In risk management terms, critically

evaluate the arguments for and against an

international business adopting a policy of
corporate social responsibility

Module: Global perspectives on risk

Assessment: Portfolio (weighting 50%)

Session: 2008/2009 Semester B

Student Name: Zhang Dijing

Matric Number: 200818835

Content

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Introduction…………………………………………………………...iii

Positive Business Impacts of corporate social responsibility…...…. iv

Negative Business Impacts of corporate social responsibility….….viii

Solutions..……………………………………….……………..………..x

Conclusion………………………………………………………...….. xi

Reference…………………………………………………………..…xiii

Introduction

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Corporate social responsibility (CSR) as the term can be defined in many different

ways. According to Smith (2002), corporate social responsibility (CSR) was defined

as the values and business operations incorporation which based on the all

stakeholders’ interests, as well as employees, environment, customers, and the

investors which are reflected in the performance and policies of organisation and

CSR is also the firm responsibility which use their own resources in order to benefit

the society, and through devoted contribution as the society member, consider the

society at large, independently develop the direct gains benefit from the classical

sense of economic of shareholder wealth which was rising to corporate good

philanthropy and citizenship (Friedman, 1970; Hay and Gray, 1974)

As Hill (2007) presented, the a multinational corporation ethical responsibilities about

human rights, corruption, environment pollution, power use, and the employment

conditions are not always clear-cut. Managers often face very real dilemmas of ethics

in which the appropriate action course is not clear. However, the ethical dilemmas

nature -the conditions where have no suitable alternatives which can be accepted by

the ethics are not easy to be answered and the question -what are the risks may

complex. Therefore, it may difficult for companies to evaluate and identify the risk

whose activities seems do not impinge on the arenas of environment/ ethics of society.

Such as if the MNC runs only in the European Union exceeds/obey all the individual

countries laws of environmental and employment in the EU as well as has strict

policies on the matters as graft and corruptness which was considered not exposed to

any risk of CSR- related and may a dangerous hypothesis in many cases.

In the environment of global business, the greatest asset of MNCs may be the

reputation and the brands’ reputation. Therefore, the risk evaluation and identification

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of CSR is based on the potential damage for reputation which seems has developed

for a long time and has been high. The expectation of society requires MNCs do

responsibly whether they like or not, it is inevitably of failure to do so which given

the communication and modern media’s complexity and speed, return to obsess them,

once the reputation which was damaged becomes the perception of society it will be

difficult to turn it around as a whole. (e. g. McDonalds, Nike, Shell Oil) (Hill, 2007)

Due to the risks issues for multi- national companies (MNCs), this essay will focus on

the positive and negative business impact of corporate social responsibility to evaluate

the arguments for and against an international business adopting a policy of CSR and

provide some solutions for MNCs to avoid the negative business impacts of CSR.

Positive Business Impacts of corporate social responsibility

There are many positive business impacts of corporate social responsibility.

According to Schiebel (2003) firstly, CSR can improve the financial performance

(FP). As Cochran and Wood (1984) mentioned, the interrelation between financial

performance and corporate social responsibility is using the new methodological

analysis to reexamined, industry-specific to control groups, and developed the

technique. It is found that the corporate assets’ average age is to be highly

interdependency with the ranking of social responsibility. There also have another

relationship between financial performance and corporate social responsibility after

operating for this factor. Though some communities of investment and business have

debated whether there has a real correlation between the positive financial

performance and responsible business practices of society for a long time, a large

number of academic studies have represented that such a connection is exist between

them. (Schiebel, 2003)

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Secondly, CSR can make employee commitment and motivation greater (ECM).

Collier and Esteban (2007) pointed out that studies show that in order to help organize

and view the performance of the shared values, motivate the staff; inspiring

commitment beliefs, help to attract potential employees; and help rise reservations

will be adopt. The existing research found that there are two main factors which affect

the obligation and motivation of employee to CSR buy in. Firstly, contextual- the

behaviours and attitudes of employee are influenced by whether policies of CSR are

understood according to the compliance and values; the climate and culture of

organization, and whether the policies just an add-on that as window-dressing to

provide or are included into the processes of business. Secondly, perceptual- the scope

to which employees can reflect that of organization, support personal characteristics

and; the fairness and justice awareness of both in terms of or in general how the

performance of CSR is rewarded, and the impersonations which concern the top

management feelings to CSR performance and issues will also affect the commitment

and motivation. It seems as Schiebel (2003) represented that the commitment of

corporation which demonstrated and stated certain business values and goals can

assist employees find their own work’s purpose and meaning, care for the company is

doing, as well as link to their personal efforts of the company altogether.

