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.

References

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2006:0136:FIN:en:PDF

http://www.mcdonalds.co.uk/ourworld/environment/policy.shtml

http://www.ourlounge.co.uk

http://www.legislation.gov.uk/ukpga/2006/46/pdfs/ukpga_20060046_en.pdf

The value and limitations to business and stakeholders of Social Reporting

Social reporting is the process of communicating social and environmental effects of organisations economic actions to particular groups within society.  This involves extending the accountability of organisations beyond the traditional role of providing a financial account to the owners of the capital (Shareholders). There are many methods of Social Reporting, which can be doing by a third party of the company or on their own basis. These social reports are mainly done with a Report based completely on social reporting and non financial matters in which stakeholders may be interested in reading. For example, BP have a 50 page social report regarding everything which has happened within the year and being responsible and accounting for the environmental and economic damage to the planet. Social reporting can be shown to help a business because it is holding itself accountable for damages on the environment and putting a value on the impact they are causing by producing products. This improves the image to the stakeholders because they are taking the responsibility which therefore means that they’re reputation and brand image might be improved when stakeholders look at the business. This is because Corporate Social Responsibility is an increasing factor when choosing a company to invest/ work for or buy products from.

The EU has introduced the new legal requirements as regard to social reporting. It is said that it is required that companies should include both financial and non financial performance factors in their social report.  This is all dependants on the size of the company. If it is a small company as in it has less than 50 employees, and has a turnover of less than 5.6m then it is not required to include a business review. If the company is medium sized, which means they have no more than 250 employees, and a turnover of less than 22.8m, then it is required to produce a business review but the non financial performance factors is not compulsory. If the company is large and has a turnover in access of 22.8m and more than 250 companies then it is required by law to include both financial and non financial performance factors within their business review. Therefore BP will have to include both Financial and non financial performance factors within their business review.

Social reporting has alot of value when it comes to stakeholders and shareholders making decisions about the company. A way it has a value is that it helps stakeholders make informed decisions about the company as a public view and a view for the media. All stakeholders can make decisions about if they want to engage with the company or not. For example, BP has shown in their sustainability review the safety of employees is reviewed and revels that in 2010, No employees that are directly contracted by BP have been involved in a fatality but they have had 1,284 recordable injuries which can be a big factor for potential employees whether or not they will want to be involved with the company.  They have also a labour turnover of 15% which is just above the industry standard of 14%. These impacts will involve the stakeholder wanting to get involved within the business as well because they can judge how good the industry by how much staff turnover they have. The environmentalists will also be concerned with the impact of the organisation on the physical environment and carbon footprint, which BP has a bad reputation on within this area. This is because they have had 142 land and water oil spills and have been fined $52.5m in 2010 alone.  This was shown in the recent Shareholder Annual general meeting when protestors for the environment was protesting outside the building and tried to get inside the building and create awareness for the environment and hope to portray the anger of environmentalists and to influence the shareholders decisions about the company.

Another value to having a social report for non financial aspects is to attract and motivate retaining employees. This makes it easier, increased productivity and lower labour turnover for the company. Because the company can attract potential employees for the company and provide information for current employees working for the company in regards to safety and environment and employee statistics. BP does not really have a good reputation in regards to environmental factors as regards to the 1bn cleanup costs for the gulf of Mexico oil spill and numerous fines within 2010 as regards to health and safety and environmental breaches. However, if BP increase their reputation by making stakeholders as well as shareholders happy, then it may be able to lower the labour turnover to meet the average industry standard and will be able to gain more employees at a lower cost to the company because if they can guarantee less recordable injuries and fatalities, then the chance of BP gaining employees for less cost is more guaranteed.

As well as many values to having a social report, there is also limitation into social reporting. The first possible limitation to social reporting of information, especially providing quantifiable information as regards to comparing companies. Most large companies have to provide information about employee and environmental statistics, but in some cases, it is not good enough to make informed decisions between companies. Most companies do not make information easy to interpret. For example, BP have statistics on safety, environmental and ethical factors but do not compare them to other companies or the industry standard, therefore the stakeholder cannot make an informed decision as the social report does not make the statistics they are using useful as it is not compared to industry standards and competitors and government guidelines this shows that it is hard to measure CSR performance as they stakeholder does not know the industry standards the majority of the time, thus the lack of accurately on the report without the stakeholder finding out other facts and figures which can be costly and time consuming to measure the performance of the business. This is shown throughout the BP sustainability report.

