Identify Drivers of Corporate Social Responsibility †Free Samples

Question: Discuss about the Identify Drivers of Corporate Social Responsibility. Answer: Introduction Corporate social responsibility (CSR) is coined from the three words namely corporate which means business, social which means society or community, and responsibility which means being accountability. CSR is basically a concept whereby organisations considering profitability and growth in its business model also consider the interest of society and environment in which it operates voluntarily. It is done by initiating responsibilities for their impact on stakeholders, environment, and customers on a macro level. CSR is also often known as corporate citizenship or corporate responsibility and connect with the model of sustainable development at companys level (Matten and Moon, 2004). Nature and Purpose of CSR The application of CSR differs from individual to individual. Therefore, CSR has a broader view as on one hand it refers to compliance with different laws and ethical standards and on the other hand it refers to philanthropy and sustainable development which directly helps in creating a strong reputation of the company. CSR following the concept of strategic business management has become a core and inseparable business practises in todays time to survive in the competitive economy. The need for these responsibilities is increasing over time and has even become a legal compliance for most of the companies as they have started to believe that company grows in healthy and social environment (Pillay, 2015). It is also considered the company has a responsibility to undertake CSR activities as company cannot exists in isolation and is mutually interdependent on the society. Companies are likely to meet the demands for its products and services in the market, to be responsible for employment and to operate proficiently at a profit. Moreover, companies cannot run in the long run with an objective of profit maximization. Business cannot exist in isolation; therefore, it needs CSR initiatives to increase its sales and profit in the long term. CSR creates favourable public image which helps to attract customers and gain their trust which in turn helps to earn premium on the products. In addition, it also leads to satisfaction of changing needs and expectation of consumers. CSR also benefits the employees of the organisation by building a positive image thereby developing trust towards the organisation. Therefore, new projects can be made in terms of social cost benefit also. Definitions CSR have gained its attention in business since 1960s. However, different writers have differently defined the concept of CSR. CSR talks about the concept that business is accountable for its activities taking place in the society and takes responsibility to bring a positive effect for the betterment of the society. Further, it can be divided into two views: narrower and wider view (Crane and Matten, 2007). The former only emphasizes on profit maximisation and the later having its primary objective as profit maximisation also has an objective of being responsible towards the society in which it operates. However, it is argued that the narrower view of CSR is declining recently as the focus on broader view is increasing over time and attracting organisational stakeholders (Urip, 2010). Further, the wider view helps the organisation to assess the performance of the organisation. The theory of Triple Bottom Line (TBL) was developed with an idea that corporate goals are attached with the societies and environment in which they work (Financial Times, 2018). This concept helped the companies to become more conscious of their moral responsibilities. It is made up of Social, Economic and Environment aspects and indicated as People, Planet and Profit phrase (Elkington, 1994). People means human resource and implies impartial and favourable business practices towards workforce, community and region in which it functions are carried on. It creates a long term value for its shareholders. Planet means natural capital and refers to a practice which is sustainable to the environment. It ensuresthat there is no harm caused to the environment which can have a negative impact on it. Profit means finance capital and considers the impact of the business activities after meeting all social conservation costs on the economy. It showsthe actual value addition which a corporate makes through its from its social responsibilities (Hall, 2011). Drivers There are several drivers in the environment that have stimulated large companies to become more responsible towards the society. One of the major Key drivers or factors that influence CSR is Globalization. It has a major impact on the businesses. CSR concerns in relation to environmental safety, well- being of the people, and protection are majorly raised by International trade, MNCs and global supply chains. There are various intergovernmental bodies likeUnited Nations, OECD (Organisation for Economic Co-operational Development) and the International Labour Organization which issuesannouncements, rules, codes and other instruments related to society. Corporate activities are tracked and disseminated easily by internet, smart phones and social networking.The awareness amongst Citizens that organization ought to meet the principles of social conservational care in order to operate has increased.It is realized that adopting an effective attitude towards CSR can help to reduce the risk of business disorders, creating new business opportunities and improve brand and companys reputation. Ethical Issues CSR will be considered by the companies when they benefit the societies and communities around them. The initiatives taken by the companies should not be the requirement of law nor should be a part of its primary operations. An ethical issue relates to a situation of choosing amongst various courses of actions and evaluate them ethical or unethical. An ethical consequence means a good corporate performance and a competitive advantage while on the other hand, unethical decision means damage of reputation (Allen 2009). A situation of ethical dilemma is created to choose amongst different alternatives which can be good or can be bad. Therefore, a complex ethical dilemma is a situation to choose between two good alternatives (Thorne, Ferrell and Ferrell, 2011). Sustainable Development The term sustainable development can be interpreted in several ways but majorly its an approach to develop a balance between the necessity for economic growthand social equity without harming the environment (Crane and Matten, 2016). In general, sustainable development means to fulfil the current generation needs