Why are firms becoming more socially responsible?
In recent years, there has been a trend, particularly among large organizations, to adopt a more socially responsible approach to their business activities. In various marketing textbooks, this concept is usually explored when discussing marketing ethics and the role of a company in the overall market place.
The overall concept is also reflected when marketing textbooks discussed the various marketing philosophies that have evolved over the last century or so. These textbooks highlight the transition from a marketing concept to what is known as a societal marketing concept. In the latter concept, companies seek to add value to the overall society and in the communities in which they operate.
Why the shift to corporate social responsibility (CSR)?
There are numerous drivers in the marketplace that have encouraged larger companies to be more socially responsible, as discussed in more detail below. But the key drivers for firms becoming more socially responsible are:
- Government legislation
- customers expectations of firms
- consumer lobby groups
- the extent of costs involved
- the type of industry in which they operate
- the potential for competitive advantage
- top-level corporate culture
In many countries across certain industries, the government has imposed legislation that requires companies to conform and behave in a certain manner. In this case, however, the organizations impacted by this legislation are only complying with various requirements because of regulation. They may or may not be willing to incorporate social responsibility initiatives into their day-to-day operations of an overall strategy.
Examples here would include legislation relating to environment, pollution, use of workers and conditions, product disposal, materials used in production, and so on. Therefore, this is not necessarily a driver of corporate social responsibility, but is adopted and followed by companies as it is a requirement imposed upon them by government.
Customers’ expectations of firms
Consumers are becoming more aware of social and environmental issues and the consideration of the future is becoming slightly more important when consumers consider purchase decisions. As a result, some consumers will have an expectation that certain companies behave in an appropriate manner, relative to society and the communities.
For instance, Disney has faced significant criticism in the past relating to the use of low paid workers in developing countries to produce toys, games and novelties. Likewise, some consumers have been critical of KFC because of the conditions that their supply chickens are held in. The changing expectations of consumers has resulted in firms being more responsive to these issues and adopting a more corporate responsible outlook
Consumer lobby groups
In conjunction to the previous driver of corporate social responsibility, the Internet and social media has made it much easier for consumer lobby groups to form, to generate attention and adverse media coverage, and therefore achieve its goals of change.
Typically, these consumer lobby groups will target large and well-known companies within industries that adversely affect the environment were deemed to not provide a of product value. For example, Walmart is often the target of lobby groups because of their perceived actions and impact on local communities and business centers. Another example is McDonald’s, who are frequently criticized for the perceived impact that they may have on obesity and people’s health.
Therefore, larger companies who are more likely to be the target of lobby groups, become more likely to be willing to be engaged in corporate social responsibility initiatives.
The extent of costs involved
A shift to increase social responsibility may come at a reasonable cost to the organization. For example, a manufacturer choosing to manufacture its products in more developed countries or choosing to pay the production workers are much better salary – rather than “exploiting" unskilled workers in developing countries – will significantly impact their unit margin and overall profitability.
However, a bank can shift its customer bank statements from paper-based to electronic (known as e-statements) on the basis that they are saving lots of paper – but this has the impact of reducing costs for the organization. Likewise, a major hotel chain can encourage its customers to reuse their bath towels each day. Again the hotel can claim an environmental benefit of reduced water and power usage, all the while delivering themselves a reduction in costs and increase in profitability.
Therefore, where the social responsibility initiative represents a win-win scenario, an organization is far more likely to implement it.
The type of industry in which they operate
There are a number of more significant industries where there is greater pressure an expectation on the firms to become responsible corporate citizens. Following the Global Financial Crisis, there has been in increased expectation on banks and other financial institutions to be more transparent and ethical in their business operations.
Obviously manufacturing is another industry that has greater pressure on it – particularly heavy manufacturing where there could be significant pollution, or large companies deciding to manufacture in developing countries, or manufacturers who have issues with product disposal (e.g. mobile phones and batteries and chemicals).
Potential for a competitive advantage by image
There are some companies that are attempting to build their core image, or at least parts of their brand association around their socially responsible behavior. Some companies will highlight that they are ethical manufacturers – Etiko is one such manufacturer, and bankmecu is a financial institution that rewards customers with cheaper home loans if they have environmentally friendly houses.
In this case, these types of organizations are truly practicing the societal marketing concept. They are foregoing some profitability in order to contribute to society or to certain communities.
Corporate culture and top management values
Corporate social responsibility is also a reflection of the overall corporate culture and of top management values. In other words, how important is making a contribution to society to the senior management of the organization? This will guide how embedded social responsibility is the overall strategy, or is it simply an exercise in publicity?