This Paper Is CSR Is a Concept Whereby Organizations Consider the Interests of Society

Inter-Symp 2008

20th International Conference on Systems Research, Informatics and Cybernetics

6th Special Focus Symposium on CIESKS: Communication, Information and Economy Sciences in the Knowledge Society

Corporate social responsibility in theory and practice

Ing. Jana Soukupová, CSc., Universiry of ceconomic, Prague,

Ing. Iva Dušková, Universiry of ceconomic, Prague

Ljubica Bakić-Tomić, Ph.D. Faculty of Teacher Education, University of Zagreb, Croatia;

Abstract

This paper is concerned on corporate social responsibility (CSR) as like theoretical concept as like possible part of corporate strategy.

In the first part is briefly defined CSR. CSR is a concept whereby organizations consider the interests of society by taking responsibility for the impact of their activities on customers, suppliers, employees, shareholders, communities and the environment in all aspects of their operations. Some commentators have identified a difference between the Continental European and the Anglo-Saxon approaches to CSR.[

In the second part are mentioned some theoretical consequences of CSR. This part is oriented mainly on relationship between CSR and economic rationality. They are mentioned two contradictory approaches to CSR: One opinion, argues, that corporations are fundamentally entities responsible for generating a product and or service to gain profits to satisfy shareholders (M. Friedman), bud widespread is also opposite attitude, that there is a strong business case for CSR, in that corporations benefit in multiple ways by operating with a perspective broader and longer than their own immediate, short-term profits.

The scale and nature of the benefits of CSR for an organization can vary depending on the nature of the enterprise and conditions of the economic and social environment Third part of the paper is based on empirical research about approach to CSR between firms in Czech Republic.

Key words:

corporate social responsibility, economic rationality, motivation of the firm

Introduction

The aim of this report is to call attention to some issues concerning the socially responsible behaviour of companies from the economic theory point of view as well as in terms of everyday practice.

The corporate social responsibility (CSR) may be assessed as one of the possible solutions of the newly arisen social, economic and political changes associated with globalisation. The process of economic, cultural and political changes characterizing globalisation proceeds very fast; faster than it can be coped with. The development of information technologies makes communication cheaper and faster – people want to know more and faster – firms may react to it but they cannot hide their deficiencies. Both above-mentioned aspects strongly increase the pressure on the need of company socially responsible behaviour as a factor of their competitive strength.

1. Theoretical Definition of CSR

In a way it can be claimed that CSR means a quantitatively higher empowerment of a wider array of special interest groups’ role in the particular company. Nevertheless, the mutual interaction between the company and the outer environment cannot be classified as a new phenomenon in theory and in practice. Moreover, company behaviour that encompassed certain characteristics corresponding with CSR existed already in the past. However, at present CSR is so strongly discussed issue that it deserves a more detail analysis.

It is possible to ask the question to which extent CSR corresponds to rational behaviour.

It may be anticipated that companies behave socially responsibly provided it is consistent with their goals. Therefore, we have to ask two complementary questions: What is a company’s goal? Which authorities decide on the vital company activities? It is plain enough that the two questions are interrelated and we may paraphrase the M. Friedman proposition that it is not a company that has goals but they are people who have goals[1]. Whether the company behaves socially responsibly or not is certainly the consequence of the people’s decision. Therefore, an overall explanation of all issues concerning corporate social responsibility is not possible without taking into account such questions as motivation and the goals of the individuals and groups involved in the particular company’s development.

Provided we start from the presumption of the traditional theory, a company’s endeavour is to maximalize profits. Such behaviour corresponds to the company owners’ goals. The traditional theory contemplates that economic entities behave rationally. In light of this fact we can treat the company owners as persons whose decision-making influences the company in all fundamental aspects; therefore they also decide whether the company will carry out the socially responsible behaviour.

Regarding CSR it holds true more than in any other areas that company behaviour corresponds with the goals and interests of the individuals and groups involved in the company’s development. The company behaves in accordance with the CSR principles only if the persons deciding on the company strategy are motivated to follow them. In case such an internal motivation does not exist, CSR does not reflect in the company behaviour or only reflects as a matter of form.

In many cases the socially responsible behaviour may appear as behaviour opposing the economic rationality. However, the economic entities’ rationality in the concept of the traditional theory is questioned by certain authors – for example the followers of behavioural theories.

2. CSR in Company Practice

Even though the idea of CSR has been long known, to a certain extent the reality does not correspond with company needs. Entrepreneurs usually perceive CSR as something that is separated from enterprising, something that they rather designate as company philanthropy to which they can turn only after they have met the industrial, technological, commercial and other professional standards.

The current trend in perceiving of company social responsibility only as invested funds associated to philanthropy is to be refused in principle. Philanthropy activities should not supplement the insufficiency of tax measures or conceal system mistakes and obstruct their elimination. The modern society is characterized by its specialization and professionalism; and philanthropy should not supplement poorly functioning institutions. It is neither possible to understand company social responsibility as “funding” of certain groups of citizens who on one hand want to consume certain goods (e.g. concerts, sport match, etc.) but on the other hand are not willing to pay for them to the full extent.

CSR is often mentioned within the context of complying with legal standards or ethical principles within a company, e.g. the participation of women in the company’s management, the company’s respect to environment, etc. Though it concerns beneficial initiatives the process of changes stays limited to the in-house environment.

It stands to reason that companies expect a long-term benefit to compensate their investments, including positive effect on their reputation. Projects in cooperation with non-profit organizations, partnerships that promote and support a company’s commercial goals, raise public interest as well as bring financial benefits also bear a similar character. The specified forms of companies’ involvement enables them not only to calculate and monitor related costs but also to measure the short-term and long-term benefits as well as to establish a benchmark among companies in the international scope.