without compromising future generations needs and desires. It harmonizes misuse of resources, the route of investments, the positioning advanced technology and organisational change to enhance human needs and aspirations (Elliott, 2012). It combines various subjects such as economics, social justice, environmental science and management. Further, sustainable development contributes towards corporate sustainability and has a twofold effect on it. Firstly, it helps the company to set aside areas where it should focus more considering environment, social and economic performance. The second fold states that there exists a common goal amongstorganizations, regulators and civil s ociety to work towards conservation of environment and economic sustainability (sustainable Development Commission, 2018). Stakeholder Management Stakeholders are bodies or individuals that have a major affect from the business activities, trade and actions which in turn affects the organisations ability to implement its business strategies and attain its goals successfully. Stakeholder management is a branch of management that helps organisation to accomplish its external and internal objectives and build a good relationship with stakeholders. This theory of management considers various stakeholders expectations and values and addresses them to ensure a positive stakeholder relationship (Carroll and Buchholtz, 2014). The evolving nature of business In todays scenario CSR is evolving rapidly in the business of an organisation. It has transformed the manner in which the business functions in the society from not being socially responsible to adopting social initiatives in the mission statements. It is now said that CSR has become a disciplined management practice increasing the role of CSR communities. Under the UK Companies Act, 2006 there is a compulsory requirement in the directors report about the business review. This act of UK applies to all companies excluding small companies (Masons, 2018). The act clearly defines that it is the responsibility of the directors to work towards success and in the best interest of the business for benefiting its members as whole. According to section 172 of UK Companies Act, the annual directors report consists of business review which in turn provides the shareholders information about the duties performed by the directors. Further, according to the companies Act 2006, the directors are now required to perform their duty in relation to community and environment too and disclose them the business review report (Legislation Gov. UK, 2018). Sustainability, Use of Technology, Taxation avoidance, Green Culture Sustainability is referred in ecology as to sustain the biological diversity and remain diverse and productive. It comprises of three components namely environmental, economic and social sustainabilitys. In order to adopt sustainability as a forward approach in corporate social responsibility there are various benefits to the company such as savings in cost, good reputation in the market, and new business opportunities. To adopt the three pillars of sustainability, company have to conserve the resources jeopardy and use energy saving resources and develop a sustainable society. Company can adopt initiatives such as planting trees, projects for water conservation, implementation of solar powered irrigation system in their social responsibilities. Under CSR strategies, company should go away from the concept of philanthropy concept. Information technology also helps in enhancing corporate social responsibilities. The guidelines of corporate social responsibilities can be stored, managed and circulated electronically as a result of advance technology. Adopting new technologies can further provide sound environment practices and build a sustainable and a happy environment for the population. Use of technology provides a better statement of the affairs of the competitors and about the economy as a whole. The payment of taxes to government is an important aspect to be considered under CSR initiatives. The company should not avoid tax by shifting its headquarters to tax heavens countries. Then expenditure used from the CSR funds should be mentioned separately in the balance sheets. The proper and true payment of tax is a social contribution by the company. Companies which are contributing to the society should manage its business in a manner that it should pay taxes without avoiding it. The most evident way of sustainability is going green. From the last years, more and more companies aspire to go green and building the principles of LEED (Leadership in Energy and Environmental Design) and making public aware about the environmental performance by making corporate social reports. The concept of go green helps in reducing the overhead costs and long term success of the company by maintain good public relations. The government of the country have made various guidelines to be socially conscious as consumers prefer company which is socially responsible. There are various ways of going green like recycling, reduce printing, use of renewable resources, use of eco-friendly products. Enron Scandal In October 2001 there was a major breakdown in the economy known as the Enron Scandal. Enron Corporation, an American energy company which was founded in 1985 was declared bankrupted. It was amongst the five biggest audit companies in the world. It caused difficulty to thousands of employees. The share price went down from $90.75 in its peak to $0.26 during the bankruptcy. This bankruptcy of the company was one of the major audit failures in the American history of that time. The collapse of Enron was due to the fact that it started to hide its financial losses, thus it was known as mark-to-market accounting. In this method of accounting, the value of securities and assets are calculated on the basis of current market value instead of its value in the book. The corporation manipulated its accounts which in turn helped in writing off unprofitable transactions without affecting other activities. This deliberate practice made the company look more profitable though despite the fact that its subsidiaries were suffering losses (Bakan, 2012). This corporate fraud to manipulate the investors and regulators harshly damaged the companys image and reputation. The company faced compliance failure and was charged with legal penalties. The credit rating of the company was downgraded leading to decline in investors confidence. These failures led to the loss of sales and profits to the company. Large Organization Implementation of CSR It is said that organizations that prepare and implement a CSR programme that benefits the society, environment and the economy as a whole are able to