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02/08/2012

Thesis Chapter 2 On Business Social Responsibility: Altruism Or Good Business?


Chapter 2

Literature Review

 

            This chapter presents a brief history regarding social responsibility. Moreover, the nature of corporate and small business social responsibility will be discussed, as well as the advantages and disadvantages behind socially responsible activities.  

Brief History

            Corporate social responsibility is primarily a twentieth-century invention, though its ancient and venerable roots can be traced easily to Biblical sources. The concept is evident, for example, in Deuteronomy 24:10-13 and 25:13-16. The twentieth century has seen an unprecedented growth in the size, importance, and power of the corporation. Moreover, corporations have proven to be extremely efficient at producing goods and services. It is then this success of the corporation that has necessitated the development of the idea of CSR or Corporate Social Responsibility (Krausz; Pava, 1995).

Corporate Social Responsibility

            Business social responsibility refers to the obligation of businessmen to pursue those policies, to make those decisions, or to follow those lines of action, which are desirable in terms of objectives, and values of our society (Anderson, 1989).

            There are four theories behind social responsibility and these are classical, stakeholder, social demandingness, and social activist theories. (Karake-Shalhoub, 1999).  Classical theory is grounded on classical economic theory. This theory states that business executives are said to be primarily responsible to the shareholders of the corporation, and their primary goal is to promote efficiency and to secure effective economic performance.  It also states that managers are said to be responsible to respond to the shareholders' demands.  On the other hand, the stakeholder theory assumes that corporate executives are responsible to stockholders but also insists that there are other groups directly affected by the conduct of the firm, such as employees, consumers, creditors, etc.  Still, social demandingness theory states that corporations have a responsibility to protect and to promote certain interests of the general public, and social activist theory states that corporate managers should sometimes strive to undertake projects that advance the interests of the public, even when these undertakings are neither expected nor demanded by them.    

            In line with this, theorists have, in general, identified four broad areas of corporate responsibility, which are economic, legal, moral, and discretionary responsibilities.  Economic refers to the maximization of profits; legal refers to the legitimacy of the operation; moral refers to the setting of moral and ethical standards; and discretionary responsibilities refer to philanthropic giving.

            Much of the emphasis on being socially responsible is borne by big business and selected industries. Big business is highly visible due to having a well-known name, national advertising and distribution, and multiple products.  As such, it is more often in the critical eye of the public. On the other hand, selected industries, such as manufacturing firms and power companies, are readily visible because of their air, water, and chemical pollution problems.

            The concept of doing good to doing better in the area of social responsibility simply means that social responsibility is and should be handled as a corporate investment that will result in a long-run corporate profit and not a corporate expense.  Consequently, as long as business firms are not public property, corporate responsibility rests with those who are legally and morally responsible and accountable for the firm, and those are the directors, the managers, and the owners (Manley; Shrode, 1990). In this regard, some research studies indicate that there is no difference in ethical/social responsibility values by managerial level, whereas other studies claim just the opposite. Still other research studies claim that differential ethical/social responsibility value profiles vary with specific situational dilemmas (Cox; Petrick, 1993).

Small Business Social Responsibility

            Contrary to corporations and other big businesses, small and medium-sized businesses, non-national businesses and businesses such as department stores may not receive as much critical scrutiny because they are not as highly visible, do not manufacture dangerous products, or emit large volumes of pollutants. Nevertheless, it stands that many of the same problems that exist for large businesses also exist for the small and medium-sized businesses.

            Large companies, with large planning, policy, and strategy staffs, may be in a better position to make the doing good to doing better concept work. On the other hand, medium-sized and smaller companies with limited resources may have serious problems in applying this concept of social responsibility.  Nevertheless, small business may still and are encouraged to engage in socially responsible activities.  These social activities: include charitable contributions, discounts to senior citizens, expenditures on employee alcoholism and substance abuse treatment, responses to customer complaints, product warranties, processes for exchanging purchases, community service in volunteer or governance capacities, employee education, child care or flexible hours for employees with children, advertising or promoting community events, sponsoring sports teams, recycling, special services to the handicapped, and so forth (Smith; Thompson; 1991).

            Little research has been conducted regarding social responsibility in small business.  Some of the reasons may be because:  1.  small businesses are perceived by the public and by owner-managers to lack sufficient resources for implementing social action programs; 2. research corporations created for large-scale corporations are not readily adaptable to small business; 3. information is more available and accessible on firm performance and social activities in publicly traded large-scale corporations; and 4. large corporations have greater public visibility, which generates more interest in theories and research about their CSR.

            However, what research has been conducted regarding this subject has found that customer relations, that is, customer satisfaction, is viewed as the primary social responsibility of small business. Moreover, consumer relations, product quality, employee concern, and profitability are perceived by managers to be key social responsibility areas of small business.  Concurrently, managers and owners have perceptions of small business social responsibility that are similar to those of non-business people and that social involvement by small businesses may be moderated by the extent of minority ownership.  Still, it has been found that managers of small businesses and large corporations indicate few differences in their perception of acceptable ethical practices and that social involvement activities by small businesses are informally structured.

