Social Scapes

What is Corporate Social Responsibility?

 

Introduction.

Would you believe it if I tell you that the Nobel Prize-winning economist Milton Friedman (1962) had opposed to the underlying premise of Corporate Social Responisibilty and feel that the sole responsibility of business is profit maximization.

 

He wrote in his book, Capitalism and Freedom, this statement:

 

“The view has been gaining widespread acceptance that corporate officials……have a social responsibility that goes beyond serving the interests of their stockholders….This view shows a fundamental misconception of the character and nature of a free economy, there is one and only one social responsibility of business – to use the resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.”

 

This statement portrays a narrow and selfish view of business.

 

It implies that the social responsibility of managers is “to make as much money for the stockholders as possible”. This view reflects the character and nature of a free economy.

So this view is defended by the argument that is frequently used in a free economy, which is “Let the market decide”.

 

 

The issue of corporate social responsibility (CSR) has been of growing concern among business communities in recent years. For example, Lord Sieff, the former chairman of Marks & Spencer plc, said that business only contributes fully to society if it is efficient, profitable and socially responsible (Cannon, 1992). Corporations like Johnson & Johnson also believe it is a company’s responsibility to be fair, honest, trustworthy, and respectful, in dealing with all its constituents (Johnson & Johnson, 2000).

 

Volkswagen defined CSR as the ability of a company to incorporate its responsibility into society to develop solutions for economic and social problems. These positions suggest that CSR is still a major concern among companies worldwide. CSR has also been viewed as the continuing commitment by business to behave ethically and to contribute to economic development while improving the quality of life of the workforce and their families.

 

Has time changed? Why have the views of managers of today changed so drastically from the narrow views of the Classical School?

 

Tiger Woods, the legendary world number 1 golfer, has invested hugh sums of money setting up golf training centres and educational establishments for the youths of today. He does not selfishly guard his immense earnings so that his future earning may grow at an even more enormous rate. Other world leading sportsmen and sports women have follow suit and are busy establishing socially desirable ventures to benefit the less fortunate citizens. 

 

Malaysian Experience

Although CSR has received most public attention in the developed countries, CSR has also been of major concern in Malaysia in recent years where several non-governmental organizations like “Sahabat Alam Malaysia”, Federation of Malaysian Consumers Association, and Consumers Association of Penang (CAP) and many others have raised issues relating to environmental pollution, health hazards products, product safety, discrimination against the handicapped, and drug abuse (Abdul Rashid, 2002).  These issues have raised the attention of the government and legislation has been introduced to prevent the problems becoming out of hand.

 

For example, the Environmental Quality Act was instituted in 1974 to enforce legislation against problems of environmental safety and pollution (Abdullah, 1991). Environmental Impact Assessment (EIA) was made compulsory for construction companies before they were to be allowed to develop new housing/property areas (Teoh and Thong, 1996). Several laws pertaining to drug abuse were also introduced by the Ministry of Health to reduce the distribution and supply of drugs that have potential side effects (Abdullah, 1991).

 

CSR Concepts And Approaches

 

In 1960, Keith Davis described social responsibility as businesses’ “decisions and actions taken for reasons at least partially beyond the firm’s direct economic or technical interest”. In 1971, the Committee for Economic Development made the following statement in regards to corporate social responsibility:

 

“Today it is clear that the terms of the contract between society and business are, in fact, changing in substantial and important ways. Business is being asked to assume broader responsibilities to society than ever before and to serve a wider range of human values. Business enterprises, in effect, are behind asked to contribute more to the quality of American life than just supplying quantities of goods and services.”

 

Since then, the topic of CSR is one that has been widely discussed. There are those, such as Milton Friedman (1962), who are opposed to the underlying premise of CSR and feel that sole responsibility of business is profit maximization. On the other hard, William C. Frederick (1960) who feels that the resources available to businesses should be “utilized for broad social ends and not simply for the narrowly circumscribed interests of private persons and firms”.

 

Also, in 1991, R. Edward Freeman and Jeanne Liedtka presented seven reasons why the concept of social responsibility is often abandoned. One of the reasons given was:

Corporate social responsibility promotes incompetence by leading managers to involve themselves in areas beyond their expertise – that is, repairing society’s ills.

 

We address the issue of whether companies are capable of addressing society’s ills by evaluating the managerial decisions and implications of an organization that has received a great deal of publicity for its alleged social responsibility.

