Concept of csr and real life application
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This case study examines how Beauty Base Ltd (BBL), a soap manufacturing company in Nigeria, applied the concept of corporate social responsibility (CSR) to solve a problem. BBL had been polluting the air and water in the community where its factory was located. In 2006, a lawsuit was filed against BBL for $2 billion in damages. While the government initially defended BBL, the company responded by initiating socially responsible actions like building a road in the community. Through CSR initiatives, BBL was able to improve its reputation and relationship with the community, providing a solution to the lawsuit and business challenges it faced.
Concept of csr and real life application
- 1. ROBERT KENNEDY COLLEGE MBAL&S STRATEGIC MANAGEMENT MNGT7906 THE CONCEPT OF CORPORATE SOCIAL RESPONSIBILITY AND REAL LIFE APPLICATION KINGSLEY NWAGU August 2012
- 2. CONTENTS Cover page Table of contents:………………………………………………………………………………………………………2 Part 1 Introduction……………………………………………………………………………………………………4 Definition of Corporate social Responsibility:…………………………………………………...5 The History/Evolution of Corporate Social Responsibility…………………………………6 The Relevance of CSR Concept to Management of Business:………………………………9 Part 2 Introduction/Overview:……………………………………………………………………………………13 Company Background:………………………………………………………………………………………13 The Case Problem:……………………………………………………………………………………………14 Saving the Day; How the Problem was Solved Using CSR:……………………………..……15 Conclusion:………………………………………………………………………………………………………17 References:…………………………………………………………………………………………………………………18 ~ 2 ~
- 3. PART 1 MEANING, EVOLUTION AND RELEVANCE OF CSR CONCEPT ~ 3 ~
- 4. INTRODUCTION The issue of corporate social responsibility (CSR) has been dominating the moral and ethical aspect of business world. Although so many managers especially in developing and third world economies, are yet to understand the real impact of CSR in their organizations and the appropriateness of the concept in today’s business world. They cannot help but make light interventional budgets without taking cognizance of the concept in their strategic planning and company policy - what Dowling & Moran (2012) describe as “Bolted-on.” The concept of CSR has been defined in a variety of different ways by diverse authors, companies and individuals and these different definitions lead to various implementation of the concept. The concept of CSR is beyond the donation of money by companies for philanthropic purposes. In the present day it is meant to be integrated into the company’s strategic culture and run in all levels of its operations. The concept of CSR precedes this very century but began to draw attention from the last 50 years. Ever since then, several authors and experts have made striking attempts to shed more light on its importance and relevance to business operations in the society. The relevance of this concept, how it evolve and its appropriateness in today’s business world is what the first part of this essay will look at while the second part will present the real life application of the concept using Beauty Base Ltd as a case study. ~ 4 ~
- 5. DEFINITIONS OF CSR There are numerous definitions of CSR carried by rich literatures available online, in books, in magazines, academic journals and even company websites. However, we will review few definitions that will trace the evolvement of this concept and reflect on extreme views of academics and bodies. Carroll (1999) quoted Bowen (1953) as setting forth the definitions of social responsibilities of Businessmen: “It refers to obligation of businessmen to pursue those policies, to make those decisions, or to follow those line of actions which are desirable in terms of the objectives and values of our society.” Milton Friedman (1963) referred to SR (what is today known as CSR) as a fundamentally subversive doctrine and stated; “ There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game which is to say, engages in open and free competition without deception or fraud.” Several years later there was a sharp contrast of Friedman’s view when AB Carroll proposes that managers of business organizations have four responsibilities – including economic (must do), Legal (have to do), Ethical (should do), and discretionary (might do). (Carroll, 1979). He further opined that a clear and acceptable performance in the last two dimensions would distinguish a socially responsible organization from others. (Carroll, 2004). Akanbi, P, & Ofoegbu, O (2012) quoted World Business Council for Sustainable Development defines CSR as “the commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and ~ 5 ~