Another limitatation in social reporting understands the data. It can be very hard to understand the data which is provided in the social report. For example. BP have shown in their facts and figures that is provided such as profit and loss of different areas in the industry and the fact that they have alot of information being given at once, which is hard for the stakeholder to understand, especially the terminology they use within the social report. This also provides a lack of justification to figures and explanations as it can also be biased and only provide information they want to. This is possibly the reason why they have not included averages and other company statistics.

Overall the value of social reporting is valuable into making informed decisions within stakeholders such as employees and potential investors and making informed decisions when it comes to being involved with the company. It is also a legal requirement for the large companies to report on non financial factors, even though these are very basic. This is shown by facts and figures within the reviews that the company makes. Although the limitations of social reporting can outweigh the benefits of social reporting because the information given within social reporting can be useless because the data cannot be compared by averages easily and alot of data is shown at once using the wrong level of detail, making it hard for the average stakeholder to make a decision and also the information that is legally required can be very basic, and therefore biased.

                                   

References:

http://www.bp.com/liveassets/bp_internet/globalbp/STAGING/global_assets/e_s_assets/e_s_assets_2010/downloads_pdfs/bp_sustainability_review_2010.pdf

http://en.wikipedia.org/wiki/Social_accounting

http://www.nobscot.com/survey/survey.cfm

http://www.defra.gov.uk/environement/business/reporting/pdf/envkpi-guidelines.pdf

http://www.bbc.co.uk/news/business-13089167

To what extent do you think objectives relating to corporate social responsibility should be impact over the other Corporate Objectives

Corporate objectives are goals or target that concern the business as a whole. The objectives are the broadest objectives at the top of the business being made by either the owner or the board of a large company. These objectives filter down into Functional objectives and business targets in order to make these corporate objectives achievable and targets must be SMART in order to for fill corporate objectives. This gives them a sense of direction, which can aid efficiency, teamwork and motivate employees. This also evaluates performance, this means that a sense of control of the company as they are striving for something and can see how far they are away from achieving the targets.

Usually, corporate objectives usually are regarding the amount of profit, sales revenue or marketing share they can improve by.  These objectives are designed with the interests of the shareholders as they are the main people which influence decisions as they are investing shares into the company. These are able to maximise efficiently in order to gain a higher profit margin overall so the “Risk takers” known as the shareholders will be able to get a higher dividend. Corporate social Responsibility takes into account that businesses should serve the interest of a range of stakeholders such as the community it is impacting on, the environmental factors of the actions being taken to make and sell product and positive and negative effects on the community such as employment to pollution. In the present day, the businesses have a more CSR approach when making corporate objectives for the business rather than the traditional, free market approach for businesses to make objectives based on efficiency.

The free market view of CSR argue that the businesses only have one social responsibility, and that is to make a profit in order to give shareholders to their dividend as it is the reason why a business was created- to benefit the owners or “Risk Takers” that are investing into a company. Profit is seen to be the most motivating force in a business and the search for profit in a competitive market and become market leader which also makes the business more powerful as other businesses react in a way which the market leader does. This means that they have to be more innovative with the products and cash cows which they need to make and design. For example, McDonald’s launched their snack wraps on July 1^st 2006 and provided a new way of healthier food, which in turn made McDonalds more profitable as it entered new markets in the industry In order to gain more market share and sales revenue.  Because new innovative products need to keep the costs down in order to maximise the profit margin, they are made in order to 30% of the actual cost of the product in order to have a profit margin, therefore as Snack Wraps cost £1.49 which means each product has to cost 40p in order to comply with the finance objectives and gain a decent profit margin.

Also, they will argue that as they only have one social responsibility, it will help benefit many other areas without effort. These would include the customer, as they have better quality products, and lower prices available to them. They would also provide a service to the community as in help keep unemployment low, and also help employees to have job security when running a successful efficient business; therefore they will have an interest in company profits if it lets them keep their jobs. Profits are also essential to finance as the growth of a business by either retained profit or finance, this is only available to profitable firms and also gives better benefits to the community. For example: they are looking to open 30 drive thrus every year within the UK which will in turn give job opportunities and more market share and numerous benefits to the community. This also will be seen a good brand image as the UK is in a period of high unemployment and they are creating jobs, rather than the global company expanding and the profit side which is seen to put a positive “Mask” over the companies’ objectives and have a positive impact through the shareholders decisions.