Thirdly, CSR also can enhance the customer loyalty (CL). Schiebel (2003) pointed out

that there have a growing number of consumers are factoring the perceived value in

the buying decisions and business practices of the company. A large number of

companies are usually connected with business practices which are values-based and

consumer credit in the media's commercial success, in large measure on the brand

loyalty of customers who hold the value or task of the company. A survey which has

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be done by The Wall Street Journal International Edition, Bozell Worldwide as well

as Japanese business newspaper Nihon Keizai Shimbun represented that, compared to

nine particularly important performance and the general category of corporate

citizenship, morality and values ranked the highest in the consumers in the Europe

and United States, and Japan in third place in 1996.

Fourthly, CSR can minimize the risk (R). CSR, especially for an international

company, is through two ways - providing an effective means to address these related

to enterprise risk management and offering the intelligence which relate to what those

risks are in order to managing the relationships of stakeholder more effectively which

is important for international companies due to the reason if they can not manage the

relationships effectively, stakeholders may be involved in the court of public opinion

in the little or the company did not say that (Kytle, Ruggie, 2005) The

institutionalization of the values of the company based on the decision-making

process can positively deal with a wide range of legal and ethical problems.

Therefore, the companies through reduce the damage and weakness to the misconduct

of this can be done to management, brand image, and profitability. Well-defined

values, when integrated into the organizational communications of company, provide

their employees with the necessary theoretical framework and tools, to make self-

determining decisions in their day-to-day business with the fundamental values of

company thus to minimize the risk. (Schiebel, 2003)

Fifthly, corporate social responsibility can reduce the operating costs (OC).

Emphasize here is relate to the savings of the operation (reduce waste, material inputs,

less energy, and efficient use of resources) that arise during the environmental

improvement of the eco-efficiency point of view. (Luetkenhorst, 2004) A number of

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initiatives of corporate social responsibility, especially the environment and

workplace-oriented initiatives can greatly reduce costs throng reducing waste and low

efficiency or to improve production efficiency. There are other circumstances, to do

what is responsible and good with the best convergence of the particular business. In

addition, some initiatives of CSR can reduce the operating costs considerably. For

instance, planning the best route or reducing the materials of packaging for the

delivery truck can not only reduce the company’s operation of affect on the

environment, but at the same time reduce costs. The process of adoption of the

principles of corporate social responsibility executive’s incentive to reconsider the

practices of business as well as to find more effective ways of doing business.

(Tsoutsoura, 2004)

Finally, CSR also can enhance the brand image and reputation (BIR). Argenti and

Druckenmiller (2004) pointed out that corporate social responsibility (CSR) has

become one of the factors that affect the reputation of the enterprise into a more

regular brand strategy. The events of September 11th, 2001 and the issues which

about globalization have lead to the awareness of companies which require basing on

the responsibilities of society to examine the roles. Wally Olins has pointed out that

brands will signal the future of the company behind some useful brand. A major event

under the brand is the customers of social responsibility who are often to draw to

consider the brand and the company has a good reputation, the corporate social

responsibility-related fields. Socially responsible has been considered by the company

which can benefit both from the business community reputation and the improved

reputation with the public, raising the ability of companies to attract the partners of

capital and trading. It is necessary to encourage companies to expand and adopt CSR

efforts in order to pressure from communities, investors, customers, employees, active

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organizations, suppliers as well as other stakeholders. In particular for the companies

which have a retail brand with high value, the positive CSR image influences will be a

important actor for the development of future market. (Schiebel, 2003)

Negative Business Impacts of corporate social responsibility

Though as mentioned above, corporate social responsibility (CSR) has many positive

business impacts, over the last years, it has collected significant impetus, include the

momentums in the world of business and the community of investment, few people

trusts that the interruption of CSR will hindered the efficiency of business. However,

this argument seems to be only derived from the social responsibility

misunderstandings which stand for/ incorrect views of the economy of the modern.

(Virtue, 2001)

According to Misguided Virtue (2001), the major criticism is the old free-market

economists who represented that corporate social responsibility get in the ways with

the efficiency of the enterprise sector and the normal operation of the market share.

There is also a factor to the purpose of philosophy which related to the listed

companies, compound who argued that these social problems about governments and

enterprises of all countries should follow the business. Another recent chain,

advanced active David Henderson, former World Bank economist, but also raised

questions about the legitimacy of non-governmental organizations in the field of

business.