- 6. society at large to improve their quality of life.” Barbu and Capusneanu (2012), in their article ‘the state of CSR’ quoted Pectu M. as defining CSR as “the modality in which a company runs its activities within the legal system and the regulation established by the society, in compliance with the universal rights of man.” While Caska et al. (2004) considers it as referring to “the impact that the activities of an organization have on the social, ecological and economic environment inside which it operates.” From the foregoing, we can deduce the principal intention of CSR. These intentions are evident in the term ‘corporate social responsibility’ which is subjective and influenced by the context. Although Carroll (1991), stated that the word ‘social’ is vague and lacks specific direction to whom the corporation is responsible, one thing is sure, that is, every corporation has responsibilities that extend beyond making profit – to – being responsible for the environment where it operate and for the people who dwell therein. My opinion is that CSR concept evolves to improve the extent to which businesses consciously protect the society and carter for the people while making profit. By consciously, I mean that CSR should be integrated in the overall strategic plan of the organization and that all product/service to be offered should consummate those essential ingredients that will ensure societal wellbeing. THE HISTORY AND EVOLUTION OF CSR CSR predates the present century as most people thought. Some say it is as old as trade itself. Anonymous sources say it can be traced back 5000 years. Just as in its definition, there seems not to be an agreeable history of CSR and a sequence of how it evolved. However, during the production era, the impact of business on society and the ~ 6 ~
- 7. environment took a different dimension. It became so enormous that the headmen then engaged in philanthropic ventures as a way of compensating the society for harm being done to it. By the 1920s discussions about CSR had evolved into what we can recognize as the beginning of modern CSR movement. Nevertheless, Carroll (1999) noted that the modern era of CSR begins in the 1950s with the publication (Social Responsibilities of Businessman) by Howard R. Bowen in 1953. According to Carroll, Bowen queried; “what responsibilities to society may businessmen reasonably be expected to assume?” Another view is that CSR began with economics. Adam Smith was regarded as one of the initiators of this concept when he expressed in the wealth of nations that; “the needs and desires of society could best be met by the free interaction of individuals and organizations in the market place… and that “it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard for their own interest.” (Available at http://suite101.com/article/history-of-corporate-social-responsibility-a215966). This expression laid the foundation of CSR, where people/consumers are aware about the social benefits of creating the wealth of nations and financing actions to advance the interest of society. Then Friedman’s view as defined above came on board. He limited the responsibility of business to only increase profit to shareholders. This assertion probably attracted contrasting thoughts like that of Carroll’s. Though Friedman’s argument could be reasonable in the sense that CSR actions could hurt a firm’s efficiency, but it lacks moral justification. Carroll, a leading contributor to this subject proposes that a lack of social responsibility results in increased government regulations, which will in turn reduce a firm’s efficiency. Both Friedman and Carroll like other initiators including Bowen, Smith ~ 7 ~
- 8. etc, focused their arguments on the impact of CSR actions on profit and sustainability of a business. This is because a firm’s efficiency most times is determined by its financials, i.e. profit. The effort to further develop the practice of this concept took another dimension as most researchers/contributors between 1980 and 2005 try to relate the concept of CSR to corporate performance, especially, in terms of profitability. Results from many researchers conclude that positive CSR decisions have positive impact on profitability of a corporation although some previous researches see no relationship. For example, Matin et al. (2011), Cochran and Wood (1984), Aupperle, Caroll, and Hatfield (1985) using a forced-choice instrument, industry specific control groups, and statistical tools new to CSR was unable to support the notion that such relationship exists. McWilliams and Siegel (2000) found that CSR has a neutral impact on financial performance of a company. Yet as stated above, some have found a positive relationship e.g. (Arthur, MM (2003), Waddock & Graves (1997), Meyer, H (2000). Most stakeholders particularly in developed economies fully appreciated the concept of CSR and are genuinely committed to supporting socially responsible agendas and funding actions that improve the wellbeing of the society. For example, General Mills received business Ethics annual corporate citizenship award for joining with a nonprofit organization and a minority-owned food company to create 150 inner-city jobs.(Conlin Et’al:2003). ~ 8 ~
