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Corporate Social Responsibility - Merits and Demerits

Question

Task: Explain the merits and demerits of Corporate Social Responsibility (CSR) with
examples.

Answer

Introduction
Every organization has framed different definitions of Corporate Social Responsibility
(CSR). Although they share a basic concept of CSR that, it is a voluntary process of an
organization, which it carries out for the welfare of its employees, society, and environment
as an obligation towards all three. In simpler terms, for using community’s resources to
make revenues and profits out of them the company pays back to it by different means.

Corporate Social Responsibility:

There is vagueness and a lot of argument associated to what is owing of CSR in an
organization (Horrigan, 2010). Through CSR, organizations create a constructive and
affirmative image in the society (Baker, 2004).

Emergence of CSR

Year Emergence

CSR first came into existence in the year 1930. It was after the Great
Depression in 1929, when two professors of Harvard University, Prof. A.A
1930 Berle, and Prof. C.G. Means realized that corporations must come forward
and take the responsibility. They also claimed that such a condition would
not have taken place if the corporations had acted responsibly.

In account of changing the perspective of society towards business in rega

1960s & 70s
to civil rights movement, consumerism, and environmentalism. Many
 instances related to CSR were put forth in the business world. Convention
and guidelines of Organization for Economic Co-Operation and
Development (OECD) were formulated in the year 1960 with the intention
of advocating the policies that can ensure the economic growth, better
employment, and improved living standards amongst in nations that are i
members during maintaining the financial conditions.

International Union for Conversation of Nature (IUCN), in 1980 published

the World Conversation Strategy. As per this, aim was to make more
consistent world economy, enhancing world growth, world equalities and
1980s &90s alleviate poverty and its impacts. While in 1992, a summit named the UN
Earth Summit was convened in Rio De Janeiro, in which ‘triple bottom lin
model for business was formulated, with the basic idea of having
sustainable development with the company’s competitive benefit.
Since then many other important and noteworthy incidents have happened that played a
significant role in establishing the concept with even more strength and convinced the
business establishments to enforce it with conviction.

Types of CSR
Four Types of CSR based on its beneficiaries:

 Environment-Based Corporate Social Responsibility (CSR): Through this, a

company’s attention is on reducing the harmful effects caused on environment due to
its various operations. The company invents such processes at their production level so
that they can minimize the production of such by-products that are causing damage to
the environment. It also takes preventive measures to avoid caused damage by burning
fossil fuels to its environment by encouraging the use of non-renewable energy.
 Community-Based Corporate Social Responsibility (CSR): To safeguard the
well-being of the society, the company with the help of other organizations, which are
usually Non-profit organizations, comes forward with various programs. To enhance
the living standard and conditions of the people of society, a company either provides
funds or arranges funds from other companies to carry out the planned programs.
 Human Resource-Based Corporate Social Responsibility (CSR): Human
resource of an organization plays a vital role in its smooth functioning and success.
Hence, companies pay close attention to the needs of its human resource to make their
lives better. Companies do so in various ways like some companies provide extra leaves
to the male employees so that they can take better care of their newly born child. In
case any employee encounters an accident due to on-job danger, companies offer better
medical insurance so that the employee can be healed and cured in the best possible
way.
 Charity-Based Corporate Social Responsibility (CSR): Companies often
engage other organizations as partners for charity. Companies contribute charity to
individuals and other organizations to assist them financially to meet their general
needs. This is the most preferred type of CSR being used by the companies.
Merits of Corporate Social Responsibility:
After understanding the meaning and various types of CSR, it is important to know its major
merits.

