Literature Review: Corporate Social Responsibility
According to Douglas and Emily (2011), business environment has changed significantly recently. To survive in this dynamic business environment, businesses have been forced to adapt various strategies, among them being the integration of corporate social responsibility (CSR) into their business models. Bendell (2005) argues that, there is no single definite definition of what CSR is, as various organizations define this concept in different ways. However, most of these definitions are closely related in the sense that they relate CSR with how organizations manage their business process to create a general positive impact on the society. Thus, CSR is universally defined as the ongoing dedication by organizations to act in an ethical manner as well as to contribute to economic development, at the same time enhancing the quality of life of their employees, their families, and the local community and society entirely. From this definition, it is evident that CSR is all about how organizations relate to the external and internal environment, in the course of pursuing its business motives. Blowfield (2005) argues that, due to its recent popularity, CSR has attracted research interests lately. Particularly, there is wide literature on CSR in relation to sustainability, profitability, and ethical issues.
In relation to profitability, different scholars have given varying views on how CSR affects profitability. For instance, Berkhout (2005), argues that CSR is a crucial element in enhancing profitability, especially in current dynamic business environment. Lately, most companies have embraced CSR in their business model because it is perceived that it is an impetus of increasing profits. According to Bendell (2005), CSR contribute to increasing profits through various ways. For instance, by embracing CSR, an organization earns respect in the marketplace, which is likely to attract higher sales. Specifically, it is easy for an organizations engaging in CSR activities to earn customer loyalty in the market. Campbell (2007) asserts that, through embracing the spirit of CSR, consumers tends to believe that a company has is concerned with their needs, and is ready to modify its business motives to cater for these needs. Consequently, consumers will always identify with the company, consuming their products and services from time to time; hence contributing to the company’s profitability. In yet another study, Blowfield (2005) observed that in consumer industries, CSR is linked with better corporate financial performance; however, this is not the case when it comes to industrial industries. In addition to enhancing profitability through improving the image or brand of a company, profits are also enhanced to an organization’s ability to attract qualified personnel through its CSR activities. It has been observed that firms that engage in CSR activities, especially on issues affecting their workforce, have a better chance of attracting more qualified personnel. As Robbins (2011) argued, qualified personnel increase the overall effectiveness and efficiency in a firm’s performance entirely, and this translates to high profitability.
Robbins (2011) argues that, CSR also promotes profitability, through its linkage with sustainability. For instance, through focusing on CSR, especially those that are intended to promote sustainability objectives, a firm is likely to reduce costs in addition to enhancing efficiencies. For public companies, CSR creates an opportunity of these companies being included in the Dow Jones Sustainability Indexes, or FTSE4Good list. In turn, this is likely to promote the stock price of the companies, making the stock options more profitable for the shareholders.
Despite the above arguments on the effectiveness of CSR in enhancing a firm’s profitability, other scholars have given different opinion regarding the issue of how CSR is related to profitability. Perhaps, the economists are the leading grouping with differing opinions. Their argument is based on the core function of a firm, in relation to its shareholders. For instance, Milton Friedman was of the opinion that CSR is a socially desirable undertaking (Hernandez-Murillo and Martinek, 2009).
According to Friedman, the major social responsibility of business is profit maximization, which is achieved through undertaking business in an open and free competition without deception or fraud. He further argued that, the executive of the corporate are act as the agents of the owners, and spending resources of firms on CSR activities amounts to spending other people’s resources. Nevertheless, Friedman asserted that firms can be engage in CSR at the same time fulfilling its profit maximization function in different ways. For instance, a firm can either undertake investment projects in the community that are likely to better the quality of potential employees, or contributing to altruistic organizations to benefit from reduction of tax (Hernandez-Murillo and Martinek, 2009). According to Friedman, such actions, in addition to serving the self-interest of the firms, also play a vital role in generating corporate goodwill, which gives a company a competitive advantage over its competitors, in turn presenting an opportunity for the company to further generate economic profits. Various other economists, such as Jose de Jesus Salazar, and Bryan Husted, have given a similar opinion, arguing that there are higher potential benefits to both the society and the firm, if CSR is undertaken strategically; specifically, when the CSR activities of a firm are aligned with the interests of the firm (Hernandez-Murillo and Martinek, 2009).
In addition to the studies on the relationship between CSR and profitability, the existing literature also comprise of issues related to CSR and sustainability. Sustainability has various definitions, depending on the perspective of whoever is defining it. However, all definitions tend to be closely related, and they have the following elements: equitable resource and opportunity distribution, understanding the interconnection between the environment, economy, and the society; and living within the limits (Blowfield 2005).