 

Approaches

One school of though focuses on “micro level” analysis, how individual companies could be made more responsible towards society. Robert Ackerman, in his model suggests that responsiveness should be the goal of corporate social endeavor. He described three phases: 1) at the levels of Top management; 2) Staff specialists and 3) Divisional management, through which companies commonly tend to pass for developing a response to social issues (Stoner et al., 1995).

 

Carroll, in his four part model through the length of its bars suggests that the primary responsibilities of a company are economic and legal. It must produce the goods and/or services that society wants and in a lawful manner and must sell them at a profit. But still it has ethical as well as discretionary bindings. Carroll opines that to the extent firms fail to acknowledge discretionary or ethical responsibilities, society will assert and bring them under legal framework (Carroll and Buchholtz, 2003). Before that happens, it is advisable that corporations understand and perform social activities voluntarily.

 

Researchers belonging to other school of thought concern themselves with the “macro level” of analysis. They favor that the Government, not individual companies, should establish and achieve a country’s social goals. Friedman based his arguments on two principal contentions, one economic and other legal. From the economic perspective, he asserted that if managers spend corporate funds on projects not intended to maximize profits, the efficiency of the market mechanism will be undermined and resources will be misallocated within the economy. On the legal side, Friedman contended that because managers are legal agents of stockholders, their sole duty is to maximize the financial return to them.

 

Hence, if they spend corporate funds for social purposes, they are essentially stealing from the stockholders (Friedman, 1962). Levitt argued against CSR, fearing that business might come to dominate society. He believed that business as an institution would become the twentieth-century equivalent of the medieval church- the all-embracing institution in the society (Levitt, 1958).

 

Both approaches have been explained above are quite prevalent in global as well as in Malaysian industrial scenario. The next chapter will give a detail regarding the current scenario which is the attitude of the government and Malaysia companies towards CSR.

 

Attitude Towards CSR–Current Scenario

 

Government Attitudes towards CSR

In recent years, CSR has been of major concern in Malaysia. Several non-governmental organizations (see Table 1 for detail) have raised issues relating to CSR. These issues have raised the attention of the government and legislation has been introduced to prevent the problems.

 

Non-Governmental  Organizations

Raised CSR Issues

Consumers Association of Penang (CAP)

 

Federation of Malaysian Consumers Association

 

“Sahabat Alam Malaysia”

Environmental Quality Act was instituted to enforce legislation against problems of environmental safety and pollution.

Environmental Impact Assessment (EIA) was made compulsory for construction companies before they were to be allowed to develop new housing/property areas.

Ministry of Health introduced several laws pertaining to health hazards products, product safety, Discrimination against the handicapped and drug abuse.

Table 1: Non-governmental organizations and raised issues relating CSR

Source: Abdul Rashid (2002), “Managers attitudes towards Corporate Social Responsibility”, Proceeding of Pan Pacific Conference, KL, pp. 218-220  

 

Company’s Attitudes towards CSR

Today’s business competitive environment builds more and more pressure on the managers to adopt all such methods that might ensure achievement of business goals. Values and ethics at this juncture become irrelevant. However, all companies are not alike and many have come forward for the cause of society.

 

But accounting to a survey conducted in 2005, shows that its still have an encouraging trend in the sense that the Malaysian companies have improved their involvement in CSR activities. 87.5 percent of the respondents agreed that their company was involved in CSR activities, a decline in the level of involvement of companies in CSR activities showed in Table 2. The results also indicated that the respondents disagreed considerably on the six negative statements on CSR, and were higher in 1995 than in 2005.

 

Items

2005

1995

Employees’ welfare (facilities & benefits)

91.8

91.8

Responsive to consumer’s complaints

82.9

86.4

Maintaining product/service quality to consumers

76.7

82.7

Ensuring product safety

62.3

64.5

Donation to welfare organizations

60.3

80

Provide contribution for games and sports

35.6

70.9

Contributions to culture and/or literary works

34.9

 

Employment of handicapped individual

32.9

 

Contribution to crime prevention

15.1

 

Contribution for public amenities (e.g. bus stop shades)

19.9

 

Assistance in overcoming problems related to drug abuse and alcoholism

21.2

 

Contribution to educational institutions (other than research grants, e.g. scholarships, bursary to students)

24.7

 

Provide loans for low-income housing

28.1

 

Provide loans to small enterprise

21.9

 

Table 2: Areas of CSR in which Malaysian companies are involved

Source: Md Zabid A. R. (2005), “Executive and management attitudes towards Corporate Social Responsibility in Malaysia”,

 

The researcher of conducting this survey Abdul Rashid M.Z. (2002) suggests that there are more positive attitudes towards CSR in the financial sector than in the telecommunication, manufacturing or construction sector. The financial sector is expected to be more prudent and more conscious of the role of banks in CSR. Abdullah (2001) in his report points out that the differences between the sectors on their priorities towards CSR activities.  