 Enhancement of the Company Image: The most advantageous and obvious

merit of CSR to a company is that its value in terms of goodwill increases. It has two
major direct benefits to the company. One is, customers are always willing to purchase
products of a company that has good image in the market. The other is, in general,
other companies wish to get associated with such companies to do business. CSR
influences the reputation of the company in the society as the consistent and
trustworthy name. It is a general human tendency that they always want to be
connected with a name that is reliable and enjoys a good status that makes it the best in
the market.
 Enhancement in Attraction towards Company and Retention of
Employees: Candidates are attracted towards the companies that have strong CSR
policies and comply them responsibly. Hence, such companies get good pool of
potential candidates and their employee turnover is very low. Everyone wishes to work
with a company that is concerned about its employees and makes efforts towards
betterment of working and living conditions of its employees. Existing employees, as
well as new employees, wish that the company has an empathetic approach towards
them. Fair treatment, regular appraisals, assistance may that be financial or any other
in the time of need, recognition on achievements, attention on special days like
birthdays, anniversaries etc. are the few basic things that act as a major difference
between a company of people and a company for people.

During tough times like condition of tight labor market, these policies of company win
an edge over others. It also helps in minimizing the induction training costs and
incentives cost of old employees. Employees are motivated to perform even better with
incentives. This can be concluded in one statement and i.e. a company is induced to
make better profits with increased productivity and reduced rework with the satisfied
and contented workers.

 Regulatory Authorities Become Less Intimidating: Regulatory authorities

often lay more focus on the companies that do not perform CSR for scrutiny, over the
companies that do. The authorities are set to believe that the company that is
performing CSR for the welfare of the society and environment and has a good rapport
with the people and other organizations that means it must be complying other rules as
well, such mindset allows them to be easy-going with them. To get the most out of the
CSR programs other than profits, companies having well-defined CSR policies always
abide by other regulations as well.

Such companies receive a fast process of scrutiny by the authorities. At times, if the
competent authority realizes that any particular project of a company is going to
benefit the society then it may ignore the absence of required paperwork too.

 Attracts more Investors from Various Sources: Investors are most likely to

invest in the company, which has a good image in the market. Goodwill of a company is
significantly enhanced if it is doing well in CSR and makes more people interested in
 investing in its crucial programs. Such a company will also get foreign investors in the
form of FDI. Hence, it also becomes a contributing factor in the foreign exchange of the
country. It is known as a reliable and trusted name, due to which it gets investors from
other companies and industries as well.

In some conditions, the government of the country also reflects its willingness to invest
the company, which leads to minimal regulation issues and red-tapism.

 Production of Clean and Renewable Energy through Environmental CSR

Program: Companies that run environmental CSR programs, always make sure that
none of their processes cause any damage to the environment. They introduce such
production methods, machinery, and techniques that are in favor of the environment
and also reduce any sort of damaging effect if it does cause any, then a clean and
healthy environment can be provided to the society. During this process company also
access the possibilities of generating and using renewable energy in its different
processes.

By investing one-time in renewable energy for production process, company reduces its
cost of overall production and fossil fuels.

 Positive Promotion: There is a huge difference in publicity and positive publicity.

As in the business world, there is popular saying that, ‘no matter what any publicity is
good publicity’. It is really important that to make people buy your products one should
be a known name amongst them. However, it is also important to have a good name in
the eyes of public, because being known for wrong reason also causes downfall in the
sales. Hence, a company must always focus on positive promotion. A good publicity can
easily be earned by performing decent CSR program. Without even investing in
advertising, it works as a good advertising campaign giving you a positive promotion.

Not only this, it also acts as a differentiating factor from its competitors. Even if the
competitors are selling their products at lower prices, but the company paying
attention to the community and environment always wins over. People readily pay a
little more, if they are aware of the contribution of the company to the environment
and society.

