Corporate Social Responsibility: The Impacts Of Globalisation And Relation Between Purpose And Profit

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Companies are investing heavily in protecting their reputation and ensuring societies expectations are met. Corporate Social Responsibility (CSR) has grown increasingly prevalent in recent years due to the impacts of globalization and deregulation since the 1980s (Jenkins, 2005). The key drivers of globalization including the outsourcing of firms have highlighted the need for CSR initiatives to protect company stakeholders and the environment. CSR can be defined as ‘business’ commitment to economic development, social and environmental sustainability to develop a means to benefit all its stakeholders’ (Blowfield, 2005:517). The commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve their quality of life, in ways that are both good for business and good for development’ (Blowfield, 2005). CSR is the product of neoliberalisation and the increased significance of reputational capital. This essay will focus on the CSR initiatives within Transnational Corporations (TNCs) and how this impacts on companies’ traditional performance drivers. This essay uses the case study of Schneider Electric: a global specialist in energy management and automation in homes, buildings, data centers, infrastructure, and industry. It will link the key theories and concepts of CSR to the workplace and the impacts this has on the financial performance of Schneider Electric. This essay will critically analyse literature surrounding Corporate Social Responsibility and provide the conclusion that CSR is becoming a reality within business reverting from the idea of ‘greenwashing’ for public relations (PR) spin.

Corporate Social Responsibility has been increasingly prominent in recent years because of trade being conducted globally at a growing rate. A geographical dispersion of production networks (Locke et al., 2013), rising in the 1990s has led to environment and labour issues. It is the change in global production that has created both opportunities and challenges for employees, the environment and society (Egels-Zandén and Lindholm, 2015). National governments are struggling to control these firms as this activity is happening on such a multinational scale, that promoting social and environmental values is unsustainable (Blowfield and Murray, 2014). In response to the need for corporate sustainability, the UN Global Compact created 10 principles to promote fundamental responsibility in 4 key areas: human rights, labour, environment, and anti-corruption (UN Global Compact, 2018).

Corporate Social Responsibility is often more easily implemented in developed countries considering that there are usually stricter regulations and laws already in place. In comparison, developing countries are less regulated, thus there is more potential for worker and environmental exploitation. Governments in developed nations are focused on making the market a more efficient provider of social and environmental goods rather than regulating companies outright. In contrast, TNCs operating in developing countries are not influenced by government regulations (Egels-Zandén, 2015) which leads to non-compliance towards corporate social responsibility.

Companies are facing increasing pressure to maintain profitability and act in socially responsible ways. CSR can affect purchasing decisions and ultimately impact on a company’s bottom line (Mohr et al. 2005). Overall, this essay provides an optimistic approach that Corporate Social Responsibility is not just a PR spin, companies are concerned with managing reputational risk and enhancing their brand value and that CSR is imperative to improve traditional performance drivers and maintaining customer satisfaction (Delbard, 2012).

Wider Context

A TNC is a firm which has the capability to manage and regulate operations in more than one country, even if it does not own them (Dicken, 2015). Using this broad definition, TNCs are by no means a new phenomenon, looking at trading company Hudson’s Bay and even further back the East India Company in the 1700s they were some of the first established and globalized companies. The modern TNCs are simply new variations on the past models. The advance of communication and industrial processes provided the growth for transnational operations (Vernon, 1992).