We can gain an idea on the Czech companies’ involvement in the area of philanthropy from the following data.[2]

• 67% of companies in the CzechRepublic attend to philanthropy
• 86% of large companies in the CzechRepublic attend to philanthropy
• 58% of small companies in the CzechRepublic attend to philanthropy
• 72% of medium-sized companies attend to philanthropy
• 40% of companies have a certain strategy in the area of philanthropy
• 87% of requested employees claimed that they feel greater loyalty to an employer who has an elaborated donation program.

These are by no means insignificant numbers. It would be certainly interesting to carry out a more detailed analysis; especially as concerns the above-mentioned society and company benefits as well as other specified aspects. Support of the state, public as well as audit would undoubtedly bring an important contribution to company positive motivation because as it is evident even from the “social” title of this report the discussed issue of responsibility must become a concern of the whole society, including every individual person to enable solving of social problems in their mutual interaction. Though the role and function of a company within the current society represents a key question, the company may not perceive these solutions as a process of “fulfilling homework.” On one hand it is necessary to respect its business endeavours but on the other hand the company needs to be motivated to change its approach to values, strategy, business plans as well as responsibility. The generated economic effect and the structure of social capital should work hand in hand.

The results of an empirical research also evidence the importance of CSR. The research’s goal was to verify the actual status of CSR and to find out to which extent CRS actually became a shared goal of companies and the society as a whole. In our questionnaire research we addressed 52 companies on a random basis. In this stage it did not concern a wide sample of the respondents, it is rather a “probe” regarding the practice of medially less frequented companies. The companies have been chosen according to the following criteria:

• Company size (small, medium-sized, and large)
• Branch of activity (we selected branches that may largely partake in the environment degradation, or in the life quality worsening)

The result of the questionnaire research is that in some cases CSR is in Czech firms important:

• Most companies maintain intense contacts with their surroundings and have a certain feed back,
• None of the addressed companies assumes that there is no need to take care of its region,
• Almost all companies associate their long-term economic success with social responsibility,
• Motivation to responsible behaviour is a part of company culture and strategy,
• Employees are not indifferent as regards the company’s social responsibility.

Some responses show some aspects CSR are not implanted into strategy of firms yet.

• Companies do not know how they are rated within their region,
• Companies do not consider social responsibility important,
• Only one company combines financial support with its own products’ presentation.

Attention should be also paid to the fact that no company feels motivated from the part of competitors to behave socially responsibly.

Conclusion

In the present stage of the world’s economy development new effects influencing the competition strength of companies are gaining ever more ground. One of the manifestations of such new trends is the fact that the picture of a company in the eye of public is ever more important. Especially, but not only among large companies more and more entities appear that are aware of the fact that their goodwill and status on the market may significantly strengthen the company’s reputation concerning its responsible behaviour towards the ecological, social, etc. issues.

In our opinion the standard economic theory following the neoclassic methodology only disposes of limited possibilities to take such phenomena into account. However, alternative approaches to companies that provide wider space for the reflection of ecological, social and other aspects of their surroundings exist within the economic theory. And mainly the theories following behavioural approach take this larger context of relations into account.

CSR is not only an idea, but also a trend, an activity that runs through business enterprise, connects entrepreneurs, businessmen, academia, international institutions as well as journalists. With the phenomenon’s strengthening influence a lot of entrepreneurial interest groups have been established lately that focus on various thematic priorities and activities in the area of responsibility. Also multi stakeholders developed their activities and the number of conferences, discussions and nongovernmental organization inspired by the signature of the Green Book has literally exploded.

We can also observe companies’ involvement in the creation of Codices (at the national as well as European level). Within a dialog regarding company practice we can often see that CSR is perceived as a certain “presently actual” but not a system phenomenon. Another mistake arises when CSR is assigned mainly to public relations or is even interchanged with them.

CSR offers potential and rarely known chances for simultaneous organizational and social innovation. There is a hope that it will be the core of the coming development stage, even though there is a long way to reach the stage when words will be followed by acts.

How can these activities that have been lately developing so promisingly further evolve in the nearest future and which important questions should companies ask themselves? What are the implications for policies and practices not only from the Czech but also the European point of view?

Under the conditions of the Czech economy the exercise of CSR is modified by the specific conditions of the transformation and post-transformation periods.

References:

1. Cubbin, J.– Leech D.: The Effect of Shareholding Dispersion on the Degree of Control in British Companies: Theory and Measurement, Economic Journal, 93 June (in Keasey, Thompson, S., Wright, M.: Corporate Governance, Edward Elgar Publishing, 1999, ISBN1- 85898- 871-3)
2. Friedman, M: The Social Responsibility of Business is to Increase its Profits, The New York Times Magazine, September 13, 1970
3. Orlitzky, Marc; Frank L. Schmidt, Sara L. Rynes (2003). "Corporate Social and Financial Performance: A Meta-analysis Organization Studies 24 (3): 403–441. London Simon, H.A.: Organisations and Markets, Journal of Economic Perspectives, 1991. 5(2), Spring. ( in Keasey, Thompson, S., Wright, M.: Corporate Governance, Edward Elgar Publishing, 1999, ISBN1 85898 871 3)
4. Simon, H.A.: Theories of Decision Making in Economics and the Behavioral Sciences. American Economic Review, June 1959
5. Williams, Cynthia A.; Ruth V. Aguilera (2008). "Corporate Social Responsibility in a Comparative Perspective", in Crane, A., et.al.: The Oxford Handbook of Corporate Social Responsibility (PDF), Oxford: Oxford University Press. ISBN 0199211590.

[1] See M. Friedman. 1977; however, Friedman talks about responsibility.

[2]Source: Forum of donators (Research of company philanthropy in the Czech Rep., June 2004, agency of Median)