Sunday, 1 May 2011

The factors that determine the extent to which a business is socially responsible

The overall extent of incorporating Corporate social responsibility (CSR) is made from the senior management which will be analysed and the extent they can incorporate CSR without having an impact on profit but still keep shareholders happy if they are in a public limited company, but are also key decision makers when it is a private limited company and do not have shareholders to make all the decisions.
A socially responsible company complies with the law at minimum but some companies go past the minimum requirements which are set by law. The higher degree of minimum standards there are, the more socially responsible the companies have to be. Companies which are not socially responsible try to find loopholes within the law so the law has to be clear and fair and not riddled with loopholes and have a fair punishment which outweighs the cost of breaking the law in the first place. McDonalds are seen to be CSR friendly and go past the minimum standards in order to become socially responsible which has been set by the European Union on Corporate Social Responsibility. An example of McDonald’s being socially responsible is that they are finding new ways to reduce carbon emissions and recycle. This includes recycling old oil to use as biodiesel in delivery trucks
The acceptance of CSR also depends on whether it is in the public or private sector. The private sector operate for profits and conflict on the fact that CSR  reduces profits and can be seen to distract the decision makers in the main objectives of making a profit. The private sector also have less extensive reporting requirements and are not made public, which makes finding out about CSR and private companies very complicated to make a decision as part of a stakeholder to use the company or not. CSR is also accepted by government and public bodies and not for profit organisations such as charities, the BBC and nationwide building society. McDonald’s is a PLC company and therefore has part of legal requirements has to publish all reports and include financial and non financial performance factors.
The amount of social responsibility is also dependant on the legal structure such as limited liability status, accountability to shareholders, director’s duties and reporting requirements. Many organisations such as McDonalds are limited companies and contain Limited Liability which means the company has its own identity. It is seen that Limited Liability is seen to limit the amount of willingness to be CSR friendly as opposed to accounting to Shareholders which provide a source of finance and investment to the company. Though Public limited companies also have to document the reporting in public, they are more likely to be CSR friendly in order to make an impression on the stakeholders and the public and influences shareholder decisions more if CSR makes a positive impact to profits and their returns.
Partnerships and Private Limited companies have to submit an annual report and accounts to the Companies House, but not the wider public and do not have to produce a CSR report. This is not to say they do not incorporate CSR policies but they can get away with more in the terms of the accounts are not publicised and the directors of the company is held accountable for any key decisions, they cannot get away with complying with the legal requirements, under the Companies Act 2006, directors have a responsibility to take into account the wider community and all PLC companies have an obligation to include CSR in the annual report.  The companies Act involves the wider responsibilities of directors and are still accountable to the shareholders, and are encouraged not to be distracted from the profit seeking objectives, but it is seen that it would be likely to promote the success of the company for the profit of its members as a whole and in doing so have regard to other matters such as CSR. This includes the company’s interests in the company’s employees; improve relationships with suppliers, customers and others and also to act fairly between the members of the company.
Shareholders are the prime stakeholders in a limited liability company. They have a key interest in the business because they risk their money and have power via votes at shareholder meetings and ability to create cash flow problems by weakening the stock’s price on the stock exchange. The extent on which they sacrifice profits to pursue CSR  which will increase costs but at the same time are willing to keep other stakeholders happy and the influence over the company in order to make an impact on the shareholder decisions. As McDonald’s is a Customer service based fast food company, it means that customers are quite a big stakeholders within the business, therefore shareholders will have more influenced decisions in order to keep the other stakeholders happy and to increase potential profits and widen the scope of audience it appeals to.  McDonald’s are also in a competitive market, which means that consumers and customers are strong with regards to the influence they have such as when shareholders incorporated rainforest alliance coffee beans and free range eggs within the UK.
Another impact which will determine to which the business is socially responsible is competitor activities within the industry. If a competitor is seeing to have positive attention and media which will influence other stakeholder interests, then the company is likely to have a similar stance in order for the competitor to lose its competitive advantage.  Michael porters theory of either being low cost or differentiated means that a company can be differentiated by producing goods and products with certain ethical grounds such as Ben and Jerry’s ice cream and having different views compared to other ice cream companies. A firm faced with such a responsible rival and successful business will have to match the CSR in order to be competitive.
In conclusion the business has to make profit too survive, but as stakeholders, we expect them to comply with the law, but the extent to be beyond the minimum requirement of the law. This depends on the power of various stakeholders such as shareholders and customers depending on the type of market, the culture of the organisation and the type of business and the degree of accountability that the business has and the potential for adverse or favourable publicity by the media.


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