An optimist view implies that globalization has allowed governments to work with TNCs to enhance local infrastructure. In the last two decades, TNCs have been one of the key drivers in large-scale shifts in foreign-investment activity. The difference between TNCs now and the early models is now we are in a stage of ‘industrialization by invitation’. During the 1950s Sir Arthur Lewis proposed the strategy to allow the Caribbean economies to increase their competitive advantage. He suggested that the capital and markets for this industrialization be sourced from already established foreign TNCs (Hosein and Tewarie, 2015). He emphasized that to improve prospects in the global economy the foreign market was necessary. Governments have set up Export Processing Zones to attract FDI from the developed world using free trade zones, tax -free incentives, and a barrier-free environment. Job creation, the growth of industrial networks and technological advancement are the main impacts of government investment. (Murray, 2016). Export processing zones have distinct geographies to them. They employ 66 million workers in 130 countries worldwide (ILO, 2010). Lewis’ initial strategy for industrialization by invitation was designed for the Caribbean so majority exist here, along with East Asia, whereas there are a lot less in Africa. It could be argued that government investment into export processing zones has been ineffective, Olawoyin (2017) provides the conclusion that even though there are 66 million people employed in EPZs, it is a small proportion of global vulnerable employment which accounts for 1.4bn people worldwide.

CSR provides an understanding that codes are necessary for public relations (PR) and good business practice. Corporations must tackle sustainability within their business practices and be held responsible for their ethical issues and work to resolve all issues to benefit the community. CSR is a contested issue and this essay aims to deliver an optimistic approach, CSR is not just a PR spin, it is imperative to improving traditional performance drivers and to maintain customer satisfaction.

The concept of CSR was first devised in the 1930s and defined as ‘managers of TNCs [who] are responsible for the shareholders and the public’ (Morschett et al., 2005). This suggests that the CEOs have a position in which they must be accountable for the harmful effects of their business on the environment. Businesses must learn to limit the negative output and start to be sustainable in society.

The growing interest in CSR by the consumer and a focus on the ethics of TNCs has stemmed from increased media speculation of forced labour and non-environmental compliance. (Kim et al., 2015). An increased investment towards social issues has been made by TNCs, for example, Giving USA estimated a $5.29 billion increase from 1999 to 2002 (Kotler, 2005).

These effects of this investment can be questioned, however. CSR can be manipulated or ‘greenwashed’ (Kotler, 2005). Corporate Watch in the US has found several cases of greenwashing occurring as well as businesses using the United Nations for a public relations advantage. Greenwashing occurs as companies want good PR; businesses will do this without necessarily having to change their behaviour. This is a way for companies to still exploit the underdeveloped nations whilst looking on as an ethical business on the surface.

Exploitation of CSR initiatives provides evidence that President Truman’s speech in 1949, where his vision stated the shift from old imperialism in the modern world economy, is false. This comes as most TNCs are paired with ideas of neo-liberalism, meaning that the global North continues to exploit the South.

This essay will aim to assess the impacts of CSR strategies on traditional performance drivers as companies’ priority is to both serve a purpose and create profit. From this, we can provide the conclusion that balance is key to determine both benefits for the company and customer satisfaction.

Schneider Electric CSR policy

Schneider Electric is a global specialist in energy management and automation in homes, buildings, data centres, infrastructure, and industry. Operating in over 100 countries they serve customers, helping them to manage their energy and process in ways that are safe, reliable, efficient and sustainable. CSR forms a key part of the company ethos, ‘…we insist on the importance of responsibility and its place at the core of our corporate governance’ (Jean Pascale Tricoire, CEO Schneider Electric, 2014). Schneider Electric’s top priority is customer satisfaction and the major principles it subscribes to are the UN Global Compact, OECD, human rights and the International Labour Organisation (Static.coorpacademy.com, 2013).

From the analysis of Schneider Electric’s Sustainability report for 2017, they have a clear vision for the future and both the well-being of employees and customers, and environmental sustainability forms a key aspect of their approach to their company performance and ethos, which is providing innovative solutions to energy problems. Schneider Electric’s company performance corresponds closely to Alex Edman’s research conclusions that companies perform better (financially) if they adopt a CSR policy. In 2017 Schneider Electric ‘increased organic revenue 3.2 percent, launched more than 100 new products and acquired new companies that strengthen our position as the global specialist in energy management and automation’ (Sdreport.se.com, 2017). According to Schneider Electric’s CEO ‘in working for a more sustainable world, we not only ensure a healthier planet for future generations, but we also promote innovation and prosperity here and now. What’s good for the climate is good for the economy.’ In 2014 Schneider Electric launched a CSR strategy to use Mobiya Solar Lamps across the world to provide lighting in peri-urban households with no or poor access to the grid, this not only was profitable for the company but delivered on providing innovative solutions for its customers. Adhering to their sustainability strategy, Schneider Electric can provide strong value for shareholders, who recognize that Schneider Electric is forward thinking and provides a long-term business view.

