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CORPORATE SOCIAL RESPONSIBILITY How to communicate responsible behavior to the stakeholders

By Melanie Mcdonald,2014-02-25 20:37
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CORPORATE SOCIAL RESPONSIBILITY How to communicate responsible behavior to the stakeholders

    CORPORATE SOCIAL RESPONSIBILITY

    - How to communicate responsible behavior to the stakeholders -

    Vesna BABIĆ-HODOVIĆ, Ph.D., Associate Professor

    School of Economics and Business Sarajevo Bosnia and Herzegovina

    Trg Oslobodjenja Alija Izetbegović 1 Sarajevo

    vesna.babic-hodovic@efsa.unsa.ba

    ++387 61 139 010; ++387 33 275 994

    Eldin MEHIĆ, Mr. Sc., Senior Teaching Assistant

    School of Economics and Business Sarajevo Bosnia and Herzegovina

    Trg Oslobodjenja Alija Izetbegović 1 Sarajevo

    eldin.mehic@efsa.unsa.ba

    ++387 61 278 980; ++387 33 275 994

    Emina RESIĆ, Mr. Sc., Senior Teaching Assistant

    School of Economics and Business Sarajevo Bosnia and Herzegovina

    Trg Oslobodjenja Alija Izetbegović 1 Sarajevo

    emina.resic@efsa.unsa.ba

    ++387 33 275 953; ++387 33 275 994

    Amra KRAMO

    School of Economics and Business Sarajevo Bosnia and Herzegovina

    Trg Oslobodjenja Alija Izetbegović 1 Sarajevo

    amra.kramo@efsa.unsa.ba

    ++387 61 214 518; ++387 33 275 994

ABSTRACT

    The overall aim of the research presented here was to find main causes of irresponsible behavior in business, as well as main issues companies have to take into consideration when they try to communicate responsible behavior or cause-marketing activities to their target market or other stakeholders.

    In the first part of paper we had discussed theoretical framework of CSR and different CSR dimensions, using them to formulate hypothesis for our research. We had completed research between managers of most successful Bosnian companies and customers on the other side. During the research we had been testing hypothesis about significant differences between managers’ and customers’ attitudes regarding responsibility, and their perception of communication tools and activities companies used in order to send message concerning responsibility. We had been using statistical tests in order to check our hypothesis and to measure dependence between goals companies want to achieve

    through communication and the causes they support. At the end we gave conclusion and recommendation based on results we had got, wanting to help companies to find out successful way to build really responsible business and to get maximum benefit for the companies and society through commitment to CSR.

    Key words: corporate social responsibility and information, stakeholders, ethical issues, marketing, Bosnia and Herzegovina

    CORPORATE SOCIAL RESPONSIBILITY

    - How to communicate responsible behavior to the stakeholders

    1. INTRODUCTION

    Corporate social responsibility is a very hard to engage, but sometimes even harder to communicate to the companies’ stakeholders. Many companies are aware they need to

    operate in a socially responsible way and if they implement CSR properly it will lead to profitability. “We recognize that corporate responsibility lies at the heart of the decisions you make in ordinary business activities. The trust that people have in you as a company is critical…” (Harrington 2005). But CSR is more than using clear technology or pay some donations - it’s more about sustainability. At the same time, as companies engage in

    initiatives that support corporate social responsibility, they should communicate about these initiatives in their marketing and public relations effort. CSR is generally associated with positive events, and as such companies are inclined to communicate about their good deeds to influence public opinion and enhance their corporate reputation (Morsing, 2005). The nature of CSR is hard to define because different stakeholders have such different opinion about it. As the result the chances are that whatever a company’s CSR activities,

    some observers will think company doesn’t do enough, (or doesn’t do right things) and others will feel the company do too much.

    For some people, CSR merely means that managers, employees and other company’s stakeholder put something back into society to alleviate the perceived societal or environmental damage that modern business does to the world. That something usually has a financial component and as such it is little more than a synonym for good management (Harding 2005).

