Importance of Corporate Social Responsibility on Businesses

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17th Apr 2020 Business Assignment Reference this

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Milton Friedman was an American economist who firmly believed in free-market capitalism. Watson and Prevos (2009) stated that Milton Friedman considered that the only responsibility of a company is to maximise profits without breaking the laws imposed by the government. However, according to Archie B. Carroll (1991), who was a professor at the University of Georgia, argues that a corporation has more obligations than making profits. He invented a pyramid called Carroll’s pyramid of CSR where he stated that a company has economic responsibilities at the bottom of the pyramid and then legal responsibilities, ethical responsibilities and at the very top the philanthropic responsibilities. Carrol’s pyramid of CSR is still used and relied on to this day. In the early days it was debated that CSR was to ensure that profits are delivered to the shareholders, but models and theories such as carroll’s pyramid and Sethi’s three state schema which states that a company has social obligations, social responsibilities and social responsiveness, changed how companies operate (Nalband and Kelabi, 2014). Companies nowadays are aiming for more than just making revenues. Corporate Social Responsibility is a company’s responsibility towards society and environment it operates in. The idea and understanding of CSR was mainly adopted in 2002 and then in 2011 it was stressed that businesses should embrace it in order to contribute to society (Williamson, et al, 2014). The implementation of CSR might bring a lot more good to the business than to society. Businesses at the present time are focusing more on their duties towards the environment around them, knowing for sure that their contribution to the people will make their business flourish. Firms are using CSR as a strategy to make their business grow and develop solid relationships with the society and other corporations. Moreover, CSR can enhance the relationship between the company and the customer, can build the competitiveness of businesses, and plays a huge role in improving the company’s performance. This essay will discuss how crucial and important Corporate Social Responsibility is for Businesses and how it can affect the marketing and advertising of corporations.

Corporate Social Responsibility is crucial for building a solid company-customer relationship. CSR affiliations mirror the company’s status and exercises concerning its apparent societal commitments (Brown and Dacin, as cited in Martinez and Rodriguez, 2013). The CSR initiatives are very important for the company’s image where it really shows where the company stands in society. (Bhattacharya and Sen, as cited in Martinez and Rodriguez, 2013) state that CSR actions is one of the essential factors for a company’s identity which can lead to customers to establish a connection with the business. In addition to that, Bhattacharya and Sen as cited in Martinez and Rodriguez (2013) also mention that consumers with high awareness of the company’s attempts to practise social obligations tend to establish more consciousness of the company’s identity than consumers with low awareness of these corporate social practices. This is why companies tend to make sure that their customers acknowledge the social and environmental actions they are implementing. For instance, Marks & Spencer, who are aiming for their stores to be carbon free, showed a huge commitment towards the environment. Their Plan A which focuses on the sustainability of the environment and to be carbon free affected their consumers’ behaviour. M&S claims that they made their customers engage with helping  keep the environment green by making them acknowledge their Plan A which made their customers interact more and build a solid relationship with the company (Barry and Calver, 2009). Collier (2018) implies that if a business is serving the society in any way such as improving the environment and helping the community then this business should make its actions viral and acknowledged by everyone so the customers can engage with the company’s actions. There has been a study conducted by Huang, Cheng and Chen (2016) regarding how Corporate Social Responsibility can affect customer’s loyalty. The study showed that a company’s CSR implementation can impact the conditions of the company-customer relationship. Moreover, the study implied that CSR can provide a long-term competitive advantage for the firm. Finally, the investigation showed that CSR has a more crucial impact on the company-customer relationship. Forming this strong bond with customers is highly important for businesses and implementing Corporate Social responsibility actions can help with that.

Corporate Social Responsibility is responsible for building up competitiveness of businesses. Zychlewicz (2014) implies that CSR is a way in which it can provide the society with their needs that are related with the enterprise as well as it can build the competitiveness of businesses. According to (Carroll, as cited in Zychlewicz 2014) the pyramid of CSR discusses that when companies start to complete their economic and legal responsibilities, market competitiveness can be measured by the social and environmental contributions of those companies, and it means that now a days competitiveness between companies is measured by their Corporate Social Responsibility actions. There is an endless list of companies that are achieving their social responsibilities such as Primark, Marks & Spencer, Duracell, Vodafone and many others. Companies are using the CSR strategy to earn competitive advantage. A study showed that Firms adopting CSR have exceeding financial liquidity and performance (Zychlewicz, 2014). Many argue that CSR is not actually CSR. Although companies are serving society and the environment, they are really serving their own benefits (Urip, 2010). The rise of social and environmental acts by companies raises the level of competitiveness between them. For example, Primark and Marks & Spencer who are known for their corporate responsibility actions are still using their social acts to promote their brand name. Primark is determined to produce their products making sure the employees are treated with respect and are paid minimum wage (thetimes100, 2017). Companies do not just contribute to the society without making sure that all their customers know about it and its one of the main evidences that firms are taking advantage of CSR for their own good. An example for that would be that Marks & Spencer has their “Plan A“ posted on their website for everybody to see which states what they did and how they contributed to society as well as what are their plans for the future for achieving a sustainable environment. This is what raises competition. When a company goes public about its social contribution other companies will even want to go even higher and bigger from others. Corporate Social responsibility promotes competition and in a clear way it has a positive effect on everyone, for companies are earning more and the society and environment are being served.