maintain leadership in the business world and earn the reputation. Large organisations earn high profit and thus attract more investors so they are particularly considered to protect and preserve the environment and society. They are able to invest more funds and better resources in CSR initiatives and create a situation of win-win. Tomeet the criteria of stakeholders engagement PepsiCo identifies and works issues relating climate change, public health as core sustainability challenges. General Electric has contributed $88 million in 2016 to community and educational programs. The CSR programme of Cisco Company includes the involvement of its resources and technology in education, well-being, disaster relief and economic empowerment. Anotherexample is of Adobe, which has an objective to reduce its emissions by using renewable resources. Link between CSR and Sales Profits It is said that CSR helps in increasing the profits of an organisation. Therefore, it helps to improve the companys position in the marketplace building a strong brand reputation which in turn increases sales and profits of the company. Further, CSR also helps in enhancing the loyalty of the employees and attract new personnel. CSR activities focus on sustainable development which lowers the cost of operations. Listed companies gain an advantage in their stock prices and increase shareholders value by contributing in CSRinitiatives. Apart from that there exists a direct relationship between CSR activities and benefits from these activities (Hong and Andersen, 2011). Arguments for (Benefits) A company which consist of CSR in its business model improves its reputation and brand image in the market. Consumers believe that company which is ethically responsible towards society and environment has differentiated products without causing harm to the environment.A good reputation in the market leads to competitive advantage in the market. CSR also helps in stakeholder engagement in the business functioning thereby improving the sales of the company. Further, CSR has also showed a new way for diversification. Using CSR in its business model companies can have access to new and foreign markets with no complexity (Edmans, 2012). Arguments against (Limitations) Creating a CSR strategy in the business model increases the cost of expenditure of the company. However, this increase in costs is reflected in the prices of the products or services thereby increasing the burden of the consumers. The limitations of CSR also consists the issue of various legislations and provisions prevailing in different countries. Implementing CSR strategies can also lead to competitive disadvantage as there is a shift in the thinking of the business functioning making the business burdensome to operate. To make CSR audit reports and strategies, expert personnels are required which further increases the cost of expenditure (Claydon, 2011). IFRS International Financial Reporting Standards (IFRS) are international standards for accounting different kinds of transactions in financial statements. An independent board known as International Accounting Standards Board (IASB) has issued IFRS to help the accountants to maintain their accounts and books. These high quality standards are majorly important for companies which have its business functioning in several other countries. The establishment of IFRS have also made it easier to have a common global language of accounting for comparison. Further these rules are adopted by more than 100 countries across the globe and are reliable, comparable and understandable (Christian and Ldenbach, 2013). Nature and purpose of IFRS The purpose of IFRS is harmonizing the accounting standards globally which in turn help in the flow of international capital freely. These accounting standards have even benefited the regulators too as now they do not have to understand the various reporting standards of different countries. Accordingly, businesses are required to follow the same and uniform rules and standards in its financial reports Link between Financial Reporting and IFRS Financial reporting is done through financial statements. Financial statements give clear representation of the companys state of affairs. Moreover, financial statements also provide the information about the financial performance and cash flow of the company which in turn helps to take various decisions. There is a link between financial reporting and IFRS. The financial reporting gives a fair representation of the events and transactions in accordance with the definitions laid out in IFRS framework. These financial statements should be prepared on going concern basis with accrual system of accounting. All the matters that are immaterial should be provided separately. Moreover, IFRS states that these financial statements should be presented at least annually and provide comparative information. Need for Diversification The IFRS Standards should be diversified and converged with the accounting standards globally for better comparability and transparency. Several working groups are trying slowly but surely to reduce the differences between GAAP and IFRS accounting frameworks. This will in turn help to reduce the cost of companies to frame its financial statements following only one set of standard which is accepted globally. Further, uniform application of IFRS will help financial advisors and investors to analyse their investment options and can improve entitys image. Further, in recent times cross border transactions are emerging along with free flow of capital from foreign companies and investment opportunities, so these standards benefits the two companies from different countries. So to diversify the risk and complexity while preparing financial statements, diversification of IFRS standards are required. A single set of high-quality global accounting standards Structuring standards for accounting which are of high quality and accepted internationally requires support from IASB on convergence to have good quality financial reports and make it comparable domestically and internationally. Various issues in accounting like revenue recognition lease and credit losses have been improved by these global standards. These standards also provide value full information to investors and regulators. Drivers There is a fundamental institutional change in the world to switch to International Financial Reporting Standards (IFRS). Its adoption was not caused by the domestic factors alone but from the neighbouring countries and influential international organisations.The other major factors which led to the adaption of IFRS are variation in the legal system of the country, modifications in the government policies, globalisation, and