    Many companies, when they ask themselves what CSR they undertake, find that they already do much of what is expected of a “responsible firm” (Harding 2005). But the

    confusion surrounding what CSR actually is and the doubt about the right level of commitment prevents companies from robustly addressing some if the big social, legal, ethical and environmental challenges.

    2. CORPORATE SOCIAL RESPONSIBILITY DEFINITION

    Concept of corporate social responsibility is closely interrelated with the corporate governance, more precisely concept of strategic marketing management. Only synergy between the corporate governance, marketing concept and responsible business can create base for successful business and company differentiation (Sparkes, 2003). Unfortunately, anyone looking with the large and evolving literature about CSR, with a critical eye will notice that the concepts and terms, as: corporate social responsibility, corporate responsibility, social responsibility, corporate citizenship, global citizenship, corporate accountability, social involvement, corporate responsibility... are explained and used by various authors in very different ways and supported (or critiqued) with diverse and often contradictory evidence and arguments. That explains that very often, the term of

    corporate responsibility is used as the synonym for corporate social responsibility. According to Philip Kotler and Nancy Lee, Corporate social responsibility is a commitment to improve community well-being through discretionary business practices and contribution of corporate resources (Kotler, Nancy, 2005).

    Corporate responsibility is really about ensuring that the company can grow on a sustainable basis, while ensuring fairness to all stakeholders. This definition emphasizes the company’s external relationships. But EIU survey shows that executives are much

    more focused on the internal aspects of CR, in particular: ethical behavior, corporate governance and transparency. The most important stakeholders for executives, after customers, were employees and shareholders.

    The social responsibility of business encompasses the economic, legal, ethical and discretionary expectations that society has of organizations at a given point in time (Carroll, 1979). The economic component is business’s fundamental responsibility to

    make a profit and grow. The legal component is their duty to obey the law and to plan by “the rules of the game”. The ethical component is their responsibility to respect the rights of others and to meet the obligations placed on them by society that ensure these rights. Finally, the discretionary component involves philanthropic activities that support the broader community (Snider et al. 2003). A research paradigm that parallels this perspective is stakeholder theory, whereby business is deemed responsible on such dimensions to specific stakeholders’ groupings (Maignan and Ralston, 2002).

    Taking into consideration the most important dimension of responsible business is connected with the primary and secondary stakeholders, as well as with those who influence the company (Donaldson, Preston, 1995), CSR encompasses various kinds of responsibilities (Post et al, 1996). The most important and the most frequent are the ones toward: (I) Employees and other stakeholders within the company (labor relations, additional health care, education at the workplace, transparency in corporate governance, etc.); (II) The economic system: honor contracts, transparency, preserving competition etc.; (III) Environment: preservation; (IV) The social system: respect for state recommendation (e.g. inner city redevelopment, education); (V) Social welfare (Help to disabled, support people in need etc.) and (VI) Cultural needs and institutions, (e.g. banks as art collectors).

    Still you might say CSR was always intended to be more about how the companies conduct themselves in relation to “stakeholders” (such as employees, consumers, the

    broader society, in which firms operate and as it often argued, future generation) than about straightforward gifts to charity. Seen that way, donations, large or small, are not the main thing (Crook 2005).

    Since the goal of responsible behavior and message “we are responsible”, companies send

    to public, is to convince different kinds of companies’ stakeholders that company is better

    than its competitors, it is important to close gaps between customers’ and managers’ attitudes.

    That means companies have to investigate its customers to be able to find out what customers really think about the CSR and how they perceive companies that try to accomplish some of different forms of responsible behavior, sending the message that they are responsible and use some of the cause-related marketing or cause-related promotion. Based on the results companies should build adequate communication strategy in order to motivate customers and create preferences toward companies and their activities.

    Hypothesis 1: There is no unique determination CSR dimensions and meaning among managers and customer in B&H. Those differences one can find in the way how they defined responsible behavior and actions they mostly related to the responsible behavior, but in the meaning responsible companies have to them.

