13 Corporate Social Responsibility Flashcards
What are some definitions of CSR
- The attempt by companies to meet the economic, legal, ethical, and philanthropic demands of a given society at a particular point of time.
- The continuing commitment by business to behave according to business ethics and contribute to economic development while improving the quality of the life of the workforce and their families as well as the local community and society at large.
What is the traditionalist / capitalist view on CSR
- That businesses should only run in the interests of their owners (shareholders)
- Therefore, should only focus on making a profit
- Any CSR activity is reactive and defensive
o Not value creative
o Often only a PR activity - Companies should create profits, pay taxes and let the government deal with social issues
o As what does a business manager know about solving social issues - But does the company owe a duty to the society it operates in?
What was Milton Friedman’s view on CSR
- “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game”
- Key theorist of the traditionalist view
- Companies should focus on profit to provide goods and services, keep staff employed and pay taxes the government can use to improve society
How does a focus on profit maximisation hurt companies
- Often leads to stepping outside the rules of the game and leads to scandal
o Accounting and financial scandals (Tesco, Patisserie Valerie)
o Product quality scandals (VW)
o Environmental threats (BP)
o Human right threats (Nike)
What is the implication of scandals
- These scandals can lead to boycotts that can hurt the investor
o Avoiding these scandals can be seen as traditionalist or taken in a more proactive new age of responsible companies - With social media rumours and facts can spread quickly and stay online for all to see for years
Does just complying with the law count as CSR
- To just comply with the law does not count as CSR
- For tax loopholes are legal but not ethical
What is the social contract
- Traditionally, there has been an implicit contract between big business and their local society, but because of globalisation and changing expectation, we need something more explicit.
- A social contract implies business has some obligations to society as it relies on society for its existence, continuity and growth.
- Profit seeking is significantly important for any business, but it has to be done in a socially and environmentally friendly way
What is the importance of the social contract
Because we are all part of society and being socially equitable is relevant to everyone.
* To protect the reputation of the organisation and its employees.
* To protect shareholders.
* To enhance professional reputation and long-term revenue.
* To protect the environment
What is the role of CSR in companies VS society
- Some companies may feel CSR is only desirable if it immediately benefits them (e.g. economic efficiency).
- However, society and consumers have become more demanding about accounting information and its transparency, especially after accounting scandals.
Why can CSR be good for companies
- Enhance long-term revenues
- Reduce costs e.g. energy, waste, inefficiencies etc.
- Manage risk and uncertainty
- Maintain the social licence to operate
How can CSR manage risk and uncertainty
For instance electric vehicle mandates are arriving so trailing an electric fleet early can be ethical and test the waters before it is compulsory
For effective CSR what must a company identify
- What is included in corporate social responsibility?
- What are the social issues the organisation must address?
- What is the organisation’s philosophy or mode of social responsiveness?
o It must not feel like it has been bolted on or society will not feel it was genuine and give the social licence
o Cant be just giving money as they can
What is the nature of corporate social responsibility (Carroll, 1991)
Pyramid that builds from the bottom up. Must have lower levels for the business will collapse before it can help society
Top -> Bottom
1. Philanthropic Responsibilities (desired)
2. Ethical Responsibilities (expected)
3. Legal Responsibilities (required)
4. Economic Responsibilities (required)
What are economic responsibilities in Carroll’s Pyramid
- Companies have shareholders who demand a reasonable return on their investment
o Links to Friedman - Companies have employees who want good jobs
o But also provide for employees - Companies have customers who want products to satisfy their needs
What are legal responsibilities in Carroll’s Pyramid
- Companies must comply with laws (follow the rules of the game)
- Companies are facing growing pressure for complying with new legislations such as corporate governance rules and accounting rules.
o E.g. Sarbanes-Oxley Act, Dodd-Frank Act in the US
o Corporate governance codes in EU
o Companies Acts in UK.
What are ethical responsibilities in Carroll’s Pyramid
- Companies face ethical expectations in the absence of legal frameworks.