Literature Review

This section will outline academics’ perspectives on Corporate Social Responsibility, primarily focusing on the main theories and concepts of CSR that have developed through history. Foucault’s lectures on his conception of governmentality in 1978 and 1979 emphasized that governance can be used as an ethical power allowing for self-regulation. This means that governments can play a much smaller and more effective role in society. The idea of corporations self-regulating is agreed by many stakeholders today, namely governments, local communities, and non-governmental organizations (Morris 2016). O’Laughlin (2008: 946) furthered this concept with the idea that companies are ‘moral agents’ with a ‘social conscience’ meaning that the market and society are part of the ‘same moral order.’ Thus, while currently, states are those responsible for the actions of TNC’s, Muchlinski (2001) discusses whether there is an increasing need for TNC’s to be held accountable for human rights responsibilities, as this will have an overall impact on its traditional performance drivers.

In response to these ideas, the UN attempted to create a universal code of conduct whereby TNCs could be regulated at a national level to support developing countries. Negotiations about this code ended in 1984 where a mutual decision could not be reached due to the fast-paced nature of development occurring worldwide, meaning that countries had different priorities and were unable to agree (Weiss, 1989). While companies have begun to set up their businesses to have a reduced negative impact on developing countries e.g. reducing global poverty (Lall and Streeten, 1977; Martinussen 1988:1992), it is also mutually beneficial for their brand image and thus their private business (Jenkins 2005).

There are variating perspectives associating to different schools of thought on the concept of CSR. Martinussen (1997) believes that neo-classical economists generally favour CSR, developmental economic views are varied, while Marxist researchers focus on negative impacts. Blowfield (2005) suggests that capitalists are favourable of CSR within codes of conduct as it follows international capitalism, where technological innovation, particularly communications and data processing, is enabling the global production of CSR. On the other hand, there are also schools of thought that support Friedman’s idea that ‘business is business’ and that profit is not about being morally correct, thus eliminating the need of codes of conduct within TNCs. Before the 1980s there was an expectation that TNCs operating in the global south would generate solely benefits, however, this has been tarnished due to the exploitation of employees and the environment (Blowfield, 2005). The negative media attention, as a result, has caused vertically integrated companies to apply similar societal and environmental ideals in developing countries as western countries. This is still an issue contested by economists in support of Friedman who proposes ‘business is business’ and CSR is not time efficient (Frynas, 2005).

There are various perspectives on the derivation of CSR. Jenkins (2005), Morris (2016) and Lund-Thomsen (2013) believe that CSR dates to the 1990s, this coincides with the advance of globalization and the ‘race to the bottom’. Cedillo Torres et al. (2012) believes CSR on an academic level stems from the 1960s and consists of four connected aspects: economic, legal, ethical and philanthropic responsibilities. This is shown through the 1960s civil rights movements, women’s and consumer rights and environmental movements. The evolution of CSR into a complex concept makes it a key element of corporate financial decision making.

Lund-Thomsen (2013) provides an optimistic view that foreign investment from TNCs has benefitted developing countries. He uses Nike as an example to point out that outsourcing has created millions of jobs in developing countries, raising incomes of impoverished workers and families who would otherwise be worse off. However, Lund-Thomsen is aware that these benefits are accompanied by poor working conditions due to the absence of national labour laws. Therefore, it is evident that while most companies have basic CSR initiatives in place, giving some support to workers cases, they are not comprehensive and do not adhere to governmental regulations. Furthermore, despite an increased emphasis on corporate responsibility in literary examples, it is hard for companies to quantify the true impact of initiatives, especially customer satisfaction. Schneider Electric has aimed to overcome this through commitments to environmental sustainability. “A 2014 CDP study of 500 industry leaders found that organizations actively managing and planning for climate change secure an 18 percent higher return on equity or investment versus non-committed peers.” (Sdreport.se.com, 2017).