If a company wishes to also be socially responsible, this means they will have higher costs such as fair trade products or sustainable products which are certified by an external body. These reduce the profit margin as they are more expensive and harder to be cheaply produced. For example, more restaurants in the UK offer a refusal of refills now they Rainforest alliance certified but only offer a loyalty scheme which is “buy 6 cups, get the 7^th free”. This shows that because they are using a sustainable source, they have had to pass the drawbacks onto the customers as they cannot have refills every time they buy a cup of coffee.  This shows that to keep the costs down, they have had to adjust policies in order to maintain their profit margin.

The case for objectives relating to CSR is that the large business is having an impact on the environment and community that they have a right to expect that they accept some degree of corporate social responsibility towards various groups of stakeholders. For example, McDonald’s are seen as a unhealthy company and relate to a higher rate of Obesity and Heart disease therefore, in order for them to be seen as more socially responsible, they have had to put healthier eating and a more wide range on their menus, but still be able to prepare them quickly in order to fit with the corporate objectives for example, the chicken and bacon salad and the use of advertising such as Carrot sticks and fruit bag instead of Small fries being advertised, so they cannot be held responsible as they have had the choice to decide a healthier option or not.  This means that other stakeholders such as Customers and the community are happier because of the choice, even though this still benefits the shareholder as most Happy Meals are served with fries still, even though they are advertising the healthy option which also shows CSR as they are taking responsibility and providing alternatives for the public. The importance of CSR has increased; therefore the awareness of this with other stakeholders has increased about the long term effects on businesses, such as obesity and healthy eating in this case. This means that therefore, McDonald’s have objectives relating to healthy eating and the environment in order to show other stakeholders that they care. An objective that McDonald’s stores have is to reduce utilities by 4% which is seen to be more socially responsible, but also increases profit margin as they are keeping costs down.

The other perspective on CSR is that it is neither based on the free market, nor the moral case for CSR.  This means that CSR can be incorporated while making it profitable and have the most impact on all stakeholders, rather than maximising profit in order to satisfy one type of stakeholder. This can be summed up in an expression which is “Doing well, by doing good”.  The annual report of McDonalds in 2009, shows that the use of innovation and providing healthier products and having CSR friendly objectives, means that they can also maximise profit as they are gaining a larger market share and more sales revenue due to accepting  to be socially responsible but not necessarily proved that it was because they are incorporating CSR. McDonald’s are shown to be more successful and growing because of a meeting incorporating CSR into objectives, including having social objectives such as energy etc. One objective is to reducing waste by recycling cardboard which is not food contaminated and turning 10% of the waste which is oil to biodiesel.

In conclusion, I think that large companies provide a profitable free enterprise, or “Free market” while remaining more socially Responsible then the past. This means that the business can be create CSR objectives such as creating biodiesel from waste and also remain profitable as they are cheap products and some CSR objectives give advantages to the free market as they can help to reduce costs, such as “Reducing utility bills by 4% every year”. This shows that incorporating CSR means that the free market can benefit from being socially responsible, therefore corporate objectives should be made with profit in mind but have an impact on being socially responsible in order to improve brand image and loyalty through other stakeholders and ultimately grow and gain more revenue.

References:

http://en.wikipedia.org/wiki/McDonald's_products

http://www.mcdonalds.co.uk/static/pdf/aboutus/education/mcd_finance.pdf

http://www.mcdonalds.co.uk/about-us/development/overview.shtml

http://rainforest-alliance.org/newsroom/news/mcdonalds

http://www.makeupyourownmind.co.uk/questions/how-do-you-operate/drinks/#question2

http://www.mcdonalds.co.uk/ourworld/environment/waste.shtml

http://www.aboutmcdonalds.com/mcd/csr/report.html

http://www.businessteacher.org.uk/business-resources/swot-analysis-database/mcdonalds-swot-analysis/

The extent which the government should influence Corporate Social Responsibility

Governments can influence CSR in private sector businesses by imposing different techniques to force firms to adopt CSR and not become large profit businesses with no boundaries while governments must not jeopardise the future for the sake of current generations. The government can influence CSR by doing many techniques. These include creating legislation in relation to health and safety, employment tights and pollution, Grants for Research and Development into renewable energy for example, BP to use more environmentally friendly oils such as bio fuel in power stations in order for BP to create a better branding image and provide a lower carbon footprint. They can also impose contracts which require firms to accept CSR and discriminate against irresponsible firms so they can be dealt with by the government.