Various business scholars have put forth various arguments in explaining the relationship between sustainability and CSR. According to Berkhout (2005), CSR plays a vital role in promoting sustainability. Through embracing the principles of CSR, a firm is conscious on how it utilizes its resources, at the same time reducing negative impacts to not only to the environment, but also the economy and the society as a whole. It is imperative to note that various companies have taken different approaches to sustainability in their CSR models. However, the most common approach is incorporating the principles of CSR and environmental sustainability in their business models. In this case, the companies take into consideration the environmental and social repercussions of their business activities.
A vital component in the social responsibility is the ability of communities to decide or influence those decisions that directly or indirectly influence them. Therefore, communities should be able to influence decisions pertaining to the tradeoffs that have effects on them, for instance, between the environmental conservation and economic development and most importantly meeting the requirements of the current generations, and the ability to meet their needs. Local communities have the responsibility to determine the particular elements to sustain, what to expense and how to expense them. Not only because these decisions directly impact on them but because they have crucial roles to play in the processes that aim at enhancing responsibility (Berkhout, 2005).
Corporate responsibility depends on the individuals working in the particular companies perceiving and functioning towards the “business case”. For certain behaviors to pursue social change in the various directions that are demanded by the particular communities where they reside, this case depend on the communities being vigilant and sustaining a major context that propels companies to answer to the community demands. The various implications for social responsibility that may arise in the process may be set in the conclusion. It is important to take note of how the companies are demanded to the local communities and particularly in what circumstances (Blowfield 2005). What is to be considered in responding to the demand of communities to expound; where and when communities considering all the complexities can put leverage on companies so that the corporate respond more to the desires of the people who are directly affected by the actions of those very corporate (Berenbeim 2006).
Social responsibility and business ethics are concepts that go hand in hand for all companies that transact business. Business ethics are those moral standards a company applies to make sure that the employees act within the rules and principles of the company while doing the business functions. The marriage of the two are used by large organizations and companies to promote corporate governance, this in turn creates the framework of procedures, policies and the guidelines for the individual stakeholders, that is, those who are employed and even those who have invested in the company (Bendixen & Abratt, 2007). Outside stakeholders can also benefit from this governance. Due to the fact that most companies that command huge portions of the economic resources receive scrutiny pertaining to the business ethics, it is important for them to provide some benefit to the locals, and try to win their hearts, and consequently improve the living standards of the people, making sure that they do no pollute or introduce any pollutant into the environment. However, at times, governments and individuals demand too much from the companies (Berenbeim 2006). It is imperative to think that as much as the companies should not misuse the natural resources, they cannot pay for every single need and wants of the communities, this goes contrary to the ethics and may even result to the companies not producing as much as they are needed to produce.
Business ethics is an enabler of social responsibility. Through it, the society or governments are able to decide whether the companies will be able to give back to the communities that they are exploiting. Given the ability to utilize these ethics, it is possible to create a social responsibility, which can transform the leadership, culture and the business ventures so that there are goods for the society (Bendixen & Abratt, 2007).
From the above review of the existing literature, it is evident that embracing CSR would have significant impacts on Yazoo Milkshakes. To begin with, Yazoo Milkshake is likely to improve, in terms of profitability, in the market as compared to products of companies, which have not incorporated CSR in their business model. In addition, CSR is likely to enhance sustainability in Yazoo Milkshake products, further promoting the brand of the same in the market. Besides, CSR would enhance implementation of ethical policies within the company and in relation with its environment, both internal and external.
Bendell, J., 2005., In whose Name? The Accountability of Corporate Social Responsibility. Development in Practice, Vol. 15, No.4, 362-374
Bendixen, M., & Abratt, R., 2007., Corporate identity, ethics and reputation in supplier-buyer relationships. Journal of Business Ethics, 76, 69–82
Berenbeim, R. E., 2006., Business ethics and corporate social responsibility: Defining an organization’s ethics brand. Vital Speeches of the Day, 72, 501–503
Berkhout, T., 2005., Corporate gains: Corporate social responsibility can be the strategic engine for long-term corporate profits and responsible social development. Alternatives Journal, 31(1), 15–18.
Blowfield, M., 2005., Corporate social responsibility: Reinventing the meaning of development. International Affairs, 81, 515–524
Campbell, J. L., 2007., Why would corporations behave in socially responsible ways? An Institutional Theory Of Corporate Social Responsibility. Academy of Management Review, 32, 946–967.
Douglas, R. and Emily, S.T., 2011., The Purpose Agenda, Business Strategy Review Vol. 22 Issue 3.
Hernandez-Murillo, R. and Martinek, C.J., 2009., Corporate Social Responsibility can be profitable. The Regional Economist. Retrieved from http://research.stlouisfed.org/publications/regional/09/04/socialresponsibility.pdf
Robbins, R., 2011., Does Corporate Social Responsibility Increase Profits. Retrieved from http://www.environmentalleader.com/2011/05/26/does-corporate-social-responsibility-increase-profits/