advanced development in the information technology. Comparability, Transparency, Accountability and Efficiency International Financial Reporting Standards are of high quality which is recognized internationally to bring benefits to the world economy. IFRS Standards have helped in the issue of comparability of financial accounts and reports of companies situated in different countries. Moreover, transparency is also bought by enhancing the quality of financial statements. Further, these globally accepted standards have an objective of strengthening the accountability by bridging the gap of information between the lenders and borrowers. Moreover, IFRS also provide economy efficiency by predicting the risk and opportunities across the world and allocating the capital effectively. Access Foreign Capital Market A huge base for adoption IFRS Standards have already been created by many countries, this is made easier for companies to access foreign capital markets by preparing financial statements under only one single set of standards. These standards are not complex to understand further making it easy for the companies to reduce its cost and reducing the issues in comparing. 2008 Financial Crisis The financial crisis of 2008 was marked as the biggest and worst breakdown since the Great Depression in the world economy. It restructured the dimensions in various sectors. It started to begin in 2007 causing a liquidity crisis as a result of lack of trust from US investors. The G20 and other major international organisations support Prior to IFRS standards, there were complexities in comparing the financial statements of different companies. This led to the enforcement of a single set of high quality global accounting standards in the G20 summit. The G20 and various other international organisations are supporting its use in the financial accounting. The G20 was formed in 1999 with the objective of discussing policy related to the promotion of financial stability internationally. It is an international forum for 19 countries governments and central bank governors. It redresses the issues of any organisation of a country which is its members (Kirton, 2016). These organisations also help G20 to recognize the gaps between the policy and steps taken to bridge this gap. IFRS: 125 jurisdictions adoption, with many others permitting their use There are 125 jurisdictions which have adopted the exact IFRS Standards which is developed as their national accounting standards for reporting its financial accounts. Some examples of these jurisdictions are Australia, New Zealand, and Hong Kong. Some jurisdictions have adopted these standards but they are working to update to the latest version. There are other jurisdictions also which have made only small modifications to IFRS Standards. And some have adapted it temporary. The evolving nature of business The companies across the globe is moving towards the adaption of IFRS set of standards for its financial reporting. Around 120 nations in the world require IFRS standards for its national listed companies. Further, around 90 nations have already adopted IFRS standards and also include a stamen acknowledging the same in its audit reports. Apart from that, other countries are planning to converge their financial reports with IFRS set of standards. IFRS US GAAP Convergence, SEC accept IFRS for foreign corporations The convergence of IFRS and US GAAP means harmonization of accounting standards. The aim of this convergence is to have only one high quality set of accounting standards internationally which is understandable and enforceable. This convergence will help to have a better comparability between different entities. Further, this will increase the flow of investing internationally benefiting various stakeholders. On the other hand, its adoption cost and place is one of its demerits. Link between IFRS and Sales Profits The establishment of IFRS Standards are linked with sales and profits of the company but still there is not much evidence which shows the same. Adaption of IFRS in the reporting system helps in comparability, transparency and accountability but there is no change found in the sales and profits of the company. Arguments for (Benefits) The enforcement of IFRS Standards will bring greater transparency in the information provided by the financial statements for marketing analysis. The consolidations of accounts of subsidiary companies have become easy. This has led in lowering the cost of capital and increasing the prices of shares to boost sales. Now, more financial resources can be allocated properly in different investment opportunities after detailed analysis which in turn will help the company to increase sales and generate profits. It can also be concluded that adapting IFRS should be integrated with CSR for enhancing the public image. Arguments against (Limitations) There are many merits of adopting IFRS but apart from these there are some disadvantages too. There are still some countries or jurisdiction which have not adopted IFRS Standards and still have their own domestic reporting system. Many countries have adopted IFRS standards but still US is following GAAP for its financial reporting. This creates difficulty for a company operating in these countries to make their financial accounts and reports in two different sets of standards. When a country adopts IFRS standards, it impacts all the businesses whether big or small. However, small companies face difficult to implement the changes in its financial reporting as they do not have adequate resources and funds. In addition, companies which are not able not adapt IFRS faces a financial burden. However, at times greater transparency of information leads to competitive disadvantage. Conclusion Therefore, it can be concluded from the above study that CSR can help to increase the sale and thus profits but it is not much helpful in disseminating information relating to finance and accounts. On the other hand the IFRS Standards led to reduction in punitive actions but does not support in boosting sales and profit. So the chairman of the company is advised to invest its resources and capital in both the arguments discussed above for its growth and expansion. References Matten, D. and Moon, J. (2004). Corporate social responsibility.Journal of business Ethics. 54(4), pp.323-337. Financial Times. 2018. Definition of corporate social responsibility (CSR). [online]. Available from: https://lexicon.ft.com/Term?term=corporate-social-responsibility--(CSR) [Accessed 24th February 2018]. Tai, F.M. and Chuang, S.H. (2014). Corporate social responsibility.Ibusiness.6(03), p.117. Crane, A., Matten, D., and Spence, L. (2013). 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