Explaining how CSR concept implemented in the business world

Today the implementation of business activities within a company has been extended not only related to the achievement of its own interests in terms of gaining economic profits internally, but also began to focus on the prosperity of its own employees along with their families and the other stakeholders of the company (e.g. the communities in the specific area where it operates its business activities or the society within a country in the large scale). The shift of the company’s decisions or policies on expanding its interests mainly comes into its idea as the proof in reflecting the company’s responsible actions towards its own employees along with their families and also for the sake of the society in a place where it operates its activities mainly that the company is not only exploiting their business activities in the home or host countries without paying more attention towards the societal and environmental situations that surrounding the company’s existences. And these kinds of actions in a business world are generally defined as Corporate Social Responsibilities (CSR) of the company itself.

There are so many perceptions in defining what CSR actually means for the company and also for the society or communities. Maignan & Farrel stated that CSR is a business acts in a socially responsible manner when its decisions and actions account for and balance diverse stakeholders interests (Maignan & Farrel, 2004). While the source coming from The WBCSD’s Journey, CSR defines as the commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and society at larger to improve their quality of life. Then, European Commission also stated that CSR is considered as an important concept in doing business whereby companies integrate social and environmental concerns in their business operations and in their interactions with their stakeholders in a daily basis. Based on those statements that coming from several resources, it could be summarized that CSR defines as part of business activities conducting by companies to responsible more related to the economic, social and environmental aspects that surrounding the place where they operate those activities in order to improve economic growth of the company (in terms of profits) and also as a form of their duties and responsibilities in protecting the condition where they operate in terms of sectors mentioned above by working together with the government of that place/country for achieving not only the company’s interests, but also towards their diverse stakeholders’ interests (including the government themselves).

The implementation of CSR definitions or conceptions can be seen on several elements it has on. Based on several references, it could be concluded that the element CSR has consist of 7 parts, such as corporate governance (by working together with the government to improve the transparency of public information related on its business activities and on the same time has the government’s approval on expanding the company’s CSR operations within the country), community involvement (which means including the community or society’s involvements on conducting its CSR activities in that place to achieve both the society and the company’s interests), human rights (in terms of protecting the rights of the company’s employees or workers, the society and other stakeholders from the abuse or other criminal actions that against the law within the company and the place it is working on), environmental protection (to reduce the impact of global warming or climate change which caused mostly from the company itself by involving with the society to follow several programs related to the process of clean environment in several places or creating the project related to the reduction of gas emission), competition (making its CSR activities as the best one and could attract its stakeholders to make them trust enough for the company as a responsible company, and that way it can compete with several companies within that country or place), business ethics (in terms of introducing the company’s business ethics and business models or values to the community or society) and products and services (on the same time also promoting its best products and services to the community indirectly within the CSR operations and on the same time also could make the company to have innovations on creating new ones for attracting its customers within the country).

As the continuation of the concept of CSR itself, there must be several points that the company will gain from the activity itself, especially in terms of the benefits and profits it had gotten. Several important points in terms of benefits and profits the company could gain on CSR operations are satisfying the employee and its customers along with other stakeholders (means that employee feels proud of the company they work for and makes that person to not look the job elsewhere. The same will be happened for the customers on several people within a community, where with a strong record of the company’s CSR activities it will make them to like that company by buying more products or services and will be less willing to change another brand), costs reductions (if the CSR programs are being operated properly, it will reduce the costs instead of decreasing the money the company has by more efficient staff hire and retention, implementing energy savings programs, managing potential risks and liabilities more effectively and less investment in traditional advertising), become long term future in the company’s business activities (since CSR is not something for the short term, large companies usually refer to “shaping a more sustainable society” and that way the activities will last longer) and generate profits by doing innovations on its products (by sharing the company’s values and ethics model to the community through CSR programs, for instance is though developing the quality of its products with high level of the company’s innovations, it will increase the company profits for its workers).[1][2]

The samples of these benefits can be seen on the case within Walt Disney. The Walt Disney additionally owns the ESPN and ABC networks, holiday resorts and publishing businesses to name a few. The result is a lot of social and environmental impact, as well as the ability to influence a huge amount of people. Accordingly, the company has set themselves strict environmental targets and disclosure their figures in the Global Reporting Initiative which provides a comprehensive set of indicators covering the economic, environmental and ethical impacts of a company’s performance. By setting ambitious financial targets together with environmental performance targets may sound like an oxymoron, but Disney has managed to do this with initiatives such as running Disneyland trains on biodiesel made with cooking oil from the resort’s hotels. They also created the “Green standard” to engage and motivate employees in reducing their environmental impact when working, having meetings, travelling and eating lunch. With more than 600000 staff, the results are enormous when everyone is pulling in the same direction. While their CSR efforts may have taken a great deal of organization, dedication and investment, in 2012 was considered as a record year for Disney’s profits. Then, there will be more elaboration on the company spending on its CSR resources to achieve three important values, namely as a corporate philanthropy, as risk management and the last is as value creation.[3]

