In today's integrated global economy and the ensuing recession, it is evident that the social and economic challenges do not and will not respect national borders. This reality strongly supports the expanded view of risk management to include extra financial issues. The global crisis in financial markets raises a range of important and urgent questions, regarding corporate sustainability.
As such, it is imperative, to adopt, universally practised corporate values. Corporate Social Responsibility (CSR), an already growing phenomenon, in the West, is required to be thoroughly understood in the developing economies for its socially beneficial effects. Being a voluntary initiative, it would definitely carry premium, as a management tool and is advised for prioritised adoption.
We all need to know, what is it all about? It is basically an obligation, working for the benefit of social good, as well as, for profit maximisation. In other words CSR refers to business's decisions and actions, taken for reasons, at least, partially beyond the firm's direct economic and technical interests. There are, of course, arguments for and against the concept of CSR.
One can argue that it entails costs and burden on the resources of the company, which is an economic entity and lacks ability to pursue social goals. The other set of people strongly emphasise that the businesses, as corporate citizens, cannot perform, on sustainable basis, with the sole purpose of enhancement of their commercial interests. It would be a very short-sighted approach and may result into contracting business opportunities.
It is emphasised that a better society means better environment, for doing business. So businesses, with their corporate power, can create better and congenial environment for better business opportunities. At this point, it is necessary to understand as to who benefits from CSR. It is a matter of enlightened self-interest ie, it is the realisation that the business ultimately helps itself, by helping in the social problems.
The short-term costs, ultimately pay off, in much bigger proportions, to the firm, as well as, to its stakeholders and the society in general. It helps to make the management of the business, more stable and self-assured. During the current changing paradigms, the consumers have a pro-active role in the process of social-accountability.
Corporate governance, ethics and transparency are increasing in importance to overall, corporate reputation. The public now feels empowered and actually votes on how companies operate as corporate citizens. Three dimensions of corporate citizenship, namely, its social programs, management practices and employee relations are the critical benchmarks for any perceptional change towards any corporate entity.
The art of management today, requires, assessing situation pre-emptively, devising corporate strategy, planning its management and positioning the firm, to get competitive advantage. It is very much strategic, as it helps in value-creation, which undoubtedly, is viewed, as the most critical objective of the firm. The business has to strategize to jointly serve its own business interests and the societal interests of its stakeholders.
The empirical evidence confirms the correlation between the socially responsible behaviour and financial performance, which is not readily measurable in true mathematical terms, because of their time mismatching. For clearer understanding of CSR concept and its adoption as a part of the corporate business plan, a multi-dimensional review would provide useful guidance.
Broadly, CSR has four components, namely, economic responsibilities, legal responsibilities, ethical responsibilities and philanthropic responsibilities, which are being explained as under:
(1) ECONOMIC RESPONSIBILITIES: Economic responsibilities serve as the base of the whole philosophy of CSR. The businesses are required to perform in a manner to maximise profits, maintain a strong competitive position, achieve high level of operational efficiency and demonstrate sustainable growth.
(2) LEGAL RESPONSIBILITIES: Businesses are expected to play by the rules of the game. Law is the society's codification of right and wrong.
(3) ETHICAL RESPONSIBILITIES: Further the businesses responsibility is to be ethical. This is the obligation to do what is right, just and fair and to avoid or minimise harm to stakeholders.
(4) PHILANTHROPIC RESPONSIBILITIES: Businesses are expected to contribute financial and human resources to the community and to improve the quality of life. Stated in more pragmatic and managerial terms, the firm should strive to make profit, obey the law, be ethical and be a good corporate citizen. The strategic planning for management of CSR behaviour requires, the firm to integrate the said four components.
People's attitude is fast changing and philanthropy and giving back to society will become a pattern of behaviour.
We would have to believe that "giving is new buying". The businesses will have to make conscious attempts to create reasonable balance between the stockholders and the stakeholders. The management's challenge is to assess the stakeholder's legitimacy and their power. There are no standardised textbook formulae, which can help for uniform implementation, on CSR programme of any firm.
Each firm has its own peculiarities, in the shape of its product line, business classification, corporate age, balance sheet size, profitability, positioning on its growth curve, stakeholder's societal concerns, etc. The management will have to evolve strategy to prioritise and customise its CSR initiative. The businesses, as corporate citizens with corporate conscience, do enjoy prominent role and the society expects from them, much more than the philanthropic work.
In fact, it would be argued that philanthropy is highly desired and prized, but actually less important than the other categories of CSR. In today's ever-competitive landscape, the management should endeavour to perform distinctively. Brands are becoming increasingly important. The reputation leverage, which the business enjoys through its CSR initiatives, adds to the value of the brand and strengthens the firm, in immeasurable terms.
On the basis of empirical knowledge, one can list down some of the following benefits, which do occur, due to adoption of CSR:
1. Promotion of the firm's image in order to help insulate the firm from the unfavourable tax or regulatory polices.
2. Educational support would increase the long-term supply of the skilled employees. There would be increased employee morale and productivity.
3. Other promotional considerations that may reduce operational and capital costs.
4. Customers will have brand loyalty towards business resulting in increased sales.
5. Help to correct environmental problems.
6. Social groups and public opinion would support plant expansions, industrializations, etc. Illicit operations like bribery, money-laundering, etc would be reduced.
If the good society is to become a realisation, the corporate entities are expected to be in the forefront and their management should be conscious of the fact that their actions should have ethical dimension. As corporate citizens with exemplified leadership, they should be loud and visible while transacting and interacting with social groups and all other stakeholders.
(The writer is the CEO of M/s ABM Securities (Pvt) Limited, Corporate Member Of Lahore Stock Exchange (G) Limited)
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