the risk embedded in the above issues.
3) Stakeholders management
For a company in operation, there are many stakeholders involved. From suppliers, customers, shareholders, government, society, to employees, all internal and external stakeholders are those a company has to manage day-by-day. When a CSR approach is implemented, a company can manage the expectation of these stakeholders, as well as engaging them into the operation. Taking ASE as example. When they are found the improper sewage treatment, the creditors may be aware of the possible impact to the cash flow of the company if they are fined or suspended for production. Regulators are also aware of the breach of environmental protection law, shareholders worry about the plunge in share price and impact on profitability,
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while clients may stop buying from ASE. This is a chain of stakeholders ASE will need to manage. If the CSR strategy is correctly implemented, the approach itself serves the purpose of managing the expectation of stakeholders.
4) Brand assets
Corporate image is vital for brand architecture. The ethical aspects of a company can be reflected by whether the company is operating obliged to ethical, environmental and social norms. With a proper CSR system in a company, corporate image can be maintained in a positive way that turn out to be their reputation. This can be the reputation from employees, shareholders, regulators, consumers as well as suppliers. The intangible assets gained will add value to its branding.
2.2. Regulations on CSR
As mentioned at above statement, CSR strategy covers all the resources from the company.
This is not only presented as the output of an event or program. In various countries, regulators require publicly listed company for an annual CSR report and listed companies have to obliged to legal articles on corporate social responsibility. Kyoto Protocol, the protocol aims to reduce carbon emission is one of its kind to require various countries to consider the possible impact to environment and how to adapt a cleaner and more responsible approach to balance economic growth and environmental protection, can also be considered as a CSR regulation, though it does not target at companies.
However, in some countries, particularly in Europe, regulation on corporate social responsibility can be found. In Denmark, its parliament adopted a bill making it mandatory for the 1,000 largest Danish companies, investors and state-owned companies to include
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information on corporate social responsibility (CSR) in their annual financial reports in 2008.
India also passed a law on CSR. According the revised Company Act, any company having a net worth of rupees 500 crore or more or a turnover of rupees 1,000 crore or more or a net profit of rupees 5 crore or more should mandatorily spend 2% of their net profits per fiscal on CSR activities.
In Taiwan, the Taiwan Stock Exchange and GreTai Securities Market revised their regulations to listed companies in 2010, which is “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM-Listed Companies” and “Ethical Corporate Management Best Practice Principles for TWSE/GTSM-Listed Companies”. The article requires listed companies on Taiwan to formulate CSR guideline and require companies for information disclosure on CSR related information.
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As mentioned above, listed companies are obliged to the two guidelines on CSR. Common Wealth and Global View, the two reputable magazines in Taiwan, also have CSR awards that encourage companies to apply. These awards are most welcomed among companies in Taiwan, as these trophies have always become companies’ brand assets in creating a positive image.
Some public relations consulting firms specialized in corporate social responsibility would help companies to roll out plan of CSR activities, award application and leveraging CSR event for stakeholders’ engagement.
Setting up foundation is one of the popular practices among large scale cooperates. Most of the foundations serve for education and charity purpose. Hon Hai has a Yongling Foundation separately operated to support education, research on health issues and elderly care. Formosa Plastic also has a Wang Jan-yang Social Welfare Foundation that supports medical services in remote area and rare diseases. Delta Electronic, Xinyi Properties, and other renowned corporates also run their own foundations to support different causes. Some corporates would run the foundations separately and will “donate” the operation fee to its subsidiary foundation in order to achieve the purpose of tax deduction.
Some large-scale enterprises with a sophisticated public relations team would appoint a CSR specialist or sustainability officer. It is very rare to see a company setting up sustainability or CSR department. The specialists or team are responsible to communicate the CSR approach internally and externally to the company’s stakeholders, daily office operation, handling media requires, organizing large scale activities, planning volunteering activities for staff engagement, drafting marketing materials for the foundation or the corporates in CSR aspects.