Lund Thomsens’ (2013) ideas link with those of Jenkins (2001), as his literature explains how the lack of large corporate investment in developing countries means weak CSR as there is no investment or initial catalyst to pursue environmental protection. Weak legal frameworks by governments will also create weak environmental CSR; if there are no guidelines for protection, companies will not invest time and money into protecting an environment, leading to production often at the expense of the environment. Bond (2008) uses the example of the energy company, SUEZ, to evaluate a lack of environmental protection and CSR in South Africa. This has caused major social implications including the spread of disease and infections due to a dysfunctional and degrading water system. This contests the idea that CSR initiatives are becoming a ‘reality’ within a business and shows a clear gap between CSR standards in developed and developing countries.

According to Morris (2016), almost all Fortune 500 companies have CSR initiatives relating to environmental sustainability – countries in the Global North cannot ignore the impact of their activities on the environment due to increased negative media/public attention (Jenkins, 2001). This creates a need to regulate their environmental activity. Therefore, Lund Thomsen (2013) agrees that CSR pushes companies to include environmental care, protection, and responsibility in their policies. Frynas (2005) extends this point, stating that this increased awareness of the environmental impacts and CSR publicly in developed countries has caused many corporations to increase investment in technologies to reduce environmental harm. For most globalised companies including Schneider Electric who operate in over 100 countries worldwide it is imperative to implement CSR policy in developing countries to reduce the risk of social and environmental corruption.

Looking forward, Lund Thomsen (2013) & Morris (2008) suggest that environmental regulation could be greater in developing countries if there was an implementation of assessments for environmental impact by national governments and international organizations, limiting environmental degradation. However, literature has implied this is not yet a universal commitment within CSR, so it can be argued that CSR initiatives do not work in the globalized world. Environments in developing countries have not always been protected through CSR until recently due to increased public attention and still face consequences of environmental degradation.

Conclusively, most examples of literature focus on the positive enforcement of CSR initiatives in developed countries. This creates fair working conditions, environmental protection and stronger CSR monitoring due to governmental regulation, trade unions, and consumer awareness. Unfortunately, this is not the case in developing countries where these factors are relatively weak.

Large-scale privatization of state-owned companies and global market forces have caused TNCs to have greater power. This creates the need for improved regulations controlling TNCs in the form of CSR, as researched by Frynas (2005). He states that the increasing power of TNC’s and large-scale privatization has caused CSR to become more sophisticated. This is a result of weak government regulations especially in developing countries, making responsible business practices of TNCs, in the form of CSR an unambiguous and required feature of a globalized world. This takes power away from the state and into the hands of corporations, which requires a set compliance of fundamental human rights according to Muchlinkski (2001) seen within CSR practices.

However, early literature tends to disagree that CSR initiatives do not work in the globalized world. Freidman (1962) emphasizes how CSR does not benefit the company, employee or consumer. He argues how corporations are artificial and cannot yield moral responsibility for individuals, hence gaps having to be tackled by government and society on ethical issues like worker standards and environmental protection. Friedman firstly argued that the only responsibility for businesses is to provide shareholders with the highest dividends possible, CSR is averse to this duty because it only reduces profits. He also argued that businesses have no expertise to handle social activities and as a result, by pursuing CSR it will make itself less competitive globally (Morris, 2016). Alex Edmans’ (2015) research into the social responsibility of business at The London Business School disagrees with Friedman’s notion of ‘profit at all costs’. The key point of his research found out that 100 of the best companies to work for create 2-3% more profit. This agrees with research conducted by PWC in 2002 that revealed 70% of global CEOs believed that CSR was vital to company profitability. From this, Friedman’s idea of CSR diluting businesses’ primary purpose is outdated, and in fact, today CSR practices are seen by stakeholders as initiatives that achieve a fair-to-good profit return (Morris, 2016).