- What society now demands that they don’t just make a profit and follow the laws but now pay an ethical amount of taxation
o E.g., Apple, Starbucks, Google and Amazon
o Exploitation of loopholes and international differences in legislation
What are philanthropic responsibilities in Carroll’s Pyramid
- It is at a company’s discretion to improve the quality of life of employees, local communities and society in general.
- This might attract new employees but has wider benefits to society
- Works best when there is alignment with the aim of the organisation
- When philanthropic activities are closer to the company’s mission, they create greater wealth than other kinds of donations.
o When a telecommunications company is teaching computer network administration to students of the local community
What is philanthropy
Greek for ‘the love of the fellow human’
Conflict in Carroll’s Pyramid
- The top two non-legal responsibilities can be hard to implement and directly conflict with the lower
o Cannot focus on profit if some is going to charities
o But this can be countered that it brings in additional sales
What are the three dimensional aspects of CSR
Most CSR policies revolve around the same three main factors
1. Economic
2. Social
3. Environmental
What is the triple bottom line
TBL is an accounting framework with three main parts
1. Social (people)
2. Environmental (planet)
3. Financial (profit)
* It is also referred to as the 3 P’s
* Each element overlaps each other to build a balanced strategy
* Name comes from adding two more elements to the bottom line profits and shows how they should be valued equally
What are the implications of the Triple Bottom Line
- Sustainable business requires new definitions of ownership rights in company assets, in the balance between shareholders and stakeholders.
- For you can argue that the employees are more invested in the company as their whole income is often linked to that single job
- Therefore, shareholders’ financial interest should not be the only concern for the board members.
What are the criticisms for the Triple Bottom Line
- Not easy to balance all three elements
- An American car manufacturer may want to open a factory in Mexico:
o Financial (cheaper labour/boosts profits)
o but
o Social (job losses in the USA; exploiting cheap labour)
o Environmental (may increase pollution in Mexico)
What is stakeholder theory
- Anyone who can be influenced by or influence the activities of the organisation matter
- Opposite of Friedman, who only cares for the profits produced and all other benefits are secondary reactions not proactive motions
- Both internal and external stakeholders
Who are the champions of stakeholder theory
- Many scholars favour stakeholder theory, but it is particularly associated with R. Edward Freeman.
- “Managing for stakeholders involves attention to more than simply maximizing shareholder wealth. Attention to the interests and well-being of those who can assist or hinder the achievement of the organization’s objectives is the central admonition of the theory.”
What are the issues with stakeholder management
- Objectives of different stakeholders differ and are often in conflict
- It is time consuming to collaborate with all stakeholders
- Can cause a lack of coordination leading to failure of short term goals
What is legitimacy theory
Organisations can only continue to exist if the society perceives the organisation to be operating to a value system which is corresponding with societies own value system
What is political economic theory
- Political economy: social, political and economic framework within which human life takes place.
- Businesses have power in society and there is a social impact to this power.
- Major multinationals have significant influence over governments, in particular developing nations where production might be based and they have a duty to exercise this power ethically
What is corporate accountability
- A corporation’s ability to explain the consequences of its actions
- As they have grown larger, they have more influence and therefore must be more transparent in their actions
What is corporate accountability
- The degree to which corporate decisions, policies, activities, and impacts are acknowledged and made visible to relevant stakeholders
- Why annual reports have become so large
- Some companies hide to chose the facts and only become transparent when discovered
How do some companies hide their actions
- Hiring a subcontractor to own the factory in a developing nation
- E.g., Nike did not want to reveal information on their suppliers as they said it was ‘commercially sensitive information’ which their ‘competitors could exploit’. However following concerns over poor factory working conditions, Nike made the information available in 2005
- Making supply chain transparency a focus area as it can lead to major scandals
What is a code of ethics
- A voluntary statement that commits an organisation to specific beliefs, values, and action
- Specific rules or guidance that the organisation and employees should follow
- Must be very clear, explicit, understandable, and enforced
What parts of a code of ethics would be relevant to accountants
- To issue and agree with corporate aims, beliefs and values
- To identify goals and beliefs in accounting practice
- To produce financial reports regularly
- To conduct internal auditing in accounting practice
- To comply with agreed accounting standards
- To communicate with stakeholders
What is vital for an effective code of ethics
- Must be well communicated
- Well written and communicated
- Followed by management (top-down leadership)
- Enforceable and enforced
o Otherwise, there will be a lack of coordination and feelings of resentment as one rule of some another for the rest
What is vital for the effective deployment of a code of ethics
The effective deployment will depend on…
* How the code is written:
o Appropriately written?