The first one is the corporate spending on CSR to create its value as corporate philanthropy. In the case of Microsoft Corporation, giving donations and skills through establishing several projects and programs in certain places considered as the application of the company’s internal culture. The reflection of the company’s objectives on spending CSR resources towards those programs (part of CSR as corporate philanthropy) can be seen on its belief that every people in the world can develop and grow, since potential of a person is nurtured, not predetermined. That is why in order to achieve them the company implements its teacher learning and education learning programs along with becoming volunteers through supporting its employees on creating Employee Giving or Employee Volunteers for developing individual’s or communities’ capability, knowledge and even improving the prosperity of the society around the world in terms of economic, health, education, environment and other aspects of their life. However, this value is still considered to have little strategic and operational impact, since the benefits that the company had gained not always sustainable, especially in terms of the profit that it had gained. As we know that this value is just focusing more on the prosperity of the society by keep raising the company’s workers money personally in every year. The evidence of this statement could be seen on the fact that since in 1983, through Microsoft Giving Program, approximately 200 of its workers (as the volunteer) had raised their money personally around $17000 for giving donations and implementing several programs related to its CSR purpose.[4] It eventually impacted on the company’s budget because they are mostly allocated only for giving charities to the society. Aside from that, this value also made the company’s competencies and other business assets not fully utilized.

Then, in terms of spending CSR resources to achieve its value as risk management, it could be seen that to manage the risks coming from the company (whether they are related to the case of corruption, scandals or environmental accidents) towards the society that it should have to get along for as its important customers in the country indeed is a very important part of corporate strategies. Even though the company had built its positive reputation in decades around the environment the company has been living, they could be ruined in hours just because of small accidents. These can also draw unwanted attention coming from the regulators, courts, governments and media. That is why by implementing the culture of “doing the right thing” within the company could resolve all of those problems in order to gain trust not only from the society, but also from their government. There are 4 elements that should have to be fulfilled within this value, such as “moral obligation” or duty to act responsibly as a good corporate citizens, “sustainability” which defined as meeting the needs of the present without compromising the ability of future to meet their own needs, the company’s needs for “license to operate” as implicit or explicit approval from the government, communities and stakeholders and the “reputation” where CSR of the company to improve its images, strengthen the brands and increasing its values.[5] In the case of Microsoft, we can see that mostly its CSR projects are in line with the development goals of India and its commitment to MDG. And as the prove of India’s government approval on improving the CSR works within the company, Microsoft started to do a corporation with its government regarding in digital inclusion by ensuring that the documents used within the government like laws, annual reports and others to be public consumption (transparent). Another fact where Microsoft started to be a company that the society can trust even until today is that IT in India becomes one of the most contributing industries with the existence of the company’s CSR learning projects and programs which improved the skills in IT or business related for reducing the unemployment rates and poverty within the country.

In terms of value creation, it could be seen that Microsoft has begun to spend its CSR resources mostly to implement its core value as technology company that always giving innovations on its products and services. This value also is considered as the compilation of those two previous values. The achievement of Microsoft’s purposes and objectives in becoming an innovative company and keep implementing sustainable business model to the community could be seen through its CSR programs that had been conducted in India. Several projects that it had invented is not only by giving charities and such, but instead it started to give learning and education programs to the society in India related to the technologies that it had invented previously, along with learning programs on how to become successful entrepreneurs in a business world by giving the basic knowledge first. Not only that, the company also invented new technologies specifically just for the countries and its people in order to make them as developed society in terms of technology and economic business by keep preserving their cultures like their native languages (e.g. implementing Project Basha to give them easy access about issues and problems happened around the world by using their native languages as part of the application of Microsoft’s multilingualism principle). With these implementations, the company can share its main value in terms of technology innovation and its internal business model towards the society as part of development of human capital within the country in order to promote its competitiveness with other companies (to prove that the company still could compete with other IT companies through implementation of its CSR ideas as value creation).

Then, there is explanation about the model of Corporate Governance in the company. Corporate Governance itself usually defines as the mechanisms, processes and relations by which corporations are being controlled and directed. By putting it in a specific way, corporate governance is a system where the company being directed and controlled by the representative from government bodies in terms of internal and external corporate structures in order to monitor the actions of management and directors, thus the risks that coming towards the company and all of its stakeholders could be mitigated. Usually the governance structures and principles identify the distribution of rights and responsibilities among different participants in the corporation and including the rules and procedures for making decisions in corporate affairs. Historically, the appearance of corporate governance practices coming from what had happened in 2001, 2002 and in 2008, where there were so many cases of high – profile collapses of a number of large corporations due to the accounting fraud and also because of the experience of financial crisis during that period. In terms of corporate governance model itself, each country has different models according to the variety of capitalism in which they are embedded.[6] For some countries in Europe like in Germany and Netherlands, the model requires a two type Board of Directors as the means of improving the corporate governance itself, they are the Executive Board that comprise the company executives and generally runs day-to-day along with the Supervisory Board that contains of non-executive directors who represent shareholders and employees, hires and fires the members of the executive board, determines their compensation and reviews major business decisions. While in Italy, the model is applied in the absence of a different selection as per by the laws by dividing into two bodies such as an Administrative Body (a Sole Director of a Board of Directors whose number of members is chosen during the shareholders’ meeting, unless set in by the laws) and a Control Body (as the Board of Statutory Auditors).

