Social Environment: Corporate Social Responsibility and Business

1. Social Environment:Corporate Social Responsibility and Business Nicolaas Warouw Universitas Gadjah Mada 2009

2. What is Business Environment? Business environment is a set of political, economic, social, and technological forces that are largely outside the control and influence of a business. It, nevertheless, can potentially have both a positive and a negative impact on the business.

3. What is Social Environment? Social environment is the totality of conditions which concern in the effecting of the activity feature of a human being. Those conditions promote or hinder, motivate or restrain, the characteristic activities of a living being.

4. Why Study Social Environment? • Businesses live within society and the interrelation between businesses and stakeholders takes place within a social environment. • They interrelate with society on many levels: owners, customers, suppliers, employees, government and the community as stakeholders

5. Introduction The current simultaneous development of the antiglobalization movement, of shareholder activism, and of corporate governance reform produce a climate of defiance toward business, leading some companies to openly create images of themselves being socially responsible. This discussion suggests that business can contribute to the successful management of the corporate social responsibility (CSR) by expanding its focus beyond consumers to include other stakeholders and by bundling together various social responsibility initiatives. It depicts CSR initiatives as the action undertaken to display conformity to both organizational and stakeholder norms. Later, in addition, it explains how CSR can generate increased stakeholder support.

6. What is Corporate Social Responsibility (CSR)?: • CSR is generally understood to be the way a company achieves a balance or integration of economic, environmental, and social imperatives while at the same time addressing shareholder and stakeholder expectations. • CSR is the way businesses engage/involve the shareholders, employees, customers, suppliers, governments, non-governmental organizations, international organizations, and other stakeholders.

7. CSR and Company’s Logo --BP

8. CSR and Company’s Logo --Pertamina

9. Why is CSR Necessary? • Being responsible to society means that businesses must be honest and fair in doing business in general, and particularly to social environment; • Support social, generous and provides better environmental condition for their communities. • Making the workplace fair for employees might mean making changes to reduce unfair practices and human rights abuse

10. CSR: As Conceptualized • CSR as Social Obligations • CSR as Stakeholder Obligations • CSR as Ethics Driven • CSR as Managerial Processes

11. CSR as social obligation • Bowen (1953) defined CSR as the obligation “to pursue those policies, to make those decisions or to follow those lines of action which are desirable in terms of the objectives and values of our society.” • Different types of social obligations (Carroll 1979) are : • economic obligations (be productive and economically viable) • legal and ethical obligations (follow the law and acknowledged values and norms) • philantropic obligations (proactively give back to society)

12. CSR as stakeholder obligation • The notion of social obligation is too broad to facilitate the effective management of CSR • Clarkson (1995) argues that business are not responsible toward society as a whole but only toward those who directly/indirectly affect/are affected by the firm’s activities • These actors are called stakeholders • Stakeholders are (Henriques and Sadorsky 1999): • organizational (employees, customers, shareholders, suppliers) • community (local residents, special interest groups) • regulatory (municipalities, regulatory systems) • media stakeholders

13. CSR as ethics driven • The two previous approaches imply CSR are motivated by self-interest, enabling businesses to gain legitimacy among their contituents • They fail to account a “positive commitment to society that disregards self-interest and consequences” (Swanson 1995) • CSR being an obligation fails to provide normative criteria to evaluate the extent to which business can/can’t be considered as socially responsible (Jones 1995) • Philantropic donations or employee-friendly policies may indicate a firm being in conformity to social norms, but also “a paternalistic expression of corporate power” (Swanson 1995)

14. …cont. • Ethics-driven approach argues that corporate activities should be independent of any social or stakeholder obligations (Donaldson and Preston 1995). • In justice-based ethics, a company seeks to systematically favor decisions and procedures stimulating equality, liberty, and fairness of opportunity for its various partners and associates.

15. CSR as managerial processes • CSR as concrete organizational processes • Ackerman’s (1975) corporate social responsiveness: • Monitoring and assessing environmental conditions • Attending to stakeholders demands • Designing plans and policies aimed at enhancing the firm’s positive impacts • Management and environmental assessment constitute two sets of managerial processes useful to achieve a proactive social responsibility stance.

17. A Stakeholder View of CSR • The firm is an open/flexible system regarded as a nexus of actors/stakeholders motivated to participate in organizational activities by various and often contrasting interests • Basis for the behavior of organization : • The nature of its diverse stakeholders • The norms defining right or wrong adopted by stakeholders • Stakeholders’ influence on firm’s decisions • CSR designates the duty (instrumental and moral) to meet or exceed stakeholder norms dictating desirable organizational behavior) • Organizations act in a socially responsible manner when they conform their behaviors with the norms and demands of their stakeholders (including the managers)

18. Normative Point of View • Stakeholders may be regrouped around communities • A stakeholder community is a group of individuals who (a) interact with one another and (b) share common norms and goals with respect to particular issues • Various groups in community have their guidelines defining responsible business behavior affecting stakeholder norms • Stakeholder norms (employees, managers, founders) may overlap with organizational norms • Organization, however, define its own norms dictating which behaviors are desirable or not.

19. Stakeholder issues • Stakeholders issues are not merely about their own welfare (e.g. calling for improved product safety) but also issues not related them directly (e.g. condemning child labor) • E.g. • A firm’s commitment to social responsibility can be assessed by scrutinizing its impact on the issues of concern to its stakeholders.

20. Elements and Outcomes of Socially Responsible Corporate Behaviors

21. Stakeholder power impacting on Corporation • Stakeholders bring to the firm : capital, access to material resources, infrastructure and location, expertise, leadership, loyalty, positive word of mouth, and positive corporate images. • They are crucial for the firm’s continued survival • Stakeholders’ strategies to advocate issues: • Legalistic approaches (antagonizing corporate practices with law) • Exit strategies (withhold/threaten to withdraw resources) • Voice strategies (raising awareness among other powerful stakeholder communities, e.g. media)

22. Some propositions (Maignan and Ferrel 2004) • The more powerful a stakeholder community, the more positive the impact of the focal organizations on the issues of concern to that community • The greater the convergence of norms with respect to an issue across different stakeholder communities, the more positive the impact of the focal organization on this issue • The greater the density of a network of stakeholder communities concerned, the more positive the impact of the focal organization on this issue • The greater the centrality of the focal organizations in a network of stakeholder communities, the less positive the impact of the organization on issues of concern these communities

23. CSR defining Organizational Norms • We demonstrate our responsibility as a corporate citizen when we interact with our customers, associates, and the community large” (www.prudential.com) • “ConAgra is committed to finding solutions and working with organizations to help feed America’s hungry children” (www.conagra.com) • “We are proud of our efforts to maintain a workforce that represents many backgrounds, and are deeply committed to cultivating an environment where contributions of every employee, customer, and vendor are respected.” (www.nordstrom.com)

24. What the Firm Gains? Amnesty International and the Prince of Wales International Business Leaders Forum (IBLF) point out a number of commercial benefits of integrating CSR and human rights into business practices, including: • Enhanced reputation • More secure license to operate • Improved employee recruitment, retention, motivation • Improved stakeholder relations

25. Corporate Governance • Corporate governance is geared toward ensuring that companies take responsibility for directing and controlling their affairs in a manner that is fair to their stakeholders. • corporate governance requires companies to take responsibility for their impact on societies and on their stakeholders

26. Summary • Being responsible to society means that businesses must be honest and fair in doing business in general, and particularly to social environment; • Support social, generous and provides better environmental condition for their communities. • Making the workplace fair for employees might mean making changes to reduce unfair practices and human rights abuse