o Relevant examples being used?
* How the code is supported:
o Top management support
o Training?
* How the code is enforced:
o Any whistle-blowing channel?
o Any incentives?
What is a negative example of a whistleblowing system
Olympus:
* They had a reporting channel, but privacy of the whistle blower was not protected, and he was punished by receiving the worst appraisal score in 2008.
* Later, he sued the company and won the case.
How does the companies act relate to CSR
Duty to promote the success of the company
1. A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to
a) The likely consequences of any decision in the long term,
b) The interests of the company’s employees,
c) The need to foster the company’s business relationships with suppliers, customers and others,
d) The impact of the company’s operations on the community and the environment,
e) The desirability of the company maintaining a reputation for high standards of business conduct, and
f) The need to act fairly as between members of the company.
What is integrated reporting
- A concise communication of an organisation’s strategy, governance and performance.
- Demonstrates the links between its financial performance and its wider social, environmental and economic context.
- Show how organisations create value over the short, medium and long term.
- This means that organisations need to understand and report on all areas of performance and not just focus on short-term financial results
o Link performance to wider impact
o By bringing in many other non-financial metrics
Why, how, what is the Global Reporting Initiative (GRI)
WHY
* GRI exists to help organisations be transparent and take responsibility for their impacts to create a sustainable future.
HOW
* GRI creates the global common language for organisations to report their impacts. This enables informed dialogue and decision making around those impacts.
WHAT
* They are the global standard setter for impact reporting.
* They follow an independent, multi-stakeholder process.
* They maintain the world’s most comprehensive sustainability reporting standards, available free of charge.
What is ESG VS CSR
ESG refers to how corporations and investors integrate environmental, social and governance concerns into their business models.
CSR traditionally has referred to corporations’ activities with regard to being more socially responsible, to being a better corporate citizen
- One difference between the two terms is that ESG includes governance explicitly and CSR includes governance issues indirectly as they relate to environmental and social considerations.
- ESG is more about integration to management and reporting while CSR is about actions to be a better corporate citizen
- Thus, ESG tends to be a more expansive terminology than CSR
What is greenwashing
- Disclosure that gives people an excessively positive image of a company’s CSR performance.
- This selective disclosure strategy creates a gap between a company’s CSR disclosure and its actual performance, often referred to as CSR decoupling
What is CSR decoupling
The CSR gap between what organisations say they are doing and what they are doing
What is social accounting
- Inclusion of other factors such as social impacts alongside financial issues
- Targeted to all relevant stakeholders
- Not currently compulsory but new laws could come into place
“The voluntary process concerned with assessing and communicating organizational activities and impacts on social, ethical, and environmental issues relevant to stakeholders.”
What are the UNs 17 SDGs
- No Poverty
- Zero Hunger
- Good Health and Well-being
- Quality Education
- Gender Equality
- Clean Water and Sanitation
- Affordable and Clean Energy
- Decent Work and Economic Growth
- Industry, Innovation and Infrastructure
- Reduced Inequality
- Sustainable Cities and Communities
- Responsible Consumption and Production
- Climate Action
- Life Below Water
- Life on Land
- Peace and Justice Strong Institutions
- Partnerships to achieve the Goal
What is the purpose of the UN SDGs
- Set by the UN to improve the world
- Not expected that all companies follow all of them just a selection
- Each company picks some focus issues that are relevant to their operation
- Like IAG picking SDGs - 5, 7, 8 and 13
Importance of embedding CSR in activities
- Many organisations find that in reality they already do much of what is considered “CSR” but often do not have formalised systems to report on those activities.
