Corporate Responsibility Report Positive Revolution

Corporate
Social
Responsibility

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This document was prepared by Positive
Revolution LLC, For educational purposes. 2/16/2011

Corporate Social Responsibility

Corporate Social Responsibility (CSR) is defined as the role, duty
and obligation of a business to provide service beneficial not only to the
company itself but to the stakeholders as well. To define clearly, stakeholders
are groups of people that exert direct or indirect influence over a business and
are also influenced by the actions made by the business. These people could be
the community, the consumers, the employees and other social groups that are
either directly or indirectly connected to the activities entered, created and
maintained by a company. Stakeholders invest time, capital and a personal
relationship with the company. The company in turn gives back to the
stakeholders by providing excellent services and commendable output
products.

The concept of CSR is not new to the business community. In
fact, as early as the 1800’s, the economics of Adam Smith and the philosophy
of John Locke have already pointed to the emergence of the model also known
as the minimalist business responsibility. Under this model, the value given to
the stakeholders is considered to be the sole responsibility of the company.
Initially, the maximization of this value is said to be accomplished only by the
efficient and productive delivery of products and services to the shareholders.
But as business evolved and governments worked to protect the environment
and the people, using CSR as an embedded business model became necessary
to many companies.

The CSR movement is pioneered by a coalition between avant-
garde corporations, lobbyists, environmentalists, socially-conscious
individuals, progressive economists and other cause-oriented groups. It is a
business evolution that points towards the search for valuation. CSR in its
entirety is a consensus among various social groups to bring good to the
environment, the community and the business as a whole.

As a whole, CSR tries to address the major problems that
companies face today. The economic, social, environmental and ethical
challenges are just some of the issues that CSR is trying to deal with. By
creating a culture of “doing good” and “being right”, companies are ensured
that they gain not only their shareholders’ purchasing preferences but the
shareholders’ trust as well.

Who are the stakeholders?

CSR involves a very large scale of stakeholders. Under CSR, delivering
goods and services does not end only with the target social group or
community. Because it is the duty and responsibility of the business to provide
a plethora of benefits such as community project support, environment-
friendly processes, transparent financial disclosures and more opportunities for
the minority, companies are expected to provide for everyone and not just for
their specific market group.

If the primary customers of a banking business are made up of
professionals, income-earners and investors, it doesn’t mean that these groups
are the only stakeholders of the business. Everyone is a stakeholder; from the
employees, the owners, the people who live around the community up to the
groups indirectly connected to the company, CSR reaches out to everyone who
is included in the web of interconnections a business creates.

Necessity and not just Advocacy
To follow the CSR model is to remember this phrase: necessity and not
just advocacy. Critics of the CSR model proposed that business philanthropy,
whatever one may choose to call it, is still business. According to these critics,
a business will give charity, compassion and generosity only if these activities
translate to the generation of more income. Adopting CSR in business is only
acceptable if it leads to a surplus in demand and a steady increase in profit.

On the other hand, the argument presented by CSR advocates points out
the flaw in this reasoning. According to Elizabeth Ness in her paper Corporate
Social Responsibility:

“…since when did honesty go out of fashion? Since when did operating
with basic decency and integrity move into the purview of the fashionista?
And how can today’s money markets, which are increasingly remote from
the wealth-generating activities (eg commodities and derivatives trading),
retain stability if there is no basic underlying integrity?”

Because social responsibility should be a part of an individual’s duty to his
own self and to the humanity as a whole, it goes without saying that a business
should encompass this value as well. If stakeholders consider honesty, social
responsibility and integrity as important core values, companies and
businesses should assess their ways and listen to what their stakeholders value
as well.

BUSINESS ENVIRONMENT

CSR

SOCIETY

CSR
Convergence
Diagram

CSR and Long-Term Business Success

The importance of CSR in a competitive market

Increasing pressures from the recent global financial crisis and from
several governments taking measures to protect its environment and people
have led to the sudden rise of CSR. Because of the drastic fall in the finance
market and the increased competition between companies, avant-garde
businesses implemented CSR to veer away from their competitors. Consumers
value honesty, charity and competency and often use it as a guide in looking for
a business to support. And in a steadily increasing competition between
companies and global brands, embedding CSR in the business model of a
company produces positive results not only for the company and but for the
shareholders as well.

Business Branding and Winning Customers

In a competitive marketplace, companies look for ways to separate
themselves from the rest of the competition. By adopting CSR, building a
unique brand and image in the minds of the customers is further improved.
Several major brands such as McDonald’s and Adidas spend not only years but
decades to build a certain image in the eyes of consumers. By practicing CSR
through supporting sports events, headlining feeding campaigns, creating
charities and developing output-based community projects, both McDonald’s
and Adidas indirectly say to the stakeholders that “for every hundred dollars
you give, we give ten dollars back.” This mentality leads the customers to
consciously take part in the company’s advocacy by supporting not only its
products but its CSR endeavors as well.

Risk Management

A company’s image takes years, sometimes even decades, to develop and
market effectively. Managing risks is an important corporate strategy employed
by top-level companies to avoid the possible damage to its brand and reputation.
Sometimes, incidents such as allegations of corruption, scandals, environmental
accidents and intellectual dishonesty can instantly ruin the customers’ trust.
Creating diversion and maintaining a “good” track record by adopting CSR can
neutralize or reduce the damage done by these incidents.

Recruitment and Human Resources

By gaining the trust of the community and the customers, a company with
an embedded CSR plan inside its business model attracts potential employees. A
company that proposes a clear and definite CSR plan to its employees and staff
can also gain the respect and dedication needed for a healthy workforce. CSR
provides a unique brand of service and identity instilled in the culture of the
business. Involving the workforce in cause-oriented activities such as tree
planting, fundraising, charity work and socially-relevant activities can change
the perception of the workforce regarding the company. This direct involvement
leads to loyalty and a sense of belongingness within the company’s workgroup.