- 9. THE RELEVANCE OF CSR TO MANAGEMENT OF BUSINESS In this 21st century CSR has evolved to dominate a center stage between the organization, its people and the global community. Unlike before, companies today recognize they are expected to play significant role as development partners with host communities. Even with the recent economic downturn, strategic importance of CSR continues unabated (Madden, Roth, and Dillon 2012). Major organizations could not abandon their CSR activities even after the global financial crises (Dowling and Moran 2012). In Nigeria and Sub-Sahara African region, CSR effort focuses on education, health and basic infrastructures. For instance, banks in Nigeria intermittently provide a peanut from their profit to support educational goals through the offer of scholarships, at times sponsor free medical care for a particular group, and on rare occasions provide minor basic infrastructure. The intervention of these companies is not borne out of commitment to the society, but most times out of pressure that consumers are becoming more sensitive to corporation’s responsiveness to societal issues and sometimes such actions are politically motivated. Lange and Washburn (2012) confirmed that counter-normative behavior can lead to consequences for the firm as lawsuits, financial losses through settlements and sales decline, or other costs associated with negative reputation. Ackerman and Bauer (1976), Ackerman (1973) contend that genuine commitments from executive management would not be enough. This means that organizations must go extra mile to deliver internal goods to the society. A classic example of how relevant CSR concept is to business could be seen in the case of Shell Corporation in Nigeria. As a major player in the NNPC joint venture exploring Nigeria’s crude oil, Shell failed in its social responsibility when it hide under a ~ 9 ~
- 10. corrupt military government to ignore a society which it devastated with oil spillage, air pollution, and other actions causing environmental degradation. Protest began that gave rise to activists like Ken Saro-Wiwa. Shell still did not learn lesson, soon the peaceful protests turned bloody. Government intervened on the prompting of Shell Oil and executed five activists. Although Shell got relief after the execution, but it was never to last as militants began to attack and bomb all oil installation in the oil rich Niger Delta region. Shell suffered a loss of over $10billion for ignoring a responsibility that would have cost less than $20million. (Amadi & Abdullah 2012), (Agbonifo, 2009), ('Shell's New Approach in Nigeria' 2012), ('Shell Will Go to Court Over Oil Spill in Nigeria' 2011), To further agree on the relevance of this concept to business, most annual reports today carry a section that review performance on CSR. In fact, contrary to Friedman’s view, shareholders are saddled with the responsibility to ensure the company adequately performs in that aspect. American and some European companies even prepare separate annual reports on their CSR and Sustainability performance. They carry along their suppliers and even set social responsibility target for them. Some even set CSR/sustainability as the major criteria for selecting and dealing with suppliers. Porter and Kramer (2006) say that organizations rank companies on the performance of CSR and as a result CSR has emerged as an inescapable priority for business leaders in every country. Further, they said that CSR can be a source of opportunity, innovation and competitive advantage. So, the relevance of CSR to management will not only increase but continue to take dramatic turns to lay more and more pressure on business until they realize the intrinsic need to align their operations with a set of standards of socially responsible ~ 10 ~
- 11. behaviors. It is important for firms, on their own to engage in socially responsible actions by detecting the pressing need of the society and propounding a sustainable strategy to implement such actions that will have noticeable and positive impact on society rather than sitting on the fence and waiting for right or left wing activist to mount pressure or worst still, engaging in corporate hypocrisy i.e. behaving contrary to publicly stated standards of social responsibility. Conclusively, CSR is relevant because many studies has shown that information on a firms CSR affects consumers perceptions of its brand (Klein and Dawan 2004), (David, Kline & Yang 2005) their attitude towards the firm (Brown and Dacin1997) purchase behaviors (Mohr and Webb 2005). Wagner, Lustz, and Weitz (2009) investigated how consumers react to inconsistent CSR information and what firms can do to mitigate the effects of the inconsistencies. If CSR has no relevance to business today, I doubt that studies will succinct to prove the negative consequences of ignoring the concept of CSR. ~ 11 ~
- 12. PART 2 REAL LIFE APPLICATION OF CSR: A CASE STUDY OF BEAUTY BASE LIMITED ~ 12 ~
- 13. INTRODUCTION/OVERVIEW Beauty Base Limited is today a strongly believer in the philosophy that every corporate citizen should identify with the aspirations of the community in which it operates and be responsive to the people in their areas of genuine needs. It has now acknowledges its responsibility to the Nigerian society generally by contributing to its development and enrichment. For close to a decade and half BBL ignored its responsibilities to the society because there Nigeria has no regulation that stipulates giving back a specific % of profit to the society. Ignorance or greed blinded BBL’s eyes to the yearnings of the society as a result of the damages it caused its host community. But when the chip went down, BBL finds itself struggling to survive. This it did using CSR concept which paid off for it though at a higher cost. It resort to giving back to its society in varied forms and has thus build a strong goodwill for itself. COMPANY BACKGROUND IN BRIEF BBL started operations in 1991 in Aba, Nigeria. Industry: Manufacturing Core Business: Soap production and distribution Products: Terry, Skincare, Hammer, Rozanna, Black Pride, Kitchen. Competitors: Unilever, PZ Cussons, Rivoc, Top Tree, European Soap and Detergent Coy., Best Industries, WJ Bush. No. of Employees: 702 ~ 13 ~