The example is taken place on the corporate governance model in Gazprom Neft, the biggest Russian company in oil and gas industries. Even though this company is emphasizing agency theory within the structure (which seems to follow the Anglo-American corporate governance model), the primacy of shareholder rights is being mitigated. And instead it is increasing the importance of multiple stakeholders and institutional networks (e.g. banks as the prominent stakeholders) by using the governance model in both Germany and Japan.[7] The structure of the company’s governing bodies consists of The General Meeting of Shareholders (as the supreme governing body and covers the most important issues of Company business), The Board of Directors (exercises general and strategic management in order to increase the company’s shareholder value. It also monitors the work of the company’s executive management bodies to ensure such work is conducted efficiently; lead by Alexey Miller), The Management Board (a collegiate executive body that manages the company’s current business, lead by Alexander Dyukov) and The Chief Executive Officer (the company’s principle executive manager and acts as Chairman of the Management Board).[8]

The characteristics of CSR operations management and its business model reflected on the case of CSR activities in Samsung Electronics. Nowadays Samsung has supported the establishment of a CSR management structure by supplier companies and incorporated CSR activities as a part of its supplier evaluation criteria in order to further incentivize its participation in CSR activities. The CSR activity evaluation criteria consist of 20 different areas covering the EICC common code of conduct, including a ban on child labor, occupational health and safety and environmental management. The EICC recently had revised its code of conduct through collaboration with its stakeholders in order to strengthen member responsibility on CSR issues. The new code of conduct aside from what had been mentioned above includes a ban on use of conflict minerals (such as the case of child labor, sexual harassment and various human rights violations that occur in the mineral extraction process like what happened in Democratic Republic of Congo), compliance with privacy and information security laws. Thus, it can be described that the management system of Samsung Electronics based on Supplier CSR Evaluation Criteria divided into 4 parts, they are risk assessment and management of the Labor (e.g. voluntary employment, child labor avoidance, working hour and wage and welfare program), Ethics (in terms of Business Integrity), Health and Safety (e.g. emergency preparedness, occupational injury and illness, hazardous material management and protection of workers from hazard due to physically demanding tasks), along with Environment (e.g. international environmental management certification, safe management of hazardous substance, wastewater and solid waste management and air emissions management).[9]

pict 1

Figure 1 CSR Management Operations of Samsung Electronics

While in terms of business model of CSR activities in Samsung Electronics, there are 3 important points within the structure itself, they are the goals, CSR activities itself and the person who will get beneficiaries from those activities. Samsung’s CSR activities provide support for education to stop the transmission of poverty to the future generation, and ensure that everyone has a chance at achieving their dreams. It is also committed to ensuring that preschoolers have access to quality day care, and that primary school students can be exposed to the arts and humanities. While for more advanced students, Samsung is bringing high school and university students together so that high school students can gain tutoring and mentoring, while university students can get extra money for their own schooling.[1] The diagram below shows the basic business model of CSR activities from Samsung Electronics.

pic 2

Figure 2 Business Model of CSR activities of Samsung Electronics

[1] From the page of “Ladder of Hope” on Samsung Corporate Citizenship at www.samsunglove.co.kr/eng/csr/ladder.do, accessed on October 17th, 2015

[1] From the page of What is Corporate Social Responsibility? on www.csrinpractice.com/what-is-csr/, accessed on October 16th, 2015

[2] From the page of Corporate Social Responsibility Can Be Profitable on www.stlouisfed.org/publications/regional-economist/april-2009/corporate-social-responsibility-can-be-profitable, accessed on October 16th, 2015

[3] From the page of Benefits of Corporate Social Responsibility on www.sustainablebusinesstoolkit.com/benefits-of-corporate-social-responsibility/, accessed on October 16th, 2015

[4] From the page of “About Giving at Microsoft” in Microsoft Corporate Citizenship on http://www.microsoft.com/about/corporatecitizenship/en-us/serving-communities/employee-giving/, accessed on October 14th, 2015

[5] Fontaine, Michael. 2013. Corporate Social Responsibility and Sustainability: The New Bottom Line? United States: International Journal of Business and Social Science. p. 114, 115

[6] Kaplan, Steven N. 2012. Executive Compensation and Corporate Governance in the U.S.: Perceptions, Facts and Challenges. Chicago: Fama-Miller Center for Research in Finance

[7] McCarthy, Daniel J. Corporate Governance in Russia. Edward Elgar Publishing. p. 22, 23. Retrieved from https://books.google.co.id at October 17th, 2015

[8] From the page of “Corporate Governance: Structure of Gazprom Neft’s Governing Bodies” on Gazprom Neft: Annual Report 2011 at ar2011.gazprom-neft.ru/eng/corporate_governance/, accessed on October 17th, 2015

[9] 2012. Supplier CSR. Samsung Electronics Sustainability Report 2012. Samsung 2012 Supplier CSR FINAL pdf. p.46, 47

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Author: yatipakpahan

I'm just an ordinary woman who's full of sarcasm to other people I despise so much,so embrace yourself with my new attitude~~

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