    2.1. Responsibility between customers and companies

    The problem for companies is that there is a little agreement among customers about what is good corporate behavior. Even more, somehow, companies are caught in a moral trap. Customers want their companies to be responsible, but do not want to pay premiums. As the result some authors conclude: the belief that customers will pay a premium for CSR is a myth (Doane 2005, Smith 2005). Parallel with those customers are suspicious of companies that wear their hearts on their sleeves, thinking that they are only committing to CSR because it looks good (Smith, 2005).

    Therefore, relationship and interests of specific stakeholders and CSR practice of the company are particularly related to the customers, often identified as the one of the most important interest groups. We have just explained their attitudes, but even bigger problem is that all cited researches are connected to the customers’ attitudes, not behavior. It means research measure just customers’ “promises”, not the results of their decisions. But,

    when their positive intentions face with costs of responsible behavior, which almost always come to the customers, they often left “the problem of responsibility to the others”.

    Those attitudes are closely related to the main cases where companies commit to CSR: normative and business ones. Previous one is really connected to the companies wish to be good, but the second one is related to the self-interest of the companies, wanting to create better image and position at the market. No matter if they admit or no, most companies undertake CSR initiatives from a mixture of these two motivations (Smith 2005).

    H2: Customers prefer responsible companies in B&H, but the influence of companies’

    responsibility to the buying decision is not significant.

    2.2. Corporate social responsibility communication PR invention?

    Very significant questions theorists and NGO have often asked is connected to the real intention of CSR activities in the companies. Sometimes they even asked if CSR is an invention of PR. Some of the authors stress different paradoxes connected to CSR, arguing companies use “cause-related marketing” as a means of improving their branding

    and positioning, not as a company’s long-term footprint on society (Frankental 2001).

    This means that CSR can only have real substance if it embraces all the stakeholders of a company, if it is reinforced by changes in company law relating to governance, if it is rewarded by financial markets, if its definition relates to the goals of social and ecological sustainability, if its implementation is benchmarked and audited, if it is open to public scrutiny, and if it is embedded across the organization horizontally and vertically. As the result it is important to measure reaction of customers to the company’s communication strategies, but at the same time companies’ actions and nature of the problems they support in public. Namely, based on reaction of customers and perception

    companies could expect positive reaction or skepticism as the consequence of corporate responsible behavior. Very often authors can find different gap between companies’

    intention and goals laying beyond the CSR practice and customers’ reaction to those actions. Based on that theoretical framework we have tested the next hypothesis: H3: Customers perceive responsible behavior of companies more as the actions implemented in order to create good image in public, than really responsible ones and, as the consequence, sometimes they have high level of skepticism regarding companies’

    invitation to participate in.

    2.3. Dimensions of corporate responsibility

    Corporate social responsibility is defined often primarily from social or environmental influences of systematical organizational activities. That is not the main point. To be implemented, CSR should be understood as the process influencing to build connection between individuals' moral values and interests (Maclagan 1999).

    Today to be responsible companies have to be firstly profitable. Unsustainable business is not social responsible one. Economic sustainability and market success are the most efficient way to practice social responsibility. Market success create benefits to

    shareholders, employees, suppliers, governments, even future generation getting companies to invest in R&D and creating innovation. Corporate success itself is important commitment to social welfare. „Prosperity for all is the main idea of market economy

    social policies without economic ruin their own foundation. But critics of globalization perceive market as immoral monster that must be controlled (The 2005). Sometimes Henry Ford had said: „If business does not produce anything but money it is bad

    business.“ It is possible to add: business which does not produce any money is social irresponsible way of business (Pischetsrieder 2005).

    Logical conclusion is - profit and social responsibility are positively related. It is wrong to claim social responsibility is only visible through direct charity. Since Adam Smith and his Wealth of nations there is the statement: only poor person would choose to depend on charity of his citizens.