CSR Impacts on Traditional Performance Drivers and Companies Bottom Line

The fact that CSR has a positive impact on financial performance is an ever-contested issue between academics and CEOs. This is because of the difficulty in quantifying the impacts of CSR initiatives as it is imprecise due to many factors influencing the relationship between CSR and a firms’ performance. Corporate social responsibility has evolved into a complex concept that is now a key component of the corporate decision making of many multinationals that are the frontrunners in integrating CSR.

Stakeholder theory has played a fundamental role in CSR research. This has been used to determine the impact CSR has had on an organization’s bottom line. CSR has evolved into an influential core business function that is necessary to fulfil an organizations strategy mission and vision.

It can be argued that companies on ‘thin ice’ as a result of potential reputational damage usually become leaders in CSR implementation. A key example of this was Coca-Cola operating in India. Governmental organizations made allegations against Coca-Cola for selling products containing unacceptable levels of pesticides, extracting vast amounts of water and polluting water sources. To combat this, in 2007 Coca-Cola launched its ‘Live Positively’ campaign to improve its sustainability practices (Cedillo, Torres et al. 2012). However, this is a contested issue. Many economists argue that an economic downturn can lead to a cut in CSR budget, this may have a multiplier effect on the attraction and retention of its employees; a company’s greatest asset.

Today company stakeholders and CEOs have reverted from Milton Friedman’s notion of profit being the main motive for firm performance. Modern CSR initiatives have adapted from corporate scandals, socio-political and environmental challenges and the increasing gap between government resources and the needs of society. Key stakeholders such as governments, local communities, NGOs and consumers expect corporations to self-regulate and contribute to the triple bottom line- people, planet, profits. Schneider Electric’s slogan ‘Life Is On’ is a key message which aims to clearly articulate how the company helps customers around the world transform the way they access and consume energy. To comply with environmental CSR, their main strategy for energy management is through electrification and digitisation. This provides opportunities for economic growth and the creation of a sustainable and energy efficient planet. Additionally, Unilever a CSR industry leader has stopped reporting quarterly earnings to demonstrate its commitment to long-term initiatives to preserve stakeholder wellbeing. (Edmans, 2015). In summary, most investors favour financial figures over CSR initiatives, but if companies engage in corporate social responsibility figures and publish their CSR figures, they will gain a competitive advantage. The key for firms is to look at the long-term value, not short-term gains.

Conclusion

It is evident that CSR policy is a cemented part of business policy and has a direct link between purpose and profit. If a business maintains its purpose to obey the triple bottom line; ‘planet, profit, and people’. However, Friedman, 1962, argues that corporations should not have to yield moral responsibility for individuals as ‘business is business’. Friedman has a short-term view which suggests that CSR dilutes businesses’ primary purpose, yet this is outdated. It is in the long-term self-interest of the company to be socially responsible.

Firstly, this essay discussed the impacts of globalization on CSR. The growing number of production networks, alongside the injection of FDI into developing economies has led to the need for regulation. This is due to the intensive media speculation of environmental and labour issues occurring within TNCs. As a result, companies have heavily invested in CSR initiatives primarily to safeguard their company from negative PR. More recently, however, there has been a shift in CSR being an imperative for company performance drivers, including profit. Companies have noticed that they can yield increased profits if they implement a coherent CSR strategy. A case study of Schneider Electric agrees with this concept. Its CSR policy sits at the heart of the company ethos and as a result, has increased revenue by 3%.

In summary, companies are reverting from past concepts that CSR is a threat to performance drivers and the dividends that shareholders receive, towards the concept that CSR provides a positive contribution to the triple bottom line: planet, people and profit.

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Wider Context

Schneider Electric CSR policy

Literature Review

CSR Impacts on Traditional Performance Drivers and Companies Bottom Line

Conclusion

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