Corporate Social Responsibility has a huge effect on the company’s financial performance. As mentioned earlier firms are taking advantage of CSR and implementing it as a strategy to attract customers and building loyal long-term relationship with them. According to (Anderson and Bieniaszewska, as cited in Lin, et al, 2008) a firm with high social investment might lead to a higher opportunity to acquire financial flexibility. Furthermore, a study by Lin, et al (2008) showed that CSR has an impact on the financial performance of a company as well as it proved that companies who are socially and environmentally active are more likely to have more financial liquidity. A company’s stock market achievements have a positive relationship with a firm’s Corporate Social Responsibility. The reasons behind this increased performance is because of the effect of CSR on  creating good solid relationships between the company and its stakeholders and the ability of CSR actions to save a lot of money for the company (Lin, et al, 2008). For instance, a Ford plant in Texas was aiming to decrease their waste-water runoff which lead to a cutback on charges for pollution which some assess that it saved millions of dollars (Lin, et al, 2008). Moreover, this also caused a strong reason for the stakeholders to invest more in the company. Another reason why CSR can improve financial performance is because it can improve the performance of employees. An atmosphere that provides trust and relief can cause a stronger relation between the company and the employees and to a higher performance by the work force (Lee, et al, 2012). Corporate Social Responsibility has an impact on financial performance in different ways.

Firms are using Corporate Social Responsibility to market and advertise their brand name. As mentioned before in this essay, companies are making sure everyone knows about their social and environmental actions. Customers currently are focusing more on social responsibilities than price and quality (Paetzold, 2010). For example, a study by Harvard University conducted an experiment to see if customers are influenced by the social actions of a firm (Prai, as cited in Paetzold 2010). The experiment was to label a brand of candles with a fair labor label and it showed that the sales of the labelled candles are 11% higher than the non-labelled ones. Even after they raised the price of labelled candles, the sales also grew even higher. This is why firms are advertising their social acts, knowing that they will attract and win more customers and will be able to create new relationships with them. CSR actions are estimated to be responsible for 49% of the firm’s image (Business and Sustainability Development, as cited in Paetzold 2010). Furthermore, when firms advertise their corporate social implementations, it can bring benefits to their brand name, image and reputation. To simplify matters, companies implementing social actions can glorify their brand name and this will lead to acquiring more customers and with more customers this means more profits. It’s a sharp strategy that companies will continue to use to boost their name and image as well as their profits.

To sum up, Corporate Social Responsibility is beyond important for a business. It can create strong relationships with its stakeholders, boost their financial performance and work atmosphere, and build their competitiveness in the market. Although companies are using CSR as a strategy for their own benefits, they are giving back to the community. To add on, CSR is a tool for marketing and advertising which is the key for all the benefits they earn mentioned above. All the crucial factors discussed are connected in one way or another. Each factor has an effect on the other. Corporate Social Responsibility is a major way for a company to be successful.

Reference List:

1)     Barry, M. and Calver, L. (2009). Marks & Spencer describes its journey from corporate social responsibility to sustainability. [online] Campaignlive.co.uk. Available at: https://www.campaignlive.co.uk/article/marks-spencer-describes-its-journey-corporate-social-responsibility-sustainability/948198?src_site=marketingmagazine [Accessed 22 Jul. 2019].

2)     Caroll, A. (1991). The Pyramid of Corporate Social Responsibiiity: Toward the Morai Management of Organizational Stakeholders. [online] Cf.linnbenton.edu. Available at: http://cf.linnbenton.edu/bcs/bm/gusdorm/upload/Pyramid%20of%20Social%20Responsibility.pdf [Accessed 14 Aug. 2019].

3)     Collier, E. and Collier, E. (2018). Corporate Social Responsibility for Your Business. [online] The Hub | High Speed Training. Available at: https://www.highspeedtraining.co.uk/hub/importance-of-corporate-social-responsibility/ [Accessed 21 Jul. 2019].

4)     Huang, M., Cheng, Z. and Chen, I. (2017). Liverpool John Moores University: Login. [online] Search.proquest.com. Available at: https://search.proquest.com/docview/1862041784?accountid=12118&rfr_id=info%3Axri%2Fsid%3Aprimo [Accessed 22 Jul. 2019]..

5)     Lin, C., Yang, H. and Liou, D. (2009). The impact of corporate social responsibility on financial performance: Evidence from business in Taiwan. [online] Siencedirect.com. Available at: https://www.sciencedirect.com/science/article/pii/S0160791X08000687 [Accessed 22 Jul. 2019].

6)     LLP, B. (n.d.). Primark case studies, social media and information | Business Case Studies. [online] Businesscasestudies.co.uk. Available at: https://businesscasestudies.co.uk/primark/ [Accessed 22 Jul. 2019].

7)     Nalband, N. and Al Kelabi, S. (2014). Redesigning Carroll’s CSR Pyramid Model. [online] Joams.com. Available at: http://www.joams.com/uploadfile/2014/0217/20140217024434433.pdf [Accessed 22 Jul. 2019].

8)     Paetzold, K 2010, Corporate Social Responsibility (CSR): an International Marketing Approach, Diplomica Verlag, Hamburg. Available from: https://ebookcentral.proquest.com/lib/ljmu/reader.action?docID=595333&query=. [21 July 2019].

9)     Prevos, I. (2014 ). Milton Friedman on Corporate Social Responsibility | The Lucid Manager. [online] The Lucid Manager. Available at: https://lucidmanager.org/milton-friedman-corporate-social-responsibility/ [Accessed 22 Jul. 2019].

10) Urip, S. (2010). CSR Strategies. [online] Google Books. Available at: https://books.google.co.uk/books?hl=en&lr=&id=540rRlT4AFQC&oi=fnd&pg=PA9&dq=How+CSR+creates+competition&ots=Px07N6jeqt&sig=RNKloVaqmk5- [Accessed 22 Jul. 2019].

11) Żychlewicz, M. (2014). CSR as a Tool of Building the Competitiveness of Businesses. Foundations of Management 6, 1, 79-88, Available From: De Gruyter – Sciendo<https://doi.org/10.1515/fman-2015-0006> [Accessed 21 July 2019]

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