    In order to keep multidimensionality of the category it is necessary look at companies' activities through the framework of stakeholders. That means corporate responsibility is capability to answer to the requests of different groups and it has four different dimensions (Pischetsrieder 2005):

    1. Responsibility for sustainable financial success is the most important

    obligation. Large corporations have to invest in employees' training and

    development, but into environmental acceptable position. No matter which of

    dimensions of corporate social responsibility is the topic of discussion, the most

    efficient way to measure its effect is commercial success. This point of view is

    close to the attitude about influence capitalism development had had on growing

    social welfare and standard of living between all members of society, but just in

    the development countries. According to some data, real poverty in undeveloped

    countries has increased.

    2. Responsibility toward stakeholders Corporations need loyal, motivated

    employees, satisfied customers and harmonized business relationships and

    partnership. Those are basic prerequisites for success, offering high quality

    products and message about reliability of company. Managing stakeholders are

    based on sustainability and trust.

    3. Responsibility towards countries and societies where companies have their

    operations relationship between economic survival and social attractiveness

    should be implemented in those societies and nations. Today companies do not

    choose location only according costs of human resources. Quality of schools and

    universities is positive-negative factor for companies wanting to use educated

    employees. Quality of legal system is important, as well as long-term political

    stability of a country in order to create safety for investments and capital.

    4. Responsibility towards global society Corporate social responsibility does not

    mean accepting single sided statements (slogans): „America first“. They

    dangerously support illusion about loyalty toward some countries, as more

    important than responsible management. Opposite to that view, globalization

    gives higher possibility for development and security, going above economic

    borders and asking for responsibility towards global community.

    2.4. Responsibility for responsible behavior CSR concept in practice

    Recently companies' success in different theoretical papers and practice is connected to social responsibility. Problems are related to the profitability issue. Does responsible business improve long-term profitability of company or social welfare? Successful managers usually do both at once, of course: merely by running a profitable company, they are likely to be advancing the public good as well. This is win-win kind of CSR the sort that impress much of civil society. Examples include establishing a reputation for dealing honestly with employees, suppliers and customers. Perhaps it would be better to call it simply „good management“, means management of corporation and business which comes with positive effects for all company' stakeholders. At first sight that looks unusual, but very often one can face other possibility, means combination of negative influence CSR activities to the profit of company or social welfare or both of them. Interestingly, very often public or some stakeholders prefer CSR enhancement influenced negatively to the profit, but positively to social welfare. This is so called „borrowed virtue“ resulted from management decision to support some of social activities using „other people's money“. But, corporate philanthropy based at charitable

    donations funded from shareholder or employees money, is not philanthropy. Company giving parts of its profit to charity actually use other people's money. It is not philanthropy at all and it's called borrowed virtue.

Figure 1 Varieties of CSR

    thSource: The Union of Concerned Executives, From The Economist print edition, Jan 20 2005

There is also CSR that raises profits but reduces social welfare („pernicious CSR“), and

    CSR that reduces both profit and welfare (a polite name for which might be „delusional

    CSR“). Former is typical for underdeveloped countries, like Bosnia and Herzegovina is. In this case foreign companies open factories significant for social community, because of growing rate of employment and economical effects and economic activities. But negative effects those factories will have for environment, people (health problems and medical costs), and even economy (negative effects for other industries) in long-term are much higher than positive ones in short period.

    Hypothesis 4: Customers mostly perceived corporate (companies) commitment to CSR initiated by their intention to improve image and reputation in public. Contrary managers perceived themselves really responsible and committed to the society welfare. Hypothesis 5: The goals and intentions companies have to achieve through message about responsible behavior will influence all other elements: way how to communicate responsible behavior, but the topic of actions too.

    3. RESEARCH PURPOSE AND METHODOLOGY

    The purpose of this study was to examine the nature of corporate social responsibility and the degree of social responsibility, as well as the importance of responsibility towards different stakeholders in Bosnian companies (their managers) and customers, and at the same time differences between the dimensions managers and customers undertake as responsible behavior.

    In development of the research methodology in this study, aspects of previous surveys in corporate social responsibility and business ethics were taken into consideration. Developed questionnaire reflects previous research instruments and allows respondents to retain their anonymity and still provide more detailed information.