- CSR should be a concept of good practice that cuts across an organisation:
o HR
o Purchasing
o Customer Services, etc. - Either way it must be totally embedded into operations
- All must be aware; all must be considered
How to stakeholders and CSR conflict
- The pursuit of dividends and increases in share prices dominate the capitalist model of value creation.
- Companies want to gain short-term profits and be loose with business ethics.
- Lack of CSR and Corporate Governance led to the financial crisis in 2008.
What is the typical ownership / management structure of an organisation look like and what problems does it cause
- The control of the business no longer lies in the hands of the owner, but the directors/board members instead.
- Agent principle relationship at core
- Many shareholders within a corporation.
o Divided interests; (Principal-agent relationship):
o Shareholders – profit/dividend seeking
o Directors – growth seeking
What are some potential solutions to the agent principle relationship
- Corporate governance can be used to help run the organisation more efficiently
- However, this only partially solves the problem by setting out the rules, processes and structures for which the organisation is directed in the interests of the shareholders and other stakeholders
What is the directors duty to shareholders
- Duty to act for the benefit of the company - both short-term financial performance and long-term survival of the company.
- Duty of care and skill - directors are to achieve the most professional and effective way of running the company.
- Duty of diligence - active engagement in company affairs
What are the main frameworks for corporate governance
Broadly, we can categorise them as:
* The Anglo-American model
* The continental European model
* Asian models.
What is the difference between the three models of corporate governance
* The Anglo-American model
* The continental European model
* Asian models.
- In Anglo-American model, it is common that board members are not the owners of the business.
o In other models, owners are often on the board.
o German companies: Some of their Non-executive directors have to be appointed by their employees. - Anglo-American model: The stock market is the central element of the system of governance
- In other models, other stakeholders are able to influence the system of governance.
- Therefore, corporate governance differs across organisations across the world.
o However, more companies world-wide have adopted the Anglo-American model.
What is executive accountability and control
- The systems and processes through which senior executives can be held responsible for the performance of the firm by shareholders and other stakeholders.
- Typically, via the board of directors
What are the two board of director frameworks
Single tier board:
* With both executive and non-executive directors
o E.g., The Anglo-American model, The Asian model.
Two-tier board:
* Upper tier (supervisory board)
* Lower tier (day-to-day running of the company.)
o E.g., The Continental European model.
How does corporate governance link to globalisation and what problems does it bring
- With the rise of globalised companies that are accountable to no one government, only supply and demand without oversight
- Means only shareholders have the actual voting power to impact the roles of companies,
o With directors’ power to act on that - However, have the negatives of some countries trying to grow GDP by attracting businesses in any way possible
o Creation of tax havens and allowing exploitation of labour
What should a corporate governance code regulate
- Size and structure of the board
- Independence of supervisory or non-executive directors
- General meeting participation and proxy voting
- Disclosure of executive remuneration
- Frequency of supervisory body meetings
- Rights and influence of employees in corporate governance
- Role of other supervising and auditing bodies
What is corporate accountability
A concept that refers to whether a corporation is answerable in some way for the consequences of its actions
What is corporate transparency
The degree to which corporate decisions, policies, activities, and impacts are acknowledged and made visible to relevant stakeholders
What does corporate transparency depend on
- Disclosure: relevant information in a timely and accessible manner
- Clarity: understandable
- Accuracy: correct and reliable
What is a good example of corporate transparency
- There is a risk that child labour is used to mine mica, a mineral commonly used in cosmetics.
- In 2014, Lush (a British cosmetics firm), stated that they wanted to avoid using mica, because they cannot guarantee transparency in its supply chain.
- Since 2018, they have only used synthetic mica