Demerits of Corporate Social Responsibility

The points on which the business groups are condemning CSR are discussed below:-

 Deviation from the Profit-Making Objective: A popular economist named

Milton Friedman is the biggest criticizer of CSR. As per him, CSR deviates the basic
purpose of the business from earning profit to using its profit for the welfare. He
suggested that the sole objective of starting any business activity is to earn maximum
profit out of it. A business entity has commitment towards its shareholders, who are
hoping to earn from their shares. All these needs can be met only if a company focuses
completely on inventing methods by which it can make more and more profits. While
companies are using their funds to carry out CSR programs for the welfare of the
society and charity.
 Hence, if we put it in straight words, then a company is intentionally increasing its
expenditure which has no payback or role in profit-making rather it is a pure outflow
with no return.

 Company Reputation is at stake: If a company has to comply with the CSR

policies, then it is supposed to inform all the limitations associated with its own
products. If there is any CSR policy violation in their product then it has to be made
public. It can cause bizarre to the image of the company. For instance, once a car
manufacturing company has to call back all of its sold cars after finding out
malfunction in the model, it damaged the image of the company and its effect was seen
on the sale of its other products as well.

This not only causes loss of trust amongst customers but also causes hassle to them.

 Customer Conviction: At the start, people had good impression about these CSR
programs. They also tend to be more inclined towards companies that have CSR
programs. But, as the time passes people become more impatient and start to expect
instant results out of such programs. When they could not notice instant results or
instant impact on the society then they start to feel CSR programs as mere publicity
stunts. For enterprises, it becomes really hard to make customers understand that such
programs take time to show results. It is important for the company to have patience
and trust of the customers while the company continues the programs with dedication
and conviction.

Even several efforts of convincing the customers to go in vein. Constant efforts of

convincing people is an extra and unproductive activity for business enterprises.

 Increase in Cost of Production: CSR programs lead to an extra cost to the

company. The increment in cost forces the company to increase the basic price of the
product, which is ultimately paid by the customer. This is an extra burden on the
company, which is being imposed to customers.

Big companies or business leaders can easily afford such increased costs and may not
increase the prices of the products. However, the small players are forced to increase
the prices, as they simply cannot afford this increased cost. They are already struggling
to fight against the big players in the market and these increased prices make it even
more difficult for them.

Corporate social responsibility in multi national companies(CSR)

