Corporate Social Responibility: History, Advantages and Disadvantages

Introduction

The relevance of corporate social responsibility (CSR) is synonymous with the 21st-century way of doing business. In this connection, it is imperative to understand that the concept relating to CSR is useful for any business entity that aims at becoming sustainable in contemporary society. It showcases a company's commitment towards contributing towards its surrounding community as well as taking care of the plight of all stakeholders. In this case, the stakeholders may refer to the staff, their family members, and the community.  Companies are mandated to hire locals as ways of showing their commitment to the individuals living in their geographical areas of operation. Furthermore, a large business entity is supposed to show a measure of appreciation for the locals by providing them with access to education, healthcare, and taking care of the surrounding environment. Thus an insight into CSR is imperative, specifically on its history, theories, and limitations.

The Concept of CSR

The term corporate social responsibility refers to the series of actions that a company undertakes to ensure that business is conducted efficiently and is useful to its beneficiaries. According to Moon and Gond (2012), CSR involves firms being accountable for the cultural and social norms in the society generated from its existence in a particular community. In the process, the firms aim to benefit from using CSR as a means of increasing their dominance and perception in society. Vrontis, Weber, and Tsoukatos (2017) maintain that firms that are actively involved in promoting CSR gain a positive reputation from the target customers. The outcome is that their sustainability is guaranteed in the future. On the other hand, companies that fail to use CSR in their modus operandum are bound to gain a negative perception and have high chances of negative reception in a region. The result is a deceleration in terms of profit margins due to a negative trajectory in terms of performance.

There are significant reasons why business entities should give regular CSR reports. Bonson and Bednarova (2015) affirm that the primary goal is to show the stakeholders that the firm is accountable to their well-being. Besides, it also demonstrates to the stakeholders that the company can meet their expectations. The third reason is to maintain legitimacy in a particular geographic location which the firm has based its activities. A company's legitimacy is integral to its performance as consumers tend to associate with a firm that they feel addresses their needs.

Therefore, a firm that undertakes CSR is likely to have high market dominance as its legitimacy to the locals' social, cultural, and economic expectations will have been realized. Also, making CSR reports is essential as it leads to the diversification of institution-oriented stress. This means that companies can continue with their activities without fear of in-depth scrutiny over their finances and payment of taxes due to the freedom they enjoy in the form of CSR based endeavors.

Historical Evolution

CSR has been in existence in different forms since the 18th century up to the 21st century. At the time, people that professed Christian faith enhanced the rationale associated with the need to uphold moral values. Moura-Leite and Padgett (2011) submit that a religious approach in the 18th century and early 19th century led to the introduction of reforms that resulted in the formation of welfare groups.The welfare groups of the 18th and early 19th century are a manifestation of old forms of CSR. The 1950s were slightly different as CSR was analyzed based on the relevant macro-social impacts to a business entity. The analysis then involved evaluating whether CSR affected business processes and their overall productivity. Latapí Agudelo, Jóhannsdóttir, and Davídsdóttir (2019) adduce that CSR in the 2010s is slightly different as it has a different approach known as the formulation of shared value. The shared value is a strategic form of CSR that is perceived to be its future.

Theories Supporting CSR Practices and Reporting

The three core theories that are in favor of CSR reporting and resultant practices for business entities all contribute to a company’s performance. The theories include the stakeholder theorem, business ethics theory and legitimacy theory. Bonson and Bednarova (2015) affirm that the Stakeholder theory focuses on the need to focus on all individuals in close association with the firm that the business affects. It also emphasizes on the need to concentrate on the stakeholders rather than the investors. For example, manufacturing companies that emit harmful gases may give high dividends to investors at the expense of individuals ailing from toxic waste products. The example is in contravention to the stakeholder theory as the locals have not been considered.

The next theorem is referred to as Business Ethics theorem.  It concentrates on the social mandate of a firm on the society and upholding morality in business practice. Moura-Leite and Padgett (2011) contend that involves firms altering the societal expectations through being responsive to changes affecting the communities. The business ethics theory concentrates on the charitable aspect of CSR and the ethic-based roles rather than the economic significance to the firm.

The third theory relates to a firm's reputation and is referred to as the Legitimacy theory. Vrontis, Weber, and Tsoukatos (2017) suggest that this philosophy promotes the interdependence between society and a business entity. For instance, customers will purchase goods and services from a particular company, thus increasing its revenues and profits. On the other hand, the business entity is expected to take care of the surrounding environment through proper waste disposal, provision of economic opportunities to the locals, and even giving donations to various community projects. This forms the basis of the legitimacy theory.

Limitations of Corporate Social Responsibility

The primary challenge that relates to CSR stems from the public’s increased scrutiny of the company’s ability to meet its targets. According to Geethamani (2017) conglomerates that make promises and fail to deliver on them may face a risk of a reduced number of customers.  It is because the same press that fosters a firm’s advertisement will also be used in propagating news relating to the company’s inability to meet its CSR promises. The other challenge is that CSR related projects and the commitment to meet the needs of the locals is an expensive endeavor (Geethamani, 2017).

For example, the creation of proper waste disposal through sewage treatment, the building of learning institutions, healthcare facilities, and making donations during natural disasters such as hurricanes will negatively affect a firm's revenue. In other cases, firms have a challenging task in monitoring their return on investments. Besides, if a company does not conduct a proper assessment of the audience's needs, then its CSR strategy may be misinterpreted, leading to losses. Therefore, firms need to form a unifying message that reiterates the firm's endeavor to promote the welfare of all its stakeholders.

Conclusion

CSR is a phenomenon that has been present since the 18th century to date. One observes that CSR relates to ethical values and the well-being of stakeholders associated with business entities. It is for this reason that one learns that business entities that concentrate on the welfare of the surrounding community are bound to have increased revenue and an increased profit margin. Inherently, the three arguments relating to CSR include business ethics, stakeholder, and legitimacy theories. The overall contribution of these theorems on CSR is the mutual benefit between the community and the conglomerate. Also, one learns that the primary challenge in the implementation of CSR is the high costs relating to its projects. Similarly, failure to fulfill CSR promises poses a risk to a company's sustainability due to negative press statements of the firm's inability to meet its societal goals.

References

• Bonsón, E., & Bednárová, M. (2015). CSR reporting practices of Eurozone companies. Revista de Contabilidad, 18(2), 182–193. https://doi.org/10.1016/j.rcsar.2014.06.002
• Geethamani, S. (2017). Advantages and disadvantages of corporate social responsibility. International Journal of Applied Research, 3(3), 372–374. Retrieved from http://www.allresearchjournal.com/archives/2017/vol3issue3/PartF/3-3-11-827.pdf
• Latapí Agudelo, M. A., Jóhannsdóttir, L., & Davídsdóttir, B. (2019). A literature review of the history and evolution of corporate social responsibility. International Journal of Corporate Social Responsibility, 4(1). https://doi.org/10.1186/s40991-018-0039-y
• Moon, J., & Gond, J.-P. (2012). Corporate social responsibility. Vol. 2 CSR strategy. London Routledge.
• Moura‐Leite, R. C., & Padgett, R. C. (2011). Historical background of corporate social responsibility. Social Responsibility Journal, 7(4), 528–539. https://doi.org/10.1108/1747111111117511
• Vrontis, D., Weber, Y., & Tsoukatos, E. (2017). Legitimacy theory and sustainability reporting. Evidence from Italy. In Global and national business theories and practice: bridging the past with the future(pp. 1835–1848). Retrieved from https://emrbi.org/bop2017.pdf