Government Support and Incentives

Companies are keen to avoid any interference from the government in their
businesses. By doing voluntary steps and actions to promote environmental
concern, better employer-to-employee relations, equal opportunity and support
to charity, companies gain not only the support but also the trust of the
government and the customers. Potential customers can be transformed into
loyal buyers if they know that the business is doing its part in protecting the
environment and helping people. Governments can also offer incentives such as
tax reduction and flexible working terms for companies maintaining a good
CSR implementation.

Reduced Cost of Capital

In the paper entitled “Does Corporate Social Responsibility Affect the Cost
of Capital?* (Ghoul et.al, 2010), the possibility of reducing a company’s cost of
equity by employing CSR as a central part of a company’s business plan is
thoroughly observed. In the study that included 12,915 U.S. business firms and
took place from 1992-2007, the researchers concluded that CSR investments
can enhance the value of a firm by simply reducing the cost of equity capital.
Firms that have high CSR scores enjoyed significantly lower cost of equity in
their businesses compared to those with low or no CSR ratings. These findings
support the argument that companies with socially-responsible products and
practices enjoy a higher valuation and lower business risk.

Spreading Positivity through
Corporate Social Responsibility

The need to adopt CSR as a working and active business plan involves a
company’s future. With the growing consciousness among stakeholders and affected
social groups regarding issues about ethical, environmental and social concerns,
employing CSR in business proves to be a positive move that brings only positive
perceptions and results. Winning the loyalty and trust of stakeholders increases not
only the monetary benefits that a business enjoys. More importantly, by being a part
of the community and the humanity as a whole, a company promoting CSR is
assured to secure its long-term survival and existence.

Four Pillars of Corporate Service Responsibility

Focus – a company’s CSR programs should properly address a specific concern
among the shareholders and the community. Pointing out the exact issue to be
addressed and the best plan of action to solve this problem will lead to better
distribution of resources and faster viewing of results. Objectives must be properly
defined to facilitate better resource allocation and avoid unwanted wavering of
attention.

Commitment -- long-term support for the company’s CSR programs is required in
order to succeed in delivering the intended service. A business should prioritize its
CSR even in times of crisis and financial challenges. Making CSR a central part of a
company’s business plan will build a culture of commitment and loyalty to the
stakeholders inside the firm and out to the community.

Integration – CSR should be embedded and integrated into the business system and
not treated as a “bolt-on” activity employed only when the need arises. A culture of
doing the “right and ethical thing” should be learned and practiced not only inside
the realm of the business but outside its four corners as well.

Transparency – a company should have a transparent, open and balanced
communication with its stakeholders. Allowing the community to know about the
ongoing activities, current plans and future endeavors of the company is necessary to
build a strong relationship with people. Building trust is very important in any
business and transparency forms a stronger trust coming from the employees, the
customers and the community.

Four Pillars of Corporate Responsibility

Informing Stakeholders:
Let people know that you care
It is very important to let stakeholders know that you are promoting CSR-
related advocacies and activities. Most of the time, stakeholders are not aware of
the steps many companies are taking to promote the overall well-being of the
community. By involving its customers, employees and the community, a business
raises the awareness level of these social groups. This increase in awareness will
lead to involvement and support and a change of perception among your
management and your shareholders.

Cause-Related Marketing: Reaching out to your Shareholders

A company should not hide its CSR endeavors behind the backroom. In
contrast, it is very important to market your CSR-related plans to gain the support
and respect of the customers and the community. Raising the shareholders’ level of
involvement and awareness is what measures an effective, well-perceived and well-
received social duty and responsibility. You can reap all the benefits provided by
CSR if people know that you are doing the habit of “doing good” and you have a
culture of “being good”.

Using media and the Internet to spread the message

Modern technology offers a wide array of resources for you to reach out to your
shareholders. Different forms of media such as television, radio and the internet
offers an alternative where you can rapidly and instantly spread your message to a
wide audience. Sharing news, activities, ongoing projects and future plans
involving the community can be achieved through the use of media communication.
Proper orientation is also perceived to be the best way in promoting cause-related
marketing.

Among the mentioned modes of communication, the Internet is considered to be
the most dynamic of all. Unlike in television, radio & newspapers where people
engage in a one-way mode of communication (target groups can receive
information but cannot give information back instantly), the Internet provides an
arena where two-way communications can proliferate. In social networking sites,
Internet users can view information and instantly react if there are concerns
involving the subject. Dialogues between the company and its shareholders are
quickly established and trends about important issues can be easily understood.

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Notes and References:

1. Johnson Douglas, et.al., “Corporate Social Responsibility: It’s about long term business
success.”
2. Strugatch, Warren, “Turning Values into Valuation: Can Corporate Social Responsibility
survive hard times and emerge intact?”, www.emeraldinsight.com/0262-1711.htm
3 Quairel-Lanoizelee, Francoise, “Are competition and corporate social responsibility
compatible? The myth of sustainable competitive advantage.”,
www.emeraldinsight.com/1746-5680.htm
4. Ness, Elizabeth. “Corporate Social Responsibility.”
5. Green, Todd. and Peloza, John. “How does corporate social responsibility create value
for consumers?” www.emeraldinsight.com/0736-3761.htm
6. Ghoul, Sadok, et.al. “Does Corporate Social Responsibility Affect the Cost of
Capital?”.2010

Corporate Responsibility Report Positive Revolution

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