1. 1. CSR In Multi National Companies Advantages And Disadvantages To
Multinational Companies
2. 2. Content…… Definition For CSR. Multinational Companies. Types Of
CSR. Main Concern Of CSR. Advantages Of CSR To Multinational
 Companies. Disadvantages OF CSR To Multinational Companies.
Conclusion. CSR In Mutinational Companies 2
3. 3. What Is Corporate Social Responsibility ? “The idea that business has a
duty to serve society in general as well as the financial interests of
stockholders ”. -Pearce & Robinson CSR In Mutinational Companies 3
4. 4. WBCSD (World Business Council for Sustainable Development) “The
continuing commitment by business to behave ethically and contribute to
sustainable economic development while improving the quality of life of
the workforce and their families as well as of the local community and
society.” CSR In Mutinational Companies 4
5. 5. What is a multinational Company?  An enterprise operating in several
countries but managed from one (home) country. Generally, any company
or group that derives a quarter of its revenue from operations outside of its
home country is considered a multinational corporation. CSR In
Mutinational Companies 5
6. 6. Types Of CSR….. 1.Responsibility Towards Society. 2.Responsibility
Towards Government. 3.Responsibility Towards Shareholders.
4.Responsibility Towards Employee. 5.Responsibility Towards consumers.
CSR In Mutinational Companies 6
7. 7. Main Concerns Of CSR.  Community Involvement.  Business Standard
Labour Security.  Environmental Protection.  Labour Security. 
Educations and Leadership Development.  Human Right. CSR In
Mutinational Companies 7
8. 8. CSR In Mutinational Companies 8
9. 9. Advantages Of CSR To Multinational Companies 1.Improved financial
performance. 2.Lower operating costs. 3.Enhanced brand image and
reputation. 4.Increased sales and customer loyalty. 5.Greater productivity
and quality. 6.More ability to attract and retain employees. CSR In
Mutinational Companies 9
10. 10. Contd.. 7. Make a positive image among stakeholders. 8. Access to
Capital. 9. Product Safety and Liability. 10. Workforce Diversity. 11. Help to
Attract Investors. 12. Improves Business Image And Reputation. 13.
Increase in competitiveness. 15. It help to Correct the social problems
Caused by the Company. CSR In Mutinational Companies 10
11. 11. Disadvantages To Multinational Companies.  According to Milton
Friedman (a leading economist) making corporate socially responsible is
useless and even potentially dangerous since it goes against the very
basic aim of doing business: making profit. It breach of the principle of
profit maximization.  CSR may contribute to the dispersion of forces and
resources of the company and thus reduce its economic efficiency.  Many
socially responsible actions are unprofitable because of high costs. 
Companies expanding their social responsibility increase the price of
goods and services. CSR In Mutinational Companies 11
12. 12. Contd.  Fundamental principles of business gets violated.  CSR
projects will not be successful.  There are not the special areas of any
 business.  CSR is to induce them to steal away the shareholders money. 
CSR causes to slow down innovations. CSR In Mutinational Companies 12
13. 13. Examples for CSR Activities of MNCs…  IBM UK - Reinventing
Education Partnership programme Interactions and sharing of knowledge
through a web-based technology - the “Learning Village” software. Culture
of openness and sharing of good practice  AVON - a partnership with
Breakthrough Breast Cancer, and its Breast Cancer Crusade has raised
over 10 million pounds since its launch 12 years ago  TOI’s Lead India
campaign, campaign for contribution towards educating the poor CSR In
Mutinational Companies 13
14. 14.  John Keells - In 2015, Cinnamon Resorts in partnership with CARE
international Sri Lanka and John Keells Foundation awarded 100 youth
aged 18-26 the opportunity to participate in the Skills for Youth
Programme . This programme was designed to develop transferable skills
in a practical environment including rigorous training and skill
development in three disciplines of hospitality: kitchen, housekeeping and
food and beverages.  Unilever Sri Lanka- ‘Gamata Saubhagya’ gives new
hope to rural communities Delivering on its commitment to grow its ties
with the communities it serves, Unilever Sri Lanka recently reached out to
10 villages through its ‘Gamata Saubaghya’ initiative to renovate wells,
provide safe drinking water to schools and rebuild community halls. The
‘Gamata Saubhagya’ initiative was launched as a community development
project within Unilever Sri Lanka’s Sunlight Saubhagya micro-
entrepreneurship scheme. This scheme is designed to provide a
sustainable source of income to participants, thereby enhancing
livelihoods and helping improve the quality of life. CSR In Mutinational
Companies 14
15. 15. CONCLUSION
16. CSR is a concept where companies voluntarily contribute to a better
society. Nowadays CSR has become an important part of a business
organisation, Because business interested parties have given a more
concern towards CSR.  This is directly linked to the organizational culture
willing to carry out a wider organizational change and it is important to
see positive results which CSR brings on ethical, social, organizational
and business scale.  There have Several areas to concern ,when
companies involve in CSR activities and it’s responsibilities spread to
society ,Government ,Employee ,Shareholders and consumers. 
Multinational Companies Can gain many advantages from CSR activities
but there have some issues when companies engage in CSR.  Advantages
help to confirm the sustainability and existence of multinational
companies.  Finally CSR remove gap between society requirements and
expectations. CSR In Mutinational Companies 15
17. 16. References…. www.coursehero.com › Eastern Oregon › BA › BA 487
www.opednews.com/.../Multinational-Corporations-
digitalcommons.tacoma.uw.edu/ https://www.unilever.com.lk/
www.keells.com/ www.answers.com www.academia.edu/.../
 https://images.google.com www.businessnewsdaily.com/4679-corporate-
social-responsibility. CSR In Mutinational Companies 16
18. 17. CSR In Mutinational Companies 17