Businesses often are not socially responsible because of having a profit motive. If governments did not influence CSR, then the companies would be likely to provide ruthless profits to detriment of the rest of the community although businesses are willing to accept CSR with incentives from the government. Governments use some techniques in order for firms to not do this and force them or encourage them to accept CSR. For example, BP had a massive negative impact on the environment when they had an oil spill in the Gulf of Mexico; this means that this has had many impacts on industries such as fishing and tourism. The government has then had to step in and give BP the oil fines for cleaning up and damage to other industries. This fine came to $34 Billion and a full report by the US government into steps to prevent this happening again. This will depend on the tests done and how accurate the data they have collected. Because BP have had a massive negative effect on the environment, this means they have made less of a profit margin, meaning that people are selling their shares and withdrawing their investments, which can be seen today as the price per share drops when a disaster like this happens which in turn finds it harder to raise finance and gives them a negative reputation. Also influences that the government have to give consideration for is the companies such as large supermarkets which exploit smaller firms such as suppliers which they give harsh terms to as the large supermarkets will have orders which compensates from most of their revenue, but this depends on how large the firm is as to the action taken.

Another reason in which that the government has to influence CSR is the dangers of the pollution and the growing pressures from scientists for the government to do more on Global warming- Businesses being one main contribution to the countries carbon footprint and has been seen as one of the most challenging targets for mankind. The government can offer incentives such as receiving grants and rewards to be socially responsible. For example, if an irresponsible firm can have a grant into research and development into renewable energy, then this will impact the businesses environmental image and impact which will in turn, lower costs for the business and offer an incentives for shareholders to buy into renewable energy for the business as this doesn’t impact on costs and profit margins. The government have to influence businesses when it comes to pollution because it is invisible and it creates problems for future generations environmentally. As the carbon emissions go into the atmosphere, the future generations face greater natural disasters as global warming temperatures increase therefore the government has to try to reduce this in order reduce carbon emissions. This will depend on the political party in government and their attitude to CSR and environmental, and also the economic state of the country. The government also has to comply with EU laws so, therefore the national government has to enforce laws in compliance with EU pollution laws.

Some say, the government is damaging the “Free market” of business and enterprise if they have too much impact on the techniques used by the government as the ability of a business to be successful by having profit coming in rather than being socially responsible. A free market economy has little restrictions or minimum requirements and are said to benefit the community socially for a number of reasons. For example, a free market ensures that businesses supply the goods which people need, For example, BP selling oil to people with cars and have different types of oil which cater for everyone. They also have competition to keep the costs low and offer goods to the consumer at a fair price. This can be shown because BP have to be in line with Shell and other competitors, but as the resource of oil is running out, it can be argued these will have to change business products as the price of oil will be more expensive then Researching and developing products to spur on environmentally friendly cars which run off biodiesel or electric cars. This can also be done by reducing the amount of fuel used in cars and making them more efficient as in regards to MPG. The growth of businesses and the free market also provides high levels of economic growth and raises living standards. For example, because everyone needs oil and it’s bad for the environment, the government can only impose tax which limits the profit which they can have. Because the tax is so high, with $200m of taxes each year from big oil companies, it funds most social programmes and public resources. This limits the economic growth and has to balance the impact on the environment and businesses being socially responsible and the concept of a free market and free enterprise.