The problem of the free market is clear. This is indisputable; there are a wide range of

needs for the company to show greater social responsibility. In this regard the

corporate social responsibility is the pressure on the market. If this is true, the

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company's social responsibility is a way to reduce the risks and the opportunities

opening up, and then it must increase shareholder value. However, from all sides may

have additional costs, such as additional monitoring and reporting, and any other costs

which may appear. When the company began to take the actions of society or

environment, it could destroy the corporate social responsibility on shareholder value

is the anti-profit-making as well as anti-market. It is undoubtedly none of the

investors’ purpose who would like to follow the ABI criteria for the company. There

have the possibility that CSR may be lead to the company to give up short-term

profits, but only in the search for a strategy that in order to strengthen the long-term

value. (Association of British Insurers, 2001)

As Association of British Insurers (2001) mentioned, CSR has also criticized the

introduction of a number of objectives can only be incorporated into the body to work

with a single, overriding goal - the pursuit of profit. There are two reactions to this.

First, all agencies are in practice the pursuit of multiple objectives. This is not only

practical to focus on shareholder value without taking into account the objectives,

employees, customers and other stakeholders. In addition, corporate social

responsibility is not to remove the overriding of directors fiduciary duties of

shareholders. It also has the requirement to manage and identify other relations as the

primary objective of constraints. Furthermore, the risk management and corporate

social responsibility of companies should be better protected from the impact of

greater volatility of revenue streams. In the other words, if the company paid little

attention to CSR will have the tendency to face greater risk of income volatility.

Investors usually pay a premium for the shares to provide more stable income, even if

the earnings trend of long-term is similar to the volatility of the stock.

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Solutions

Due to corporate social responsibility have some weakness and limitations in the

international business, some solutions would be adopted to avoid or reduce the

negative impact. Firstly, Association of British Insurers (2001) has pointed out the

suggestion that the social problems may be more powerful governments. It would be a

mistake of the company in deeply inhaled into the field of non-business and business

does not have the expertise or advice, and social policies. However, the fact is that the

request of the government all over the world business community to participate more

actively in, so it is rarely the choice of standing aloof. Similarly, organizations of

business and companies to lobby the government has been heavily involved in a wide

range of issues which have been seen relevant, thus, it is wrong to describe the two

areas completely different. It is as well worth stressing that corporate social

responsibility as described is based on the business. It involves the issues that will be

the establishment and the protection of shareholder value – it is important to cultivate

relationships, management of uncertainty, construction and maintenance of

reputation.

In addition, the quality of earnings should be strengthened. If companies which can

manage the issues of CSR well, as a result, the market will be satisfied on two counts-

investors can look forward to even greater long-term value creation and income

should be higher than the quality of the company's total revenue of the same record,

on the other hand, it may have greater volatility which due to the cyclic shocks of the

impact. (Association of British Insurers, 2001)

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Finally, MacLean (1999) represented that companies need to have it clear known and

the required responsibility. However, through the use of global standards, corporate

social responsibility, it can be said that the rights to the enterprise. These rights are

not clear, in fact, it is clear through the review of CSR more than ignore it recognizes.

Their rights, including capital and private property, to accept the free movement of

capital rights, commercial, investment and divestment of the will, and the supremacy

of the determinants of market prices. The rights may difficult when there have the

restrictions on the developing countries where have a wide range of economic, social

structure and values system, and CSR has attractive industries’ activities. CSR should

better reproduce the political norms, economic, ethical and social rooted in the

globalization hegemonic form.

Conclusion

In conclusion, as mentioned above, there have several evidence that have different

point of view about critically evaluate the arguments for and against an international

business adopting a policy of corporate social responsibility. Undoubted, the

corporate social responsibility have many positive business impact such as improve

the financial performance, make employee commitment and motivation greater,

enhance the customer loyalty, minimize the risk of international business, reduce the

operating costs as well as enhance the brand image and reputation. However, it also

unquestionable that there also have some limitation and negative impacts of corporate

social responsibility which include that corporate social responsibility get in the ways

with the efficiency of the enterprise sector and the normal operation of the market

share, have additional costs such as additional monitoring and reporting, the CSR’s

introduction of a number of objectives can only be incorporated into the body to work

11
with a single, overriding goal - the pursuit of profit, not to remove the overriding of

directors fiduciary duties of shareholders and may face the tendency to face greater

risk of income volatility. Therefore, to reduce or avoid the weakness of corporate

social responsibility, some solutions are suggested, such as well worth stressing that

corporate social responsibility which based on the business and involves the issues

that will be the establishment and the protection of shareholder value, (e.g. cultivate

relationships, management of uncertainty, construction and maintenance of

reputation) strengthen the quality of earnings and the companies should better have it

clear known and the required responsibility. As a result, corporate social

responsibility can be better used in the international business.

Word count: 2756

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