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Chapter 2
Literature Review
2.1 Defining CSR
The quickest definition for corporate social responsibility (CSR) would be business practices which aim to benefit society, and using the power of business to create a better world. That is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. Businesses participate in internal CSR and external CSR activities which activities are society beneficial and company profitable. However, McElhaney (2009), the adjunct associate professor of University of California Berkeley, believes CSR is a business strategy that is integrated with core business objectives and core competencies of the firm. In addition, a company’s CSR is designed to create a business value and positive social change, and is embedded in day-to-day business culture and operations.
Standing from a company’s mind, defining CSR might be different. Some companies give CSR another label which is “spiritual capitalism.” In contemporary, CSR has many names including corporate responsibility, sustainable development, global citizenship, corporate citizenship, values-dive business, natural capitalism, spiritual capitalism, and many more.
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2.1.1 History of CSR
Corporate Social Responsibility’s (CSR) preliminary idea started in 19 century when entrepreneurs rethink what they can do for society. According to Madrakhimova’s paper (2013), Global Conference on Business and Finance Proceedings, CSR focuses on the responsibility of business to society in 1950. People and ideas have played an important role in characterizing the social changes in 1960. Moreover, in the 1970s, business leaders function management in matters of corporate social responsibility, while in 1980, the business and social interests of the company came closer and become more responsive to shareholders. In the 1990s, the idea of CSR has stood its importance, and become almost universally accepted. Finally, in the 2000s, CSR has finally become an important strategic issue.
2.1.2 Evolution of CSR
In 1970s, there was no CSR this name. Companies call these actions, pollution control, which aimed to hold pollution at an optimal condition. In 1980s, the name was pollution prevention which supports an idea to limit and restrict any pollution happen. Start from 1990s to 2000s, sustainability is finally come into play. Names are environmental sustainability, social sustainability, business sustainability, and corporate social responsibility.
2.1.3 CSR in the 21st century
The 21st century is a key century of business in the history. A wide-ranging activities are dominated including international trade, procurement and logistics, global warming issues, and social issues. A group of researchers (Whilst Orlitzky 2005) found that by
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performing CSR actions could reduce the financial risk of businesses. Nonetheless, Hopkins (2003) found the result to be false after studied top ten UK companies.
Undertaking CSR activities have low correlation to financial risk. Several studies (Grayson 2004; Spence 2000; Spence and Rutherford 2003; Tilley 2000) in the recent decade criticized the phrase, CSR, as misleading term. Many smaller organizations have no real commitment in fulfilling socially responsible actions. Francesso Perrini (2006) suggested large firms are responsible to run CSR under stakeholder theory while small and medium entrepreneurships should run CSR under social capital theory. In 2009, Russo and Perrini restated the idea that social capital theory and stakeholder theory are regarded as alternative ways to explain CSR in bigger firms and SMEs.
2.1.4 Stakeholder Theory
Stakeholder was defined as groups in which the organization depends on for survival (Stanford Research Institute 1963). Thinking stakeholder theory in this logic is based on the traditional view of the firm; shareholders are the real owners of a company. This concept has been assimilated into the organization, and is impossible to discount in any management literature. The stymie has finally seen solutions when Freeman (1984) defined stakeholders as “any group or individual who can affect or is affected by the achievement of the firm’s objectives” (p.47). The pivot of the statement is that organizations are responsible for stakeholders’ expectations. Jones and Wicks (1999) summarize the basic tenets of stakeholder theory as follows:
(i) The corporation has relationships with many constituent groups (stakeholders) that affect and are affected aby its decisions.
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(ii) The theory is concerned with the nature of these relationships in terms of both processes and outcomes for the firm and its stakeholders.
(iii) The interest of all (legitimate) stakeholders has intrinsic value, and no set of interests is assumed to dominate the others, and
(iv) The theory focuses on managerial decision making.
These tenets conclude two premises. First, company managers have to be aware of all stakeholders such as environmental lobbyists, local communities, and competitors.
Second, managers have obligations to stakeholders and extend beyond shareholders.
Creating a CSR Strategy:
2.1.5 What is a CSR strategy?
CSR strategies should give substantial benefit to organizations and society. In many organizations, a clear scope of CSR needs to be embedded and reflect the core values of the firm. Moreover, the strategy has to link with the mission, vision, and values of the organization. CSR should be treated like creating a core business strategy. CSR has to report to top-management leader, and the board of the company should engage CSR as well. They should take CSR as serious as other business strategies on accounting, finance, and marketing. Some well managed CSR companies such as Timberland states by McElhaney (2009) have board committees which responsible in directing corporate responsibility.
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2.1.6 Develop CSR strategies
Before a CSR strategy is being made, leaders of companies must first determine what specific business objectives do they want to achieve. CSR can benefit directly to companies who apply it. For instance, CSR can be used as a strategy to create new markets for low energy consumed products. Over here, the strategy of selling low energy consumed products becomes a company’s competitive advantage. Customers who buy these products benefit themselves as well. In addition, the new products attract customers who care about environment friendly. McElhaney (2009) claims CSR has to fully integrate with the culture, governance, company-development, existing management and performance systems. Developing clear performance metrics or key performance indicators can help to measure the impact of CSR strategies. CSR performance metrics should be both internal and external. Some internal metrics are reputation improvements, gains in market share, brand perception, increased sales, decreased operational costs, and employee satisfaction. Other external metrics are society and environment. CSR performance metrics are extremely important. If there are no such metrics, there will be evidence showing how effective the strategies are.
2.1.7 Branding CSR and Communicating CSR
After CSR is truly developed, executed, and integrated into the organization, the company should start branding the CSR. Branding CSR can be an innovative and valuable business strategy to acquire important constituencies inside and outside the corporation which are employees, suppliers, business partners, investors, peers, and consumers. On the other side, communicating CSR to customers is important when CSR has started to play the role. In contemporary, consumers are looking for a relationship between themselves and corporations. They do not want just a transaction.
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CSR can be another component of strategic communication and messaging management (McElhaney, 2009). Corporations have to integrate CSR messages with the core branding strategy externally to consumers, potential employees, suppliers, retailers, governments and, communities; in addition, communicating a clear CSR message internally to employees.