Monday, 14 March 2011

The potential benefits of Corporate Social Responsibility relative to the costs for business and stakeholders


The potential benefits of Corporate Social Responsibility relative to the costs for business and stakeholders
Corporate Social Responsibility (CSR) is where a business invests into communities and infrastructure in order to increase sales and have a good reputation as a business by investing in good practises and benefiting the community as a whole. An example of this would be McDonald’s creating good living conditions or animal welfare in the food industry or using renewable resources in businesses in general and recycling as much as possible. Because of this, businesses can survive without shareholders taking profits and being successful by doing well to the environment and community. This can be seen as an addition of CSR of Michael Porters “Creating Shared Value”. This is the principle of a business addressing needs and challenges of a society and connecting company success with society progress embedded in their business model. On the other hand, the alternative of CSR is maximising share returns for the shareholder. The view from a business is that they listen to shareholders and not society. This is called free enterprise, where businesses have no boundaries in order to maximise profit margins and efficiently. This can arguably provide benefits for the customer because they are passing the price reduction onto the customer and the business has competitive advantage because of low prices and adding value to the product and company image. They have increased the shareholder returns to divert the business away from being socially responsible in recent years. In 2001- 2003 shareholders had a return total of $3.3bn whereas in 2007-2009, they had a shareholder return of $16.6bn. This shows that McDonald’s are giving profit to shareholders as well as the community and being social.
Businesses which accept CSR has many benefits which come from the concept of providing for the society rather than a shareholder. A potential benefit for accepting CSR is that it can gain a positive reputation and corporate image that can help attract new customers. For example, McDonald’s has environmental policies to help with which involves protecting the environment and strives to ensure that the operations of a business do not have a negative impact on future generations. Ways they do this are by recycling all cardboard and reducing waste energy in restaurants. This gives them a positive reputation because they are having a positive impact on operations by reducing waste of the business and recycling which will also in turn, attract new customers as they are encouraging others to do the same and know they are a part of society as well as a business. However, this may not be the case is at can be done as a publicity stunt in order to counteract the arguments from experiments such as supersize me and also the bad media they have had, therefore they may not be feeling the benefits of CSR as they are doing this to help McDonalds have better press in the future.
Another potential benefit for businesses incorporating CSR is that they have improved relations with suppliers resulting in greater flexibility, reducing stockholding and better terms of trade. For example, McDonald’s main way of distributing products to restaurants from the suppliers is with a company called “Keystone Distribution” and gets the raw products from suppliers such as McCain’s for Fries and British Farmers for their Beef. Many suppliers have also been with the company for many years and have built up good long standing relationships as well as investing in facilities. This means that McDonald’s has a good influence on suppliers as in meeting quality standards and therefore must have a good price for the goods they are supplied with good terms of trade.  Also most restaurants get deliveries from Keystone 2/3 times a week, depending on how large the store is, this also means the company has access to products when needed and in turn can do the “just in time” method in order to maximise quality and profit.
The drawback of incorporating CSR is the cost in order to become socially responsible.  One cost which might occur from CSR is that they divert attention away from profits. For example, from McDonald’s Environmental policy, the consequence on the company will be the cost of setting up their Agricultural Assurance Programme across Europe which help to improve animal welfare and supply chain. This diverts the profits for the company because they have to invest money in the programme in order to make sure all farms meet the required standards, which in a shareholders point of view, sees this as inefficient because they are diverting they’re profits to something socially responsible whereas the shareholder will get less of a dividend because of this which can hinder growth. Although, this can make them go down in share price because more people will sell them as it is a lower return, unless McDonalds diverts the attention from CSR and give the shareholders a fair share of the profit.
Another cost of becoming socially responsible is the cost of satisfying their customers though the use of ethical and fair trade. For example, because McDonald’s is such a large company, it has a large cost in investigating companies which will introduce fair trade to main menu items, but have successfully have became a part of the “Rainforest Alliance” which means the coffee bean farmers  get a fair price from the coffee which is used in the company. This means that they are paying out more money to give fair trade to coffee farmers rather than finding the cheapest available which can also be seen as inefficient in terms of the amount of money it will cost to give suppliers a fair price which also puts main companies off of fair trade as they intend on maximizing profits for the shareholder.  Large companies also have a lot of boundaries as in terms of volume of a specific amount of products which means that it costs to investigate a way of supplying every store with a specific product, such as McDonalds producing organic milk.
In conclusion, In the long term, I think CSR benefits both the company and the customer, as well as the society as they have put money into society and the community as well as paying dividends as CSR also provides cutting costs as a business tries to save energy and recycle whereas in the short term, if they wanted to raise money quickly and efficiently, stakeholders would be a good way as they intend to maximize profit and efficiency and focus on CSR in the long term as they would benefit though a long period of time, as long as McDonalds keep consistent to saving energy, if businesses did not do CSR, then most companies will have bad press along with bad customer views, depending on who they mainly see their shareholders are, for example McDonald’s view their public shareholders as the press and public and use them in order to maximize profit and grow. The success of CSR depends on how efficiently they have set goals and if they have set SMART targets to help the business achieve the goals in CSR and how they measure the success of their goal and if it has been achieved or not, as issues such as reducing energy in restaurants is particularly complex and hard to manage.
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