In conclusion, the government can influence a business’s attitude to CSR with different techniques mentioned above. This can be done by offering grants to become environmentally friendly to providing CSR with protection in order to force the large companies to become socially responsible without damaging free enterprise and the free market. This is because private sector businesses provides jobs to the nations, and provide economic growth. This is said to dramatically limit the amount of regulations and legislation they can enforce without damaging the economy, although the government has to look after the environment. This shows the government can enforce different techniques to help businesses to reach the minimum requirement of being socially responsible but enough penalties for them to abide by the rules while still allowing free enterprise to grow and let other entrepreneurs to be able to innovate and have the opportunity to provide economic growth. This can depend on the political party in power and their approach to businesses and the environmental policies they have as some government political parties such as green peace will have more environmental laws then someone from the conservative who believes in free enterprise and the concept of the private sector can look after itself type of attitude.

References:

http://www.bp.com/sectiongenericarticle.do?categoryId=9019116&contentId=7034794

http://www.guardian.co.uk/environment/2010/jun/14/gulf-oil-spill-34bn-fines

http://www.bbc.co.uk/news/world-us-canada-12125559

http://www.google.co.uk/finance?client=ob&q=LON:BP

http://www.bp.com/productlanding.do?categoryId=9081&contentId=7056835

http://www.bp.com/sectiongenericarticle.do?categoryId=6&contentId=7019358

http://blogs.forbes.com/energysource/2010/04/05/big-oils-tax-bill/

The influences determining which responsibilities are accepted by a business and which are not.

The suggestion in this is which responsibilities which can be accepted by a business. This includes going from satisfying shareholders to pleasing the government by going against the minimum legislation for the environmental and accept a high degree of responsibility of customers and to be a good employer and who has the power to have responsibilities within a business.

The first responsibilities which a company is seen to have is to comply with minimum standards and legislation and regulation and to comply with the law. This is to make sure businesses are socially responsible to the minimum extent for the business such as working conditions, minimum wage, and other legislation such as environmental pollution and how to store food, sell food and nutrition etc. For example, in the USA, as they are a multinational company, they regulate under the FDA (Food and Drug Administration).They’re regulation is to have good employee hygiene, Food storage and Nutrition Labels under regulations. The impact on this multinational company is that if they fail to comply with these, it will result in closing down the restaurant or Hefty fines. These regulations will be similar across the world in food regulations and this will depend on the amount of money which will have to go to towards fulfilling these regulations as the fines and closing of restaurants will outweigh not abiding by the regulations which means the restaurant must do this. The fines for failing health and safety range between £100,000 and £250,000 not including legal costs. This means the company will comply with the rules as the fines are so high. The success of this will depend on the size of the fine, in relation to the size of the firm, for example, if they have a fine which is not large compared to a multinational company, then the business will be willing to pay this. Also, if the costs will be less than the equipment and lawsuits etc in relation to the fine, then they will be able to keep paying the fine as it will cost less.

Stakeholders have alot of power and interest towards a business or they would not operate in the modern day, this means that these external influences on the business have power they can have over the business. One of these external influences is Shareholders. In the power to interest matrix, they are seen to have a high interest and high power within the business. This is because they are investing their money in the company’s shares which are making them more in demand and valuable and take part in decisions. These are the people with a high interest and high power as they invest into the business. This means the business has to listen to the shareholders and CSR is harder to achieve. For example, McDonalds shareholders in 2010, decided to vote on the proposal of using cage free eggs or not. Cage free is whether they should use cage free eggs or not in restaurants. The outcome was that 77% people will be against the proposal and 18% of people abstained from voting. This means that because they are bound by law to listen to the votes of the shareholders, it makes it harder for the business to incorporate CSR as shareholders aim is to make production cheaper and maximise profit margins in order to get more dividends per share. Free range eggs costs more to produce because of the amount of land and maintaining the chickens, therefore because shareholders want more dividends, they would want to keep costs down as they would get a lower profit margin if they just maintain sales therefore they will have a lower profit margin which lowers the productivity and efficiency of the business as it costs more to be more socially responsible.  Shareholders can exert their power by either demanding as a group in a vote that an action is carried forward as it is a legal requirement, but they can also withdraw investments from the business, therefore making the share price lower as they are not in demand and makes it harder and more expensive to raise finance. The power of this will depend on the amount of influence their business decisions will have for the company, so if they make a decision which worsens brand image and customers do not like the decision, they might have the power to override them as they are consuming the product.