- 14. CSR performance before and after negative incidence Year Revenue (NGN) Profit After Tax (NGN) Total Spending on CSR (NGN) % of CSR Spending on PAT 2011 8,546,000,000 967, 000,000 164,000,000 17 2006 7,006,800,000 1,024,000,000 957,000 0.09 THE PROBLEM: CONSEQUENCES OF NEGATIVE CSR INITIATIVE In 2005 BBL soap factory was emitting serious carbon on the air which affected the people of Ayaba Umueze, the host community. Although there was no serious legislation on environmental protection, the existing laws then focused on the oil and gas sector. With very few environmental activist having their eyes on local companies, BBL ignorantly polluted the community with carbon in the air and waste water drained in to the community’s small stream where most villagers go to wash clothes. In early 2006, a young lawyer from that community (name withheld) in conjunction with a nongovernmental organization filed a lawsuit against BBL for deliberately polluting the community and claimed damages to the tune of NGN2 billion. Although, Abia State government rose to the defense of BBL and urge the court to strike out the lawsuit on the ground that BBL provides electricity to almost 40 percent of the community and that BBL was assisting the government to construct a 1.3 kilometer road which linked the Ayaba Umueze community with the high way, BBL responded positively by initiating socially responsible actions in the community including building the 1.3km road which was later named after the CEO of BBL, John Udeagbala. ~ 14 ~
- 15. During that trial period, the CEO was quoted on saying on interview that; “Beauty Base Ltd is committed to being socially, economically, and culturally responsible. This is shown in our aspiration to be socially responsible not just in the provision of better products and developmental assistance for promoting the individual and common good, but also in upholding high transparence in relationships with both internal and external stakeholders.” (Sourced from company records). These sweet words could not save BBL. It faced dire consequences as a result of negative media campaign which almost led consumers to boycott its products. In addition, some rugged youths in the community also illegally harass factory workers and distort operations of BBL through kidnapping expatriates, theft etc. SAVING THE DAY: HOW THE PROBLEM WAS SOLVED USING CSR CONCEPT BBL went back to the drawing board and identifies the genesis of its problem. The problem was simply neglecting the society. To remedy the situation, BBL initiated a robust CSR campaign. Its CSR initiatives cut across various sector such as road infrastructure, health care, security, education, Etc. Education In its efforts to boost the nations educational development, BBL became very supportive in equipping secondary schools with ICT equipments i.e. computer desktop, cyber cafes within school premises etc. Both government and private owned institutions have benefited from its educational projects. BBL donated a 16-seater Toyota bus to Abia State ~ 15 ~
- 16. Polytechnic Aba and sunk boreholes in 6 schools in order to provide portable water-for students. Healthcare In the healthcare sector, BBL has contributed immensely in building several medical centers and clinics. These include the BBL staff clinic which is open to the public due to shortage of health facilities in the area. They also contributed n building the sickle cell center in federal medical center, Umuahia. Safety and security BBL set up a robust fire-fighting outfit to assist in combating fire incidents within Aba municipality. The company’s fire fighters have successfully put out fire and rescued occupants of strategic buildings in Aba city center. These included Merchandize House, Old Aba Town Hall, Shipper’s House among others. Beside that it has donated 2 Toyota Hilux security vans to Abia State Police Command used to combat crime and has equally donated cash to security Trust Fund set up by some states in Nigeria. Humanitarian Support/ Beautification of Environment BBL made substantial donations to crises-ridden area in a bid to alleviate the suffering of the citizenry. For instance, the victims of the religious riots in Jos, Kaduna and Kano benefited from BBLs generosity. Similarly, BBL funded renovation of public parks and ~ 16 ~
- 17. gardens within Aba and also planted grasses and flowers and maintain the green areas of the city. Beside these verified initiatives, the head of compliance for BBL, Engr. Okafor, said BBL has sponsored and made donations to social clubs, chambers of commerce and industry, professional bodies, Youth Empowerment programs to mention but a few. CONCLUSION CEO John Udeagbala believes that BBL will continue to structure its CSR initiatives to maximize the overall impact on its host communities. That will also avert possible boycott in the future and position it as a highly socially responsible company. REFRENCES Dowling, G, & Moran, P 2012, 'Corporate Reputations: BUILT IN OR BOLTED ON?', California Management Review, 54, 2, pp. 25-42, Business Source Premier, EBSCOhost, viewed 26 June 2012. ~ 17 ~
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