    The questionnaire contained three parts: (I) Determining the views on and aspects of social responsibility of companies in Bosnia and Herzegovina; (II) Determining the subjects influencing on positive changes in social responsibility area in B&H and (III)

    Determining the most efficient and effective activities and source of information about responsible behavior. For all three groups we had measured and tested differences between managers and companies’ most vulnerable stakeholder - customers, in order to

    find out level and significance of differences and to suggest way how to close gaps between those groups.

    Research was made between Bosnian managers and students (as representatives of customers). Thanks to that the level of response grown up, but at the same time there is no guaranty they had been influence by direct interactions with their professors as researcher. There is a need to expand respondent base to the other type of customers and even more test differences between them in regard of responsible behavior.

    For analyses we had used statistical chi-square test of equality of proportions.

Table 1 Chi-square test equation

    Testing equality of two or more basic groups based on their samples

     m- number of samples (number of 1.:....../HPPPPP!!!!!!012kmbasic groups) HPPkm:,1,;:!1k- proportion at k basic group Pk2222.()1P((,(,!?~'teorteor..k

    - size of sample from k-basic n'kkmrmr!??!?!11(0)group m

    f2?km- empirical (theoretical) f(f)?(kktff;?kkt2k13.,,!!;!fnpp?)?izrktk.(frequency mfk1?)kt??n?k k1

    22224.,,~;~HHizrteorizrteor..0..1((((

4. FINDINGS

4.1. Differences between managers’ and customers’ attitudes

    We had asked participants from both groups to define what the responsible company is in B&H circumstances. 50% of managers answered responsible company is the one focused

    its responsible practice to the employees, but in the form of regular paying taxes and spending for employees. That means they thought the most important dimension of responsible behavior is the law dimension or “play by the rules”. It could be problematic, since it is legal obligation for all companies and there is no discretionary in following the rules. Simultaneously one can conclude the level of responsibility between managers is pretty low, since they had been focusing to the employees mostly. Other forms of responsibility, managers stressed equally (25% each of the) are related to the pure charitable activities (children playground building and similar things) and sports sponsorships.

    Using chi-square test we had found significant differences between the managers’ and customers’ attitude regarding definition of responsible behavior.

Table 2 Chi-square value for Q1

    Question Chi-square Chi-square theoretical Conclusion

    2empirical - - (0,01)(teor.2 (emp.

    221* 19.5 15.09 >~ according the answers on ((teor.emp.

    (5 grades freedom) the first question we had found

    statistically significant differences

    between customers and managers

    * See Appendix

    Looking at the subject influencing positive changes in corporate responsibility area

    managers mainly had found media, business partners and management of corporations as the most influencing ones. Comparing to the customers’ answers we again found significant differences between those groups. That means managers perceived themselves as the one of the three most important factors helping to improve corporate responsibility issues. Even more important, they had not mentioned nor customers or employees in their answers. Using those answers one can conclude managers have been using and implementing responsibility in order to improve image between business partners or media. Customers and employees’ attitudes are not relevant for them in these areas. That

    is logical consequence influenced by undeveloped public opinion as well as inadequate legal regulation.

Table 3 Chi-square value for Q3

    Question Chi-square Chi-square theoretical Conclusion

    2empirical - - (0,01)(teor.2 (emp.

    223 60.86 23.21 >~ according the answers on ((teor.emp.

    (10 grades of freedom) the third question we had found

    statistically significant differences

    between customers and managers

Companies mostly practice responsible behavior connected to the market relations,

    human rights, social dialogue and community participations. Each of those answers has been chosen by almost 16.7% of participants.

Table 4 Chi-square value for Q5

    Question Chi-square Chi-square theoretical Conclusion

    2empirical - - (0,01)(teor.2 (emp.

    225 32.94 21.67 >~ according the answers on ((teor.emp.

    the fifth question we had found

    statistically significant differences

    between customers and managers

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