Another stakeholder who has alot of power in the business is the customer. They have alot of power because they can withhold purchases which can be a significant threat to a globalised company which depend on word of mouth and heavy advertising in order to sell the most products. An example of this is that some customer such as environmentalists do realise they have the power to change the company, such as not buying specific products which can help stop certain actions or products within the company. They have tried to combat it by offering promotional such as The Monopoly triple play promotion in order to keep customers satisfied such as offering different foods within the menu but make sure they can keep the speed and quality by changing them every 6 weeks. The customers would be under Category C under the stakeholder mapping power interest matrix. This means that as long as McDonald’s satisfy their customers by holding promotional etc and acknowledge customer interface such as the website “Make up your own mind”. This means that customers will not use their power as they undermine it within themselves. The matrix explains the level of interest and the amount of power they have. They will be a category C because they have a low interest but a high power. This will depend on the quality of the products they have within franchised and none franchised restaurants in order to maintain positive customer branding in order to keep the customers satisfied. Environmentalists can affect the firm by protesting and if they all came together, they would be able to make better conditions if they lower the profit margins of the business by their actions. If customers are disappointed enough, then they will have a high interest and will be able to influence shareholder decisions as they are the people which consume the product and want a product which they are going to buy. This means McDonalds would have to respond to make their customers happy in order to gain a higher profit margin, which may change shareholders opinions on the “free range” eggs issue as the benefits of this would outdo the rewards.

There are many other stakeholders who can be taken into account such as the government, community and employees. These powers can be quite strong and have a high level of interest such as the employees which makes them a strong factor in keeping them happy as they make the business more efficient, to stakeholders which are very weak such as the community or the government because the government only have the power to do something if they are failing to comply with the law and only make minimum requirements and the community neither have power or interest in order to be able to take action against a company, for example the community taking action to prevent large business to make small businesses go out of business.

In conclusion, there are many influences on choosing which responsibilities should be accepted and which should not. There will be a responsibility to for fill the legislation of the business, not necessarily to not be able to pay the fine, but because of reputation and brand image.  The other influences which will be impacted our customers, as they have a low interest and high power, they have the influence whether to buy the product or not, therefore if customers are disappointed, then their interest will increase because they will not buy the product and look for alternatives, if they are deciding they do not like the product, they will also change shareholders decisions as they are investing in a business that customers are not wanting.

The final main factor and most influencing power is the shareholders power. They have a high power and interest in the business, therefore they are trying to maximise the efficiency of the business and make it so they have the most dividends in return, which also shows the level on interest as it is in their best interest to maximise the firms and create a brand image and a product which they will like so therefore they are able to maximise their dividend. They can minimise the threats of the other stakeholder as they have influence of the business such as a business complying with legal, governmental, communities and consumers which have different strains on the business. Increasing the reputation of the brand image therefore means that it would help brand loyalty with consumers and therefore a higher profit margin can be earned.

References:

http://www.egglandsbest.com/egglands-eggs/farm-fresh-eggs/cage-free-and-organic.aspx

http://www.aboutmcdonalds.com/mcd/investors/for_shareholders/2010_Voting_Results.html

http://www.ehow.co.uk/list_7269126_fda-regulations-fast-food.html

http://www.makeupyourownmind.co.uk/

http://www.corporateaccountability.org/dl/HSEOffences00.pdf

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.

References:

http://hbr.org/2011/01/the-big-idea-creating-shared-value/ar/1

http://www.makeupyourownmind.co.uk/reports/louise-burton-s-visit-to-a-cambridgeshire-beef-cattle-farm.html#anchor1

http://www.mcdonalds.co.uk/static/pdf/ourworld/Environmental_Booklet_June_2009.pdf

http://www.makeupyourownmind.co.uk/questions/how-do-you-operate/suppliers/#question14

http://www.makeupyourownmind.co.uk/questions/how-do-you-operate/corporate-social-responsibility/#question6

http://www.makeupyourownmind.co.uk/question-search?key=organic+milk#question1

http://rainforest-alliance.org/green-living/marketplace

http://www.faifarms.co.uk/

http://www.aboutmcdonalds.com/etc/medialib/aboutMcDonalds/investor_relations0.Par.17264.File.dat/2009%20AR%20Report%20-%20Print.pdf

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