            There are also studies, which indicate that community perceptions of the social responsibility of a firm can exert powerful leverage. For example, Brown and King (cited in Besser and Miller, 2000) find that norms and pressures from community and peers have more influence on business ethics in small firms than moral or religious principles, anticipation of rewards, upholding the law, or fear of punishment.  Similarly, Smith and Oakley (cited in Besser and Miller, 2000) discover that non-metropolitan business owners are less accepting of questionable ethical behavior and have higher expectations for ethical behavior than their metropolitan counterparts, that is, those individuals who operate their own businesses in non-metropolitan areas are significantly influenced by the community in which their firms are located. Furthermore, a study by Besser and Miller finds that those reporting the highest levels of community support and leadership are also those most likely to declare their business successful, as the community may be reciprocating the firm's contribution to the community. It can also be that more successful firms are more likely to contribute to the community, or that some third factor, such as the business operator's level of education, is causing perceptions of both success and community support/leadership (Besser; Miller, 2000).

The Two Sides of Business Social Responsibility

            Businesses supporting social responsibility activities claim that it is in the best long-run interest of the business to become intimately involved in and to promote and improve the communities in which it does its business.  Moreover, it can and should improve the corporate and local image of the company, and it is in the stockholders best interest. Further, by making communities a better place to live in, it can entice superior and happier workers to the company who in turn will put out better products and increase profits. 

            On the other hand, among the arguments of those who are against socially responsible activities is that society would be better off if it asked businesses only to maximize their efficiencies and thus lower costs.  They further claim that CSR violates the policy of profit maximization, and as a result stockholders will suffer.  It will also increase the price of the end item, and as a result all purchasers of the end item will suffer.  Still, they feel that most corporate executives lack the knowledge, perception, skills, and patience to deal with and solve society's problems.

            A study conducted by Krausz and Pava  relates the effects of CSR  to the financial performance of companies.  They find that there is almost no evidence that firms that are screened on the basis of social responsibility criteria performed worse than other firms. By contrast, there is some evidence to suggest a positive association between social responsibility and traditional financial performance. Further, most of the evidence suggests that the socially responsible firms performed relatively stronger in the later period.

            Similarly, the findings of Owen and Scherer (1993) suggest that managers do believe that socially responsible corporate actions have an effect on market share. Specifically, corporate actions related to environmental pollution, corporate philanthropy, and disclosure of social information are perceived by managers to have the greatest effect on market share.

            Moreover, a study by Samil (1992) indicates that social responsibility eliminates marketing pathology, which is caused by inadequate inputs; inappropriate inputs; inadequate information; maladaptive marketing philosophy; abnormal production processes, and abnormalities in internal marketing information.

            Still, economic disadvantage can be turned into a market share opportunity.  The disadvantaged population constitutes a huge market, and so many small businesses are using strategies to garner this type of market share (Wuorio, 2003)

Literature Review Synthesis

            The concept of social responsibility has been around since time immemorial, and indeed, it is even more important now, especially with all the repercussions brought on by the technology being used in business operations.  Today, businesses should be concerned not only with the profits they make but also with the possible effect of their actions towards the environment and the society in general; thus, companies should also consider their legal, ethical, moral and social responsibilities.

Although the brunt of social responsibility is placed upon big businesses,

even small businesses are engaged in such, albeit informally and on a lower scale.  Further, small business social responsibility is largely influenced by community values.

            While many claim that socially responsible activities are at the expense of business profits and stockholders’ interest, there is more evidence that shows how socially responsible activities benefit not only the company but the society as well.  Social responsibility should then be practiced by more companies, be they big or small, as social responsibility promotes not only competitiveness and better services, but most importantly, a more humane society.

BIBLIOGRAPHY

 

Anderson, Jerry W.  (1989).  Corporate Social Responsibility: Guidelines for Top Management.  New York:  Quorum Books 

Besser, Terry L.; Miller, Nancy J.  (2000).  The Importance of Community Values in Small Business Strategy Formation: Evidence from Rural Iowa [*].  Journal of Small Business Management. Vol. 38 No. 1  

Cox, Myron K.; Petrick, Joseph A.  (1993).  Competing Social Responsibility Values and Managerial Level.   Review of Business. Vol. 15 No. 2

Karake-Shalhoub, Zeinab A.  (1999).  Organizational Downsizing, Discrimination and Corporate Social Responsibility.  Westport, CT:  Quorum Books

Krausz, Joshua; Pava, Moses L.  (1995).   Corporate Responsibility and Financial Performance: The Paradox of Social Cost.  Westport, CT:  Quorum Books

Manley II, Walter W.; Shrode, William A.  (1990).  Critical Issues in Business Conduct: Legal, Ethical, and Social Challenges for the 1990s. New York:  Quorum Books

Owen, Crystal L.; Scherer, Robert F.  (1993).  Social Responsibility and Market Share.  Review of Business Vol.  15 No. 1

Samil, A. Coskun.  (1992).  Social Responsibility in Marketing: A Proactive

and Profitable Marketing Management Strategy.  Westport, CT:  Quorum Books

Smith, Howard L.; Thompson, Judith Kenner.  (1991). Social Responsibility

and Small Business: Suggestions For Research.   Journal of Small Business Management. Vol. 29. No. 1

Wuorio, Jeff.  (2003).  Social Responsibility and Profits Do Mix.  Microsoft Corporation.  Available in [http://www.bcentral.com/articles/wuorio/127.asp].  Accessed [30/07/03]

 

 


 

 

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