 

In conclusion, Malaysian executives and managers had positive attitudes towards CSR. The extent of their involvement in CSR was lower today; the extent of corporate disclosure on CSR was nevertheless slightly higher than a decade ago.The level of CSR awareness appears to have improved slightly in Malaysia.

 

KFC Towards CSR

The underlying values of KFC’s target audience have changed, although it has been leading global brand for over three decades (Cannon, 2002) No longer can either rely solely on convenience and product consistency as unique selling points. KFC management clearly understands that a strong corporate emphasis on consumer health, quality and socially responsible initiatives must be incorporated. The new advertising campaigns or new product lines by themselves are not sufficient; to maintain and attract new customers, KFC needs to re-define its overall brand value.

 

As Goyder (1981), “Industry in the coming time can no longer be regarded as a private arrangement for enriching shareholders. It has become a joint enterprise in which workers management, consumers, the locality, Government and trade union officials all play a part.” Being major users of nature society and environment, business enterprises could play an important role in the protection of nature and environment and promote the social objectives.

 

To achieve these objectives KFC work either in partnership with Government, or on it own. For example, it has established a “CSR Management Department” to articulate and implement its CSR activities, including Corporate Governance, Compliance with the Law, Corporate Ethics, Internal Control, Environmental Management and Corporate Citizenship.

 

The benefits of the profits of the KFC are channeled back to the people through the major philanthropic trusts and other activities; Figure 1 shows the details of KFC profitability and expenditure.  

 

Figure 1: Profitability and expenditure on society by KFC Malaysia

Source: Measuring Business Excellence, Vol. 9 No.1, 2005

 

The help and donations distributed to five sectors (community, environment, people, safety quality and social compliance and health and wellness) accounting to the KFC CSR Malaysia reports, details are shown at below in Table 3.

 

Sectors

Achievements

Community

KFC Malaysia raised Rm 4,007, 421 to help Malaysian children in need.

KFC’s restaurants in Malacca provided a RM 40,000 donation support for victims of the flood. Local franchises were heavily involved in fundraising activities to help families affected by the flood.

Environment

Reusable crates are used by all dairies that supply KFC’s restaurants in Malaysia with ice milk, milk and creamers.

Over 95% of the cardboard used behind the counter at KFC in recycled. 

KFC’s fry box packaging is made from 50% recycled paper, including 35% post-customer fiber.   

People

The Human Resources Hot-Line provides employees with immediate attention to questions about their employment at KFC.

Regular commitment (opinion) surveys are conducted with the employees. 

Safety quality and social compliance

KFC will provide its customers with safe food products; food safety is KFC number one priority.

KFC believes treating animals with care and respect is an integral part of an overall quality systems program that makes good business sense.

Health and wellness

Enhanced the quality of popular Chicken Nuggets by moving from a blend of white and dark meat ot white meat Nuggets.

Customers and public education, available at KFC’s websites

 

Table 3: KFC Malaysia CSR Activities in 2006

Source: KFC CSR report,

 

The analysis of the CSR activities of KFC restaurants shows that KFC is committed to doing what is right, to being a good neighbor, a good corporate citizen and a good employer in every community in which we live and work. And they have a proven track record of listening to the customers, and responding with innovative ideas to meet customer changing needs.

 

Conclusion

The ever-increasing market power of global fast-food retailers, and KFC’s high visibility through branding, has made it a target both for governmental public interest campaigns (e.g. the Food Standards Agency’s promotion of healthy eating), and for citizens’ and consumer lobby groups (e.g. the Consumers Association). In the years to come, issues such as corporate accountability, corporate ethics, and disclosure of relevant corporate information shall become increasingly important centers of attention.

Besides, diversification and adopting synergistic policies, Corporations need to develop new measures of performance, new standards of ethics and a new awareness of multiple bottom lines instead of concentrating only on profits as they did in the past. They have to increasingly focus on multiple bottom lines – informational, social, environmental and ethical – which are interconnected and interdependent. Hence, corporations should pay great attention to ethical issues while performing their role, because if ethics are missing, business and society as a whole would not flourish.