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Impact of Corporate Social Responsibility

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Impact of Corporate Social Responsibility on Corporate Image andIdentityANAND CHOUDHARYAssistant Professor Human Resource Management AmityUniversity PatnaAbstractThe current article is a conceptual work exploring the potential impact of corporate socialresponsibility (CSR) on corporate image and identity globally. The findings reveal that CSRhas a strong and positive impact on company image as it creates a positive image of theorganisation in the minds of the stakeholders including employees, suppliers, partners,shareholders, local communities among others. The findings also bring to light that CSR addsvalue to the organisation by reducing the cost and risk of doing business, adds to the reputationof the companies, harnesses greater competitive advantage, and creates a win-win situation forall stakeholders. The results may have important implications for multinational corporations(MNCs) operating in developing countries, development agencies including the United Nations(UN), UNCTAD and researchers working in the field of CSR, stakeholder management,branding,Key words: CSR, Corporate Image, Credibility, StakeholdersIntroductionIn today’s fast changing and highly globalised world environment, the image of an organisationis often central to the organisation’s competitive strategy both for its short and long term futurebecause it serves as the foundation or basis which directly affects the organisation’s financialbottomline. Corporate image works by developing credibility in the minds of the customers byensuring quality, consistency and security (Werther & Chandler, 2005). On one hand suchcredibility ensures that existing customers remain loyal to the brand while customer baseincreases, on the other hand the company invests more in research, development of the currentproduct, advertisement of the product and it’s distribution, with the aim to further strengthenthe company’s brand image and value for customers and to increase the company’s sales andrevenues. However, apart from other things, a company’s image also significantly rests on it’svalue proposition and the perceived image in the eyes of the stakeholders including itscustomers and other people. According to Levy (1999), consumers would reward thosecompanies whom they consider to be socially responsible and who may support and contributetowards some social cause. However, the stakeholders including the customers and localcommunities living where a particular business is based can also punish those firms who areIJRDO – JOURNAL OF BUSINESS MANAGEMENT SSN: 2455-6661Volume-5 | Issue-3 | March,2019 85considered to be insincere in their efforts with issues which are considered to be socially relevantor who are found to be indulging in unethical business practices (Sen and Bhattacharya, 2001).For instance, according to a survey on consumer preference conducted in the United States andCanada, the majority of the respondents said that they form impression about a particularbrand partly on the basis of the company’s ethics, environmental impact and socialresponsibility (Allen & Root, 2004), whilst damage to brand loyalty and company image canprove to be devastating for any organisation, as happened with Nike which is a world-famousglobal brand in the late 1990s1. During 1990s, the company was accused of outsourcing itsmanufacturing activities to suppliers in developing countries including Vietnam who werefound to be using child labour in their factories. When the news got out, there was massivepublic protests by ordinary citizens in places including New York against the company andNike suffered huge losses resulting from tremendous reputational damage at that time. It tookNike a lot of time and promises made to the people that the company in the coming future wouldonly choose those suppliers overseas who pledge to follow the same rules and guidelines againstchild labour as in the United States2. In addition the company had to work very hard as part ofit’s CSR initiatives to erase those memories from the minds of the people in order to establishitself again as a global brand commanding respect and credibility. Similarly GAP which is afamous brand, manufacturing garments had to suffer huge damage to its brandname when itwas found that the company’s suppliers in India were using child labour in ramshackle factoriesin Delhi in the year 20073. As a result of those scandals in the past which threatened to tarnishthe companies’ image as well as survival, brand managers today are extra vigilant and remainon their toes when it comes to protecting their corporate and brand image against any sort ofbad or negative publicity which might hamper their reputation. It’s here that CSR comes inhandy to the managers globally, as those companies who are recognised to be ethical andresponsible corporate citizens by the stakeholders are in a better position to manage risks andany sort of externalities related to their brand image (Zadek, 2000).Brand Image and ReputationIn a fast and rapidly changing globalised world, companies are constantly under the lens ofgovernment and environmental bodies, NGOs and multilateral development agencies and haveto work extra hard to protect their brand image and reputation. According to Keller (1993),“Brand image is the perception about a brand as reflected by the brand association held inconsumer’s memory”. Whilst according to Herzog (1963), Brand Image is “the sum of the totalimpressions a consumer receive from many sources”. Following the global economic crisis in2008, several large business conglomerates were accused by many including the common peoplefor causing it due to their unscrupulous and unethical business practices, which they arguedresulted in job loss for millions and lifetime savings in banks being wiped out and thereby1 http://www.nytimes.com/1997/11/08/business/nike-shoe-plant-in-vietnam-is-called-unsafe-forworkers.html2 http://www.nytimes.com/1998/05/13/business/international-business-nike-pledges-to-end-childlabor-and-apply-us-rules-abroad.html3https://www.theguardian.com/business/2007/oct/28/ethicalbusiness.indiaIJRDO – JOURNAL OF BUSINESS MANAGEMENT SSN: 2455-6661Volume-5 | Issue-3 | March,2019 86causing havoc and innumerable hardships to the lives of millions of those affected. This causeda lot of resentment in the public against big businesses and fuelled several protest movementsby the people such as “Occupy Wall Street” in different parts of the world (Crane, 2013). Itforced the large MNCs to respond to the challenge which severely threatened to endanger theirbrand identity and questioned the very reason for their existence? The MNCs responded to thechallenge by adopting more people-centric policies and initiatives for local communities insocieties where they operate as part of their CSR policy and initiatives, in order to regain theirsocial acceptance among the people whilst earning their ‘social licence to operate’ as well as toreestablish their brand’s image and identity.The Link Between CSR and Protecting Brand Image and ReputationThe concept of CSR has grown significantly in the last few decades since Bowen’s seminal workentitled “Social Responsibilities of the Businessmen” (1953), which is arguably considered asthe beginning of the modern period of literature on CSR (Carroll, 1999). Since then it has beenthe subject of numerous debates, theory building and research among academics, corporates,governments, NGOs and the people world over. However, despite numerous arguments andgrowth in the literature on the subject, no consensus has been achieved till date as to what CSRmeans and what it embraces. The idea that businesses have some responsibility towards societybeyond that of making profits for shareholders has been around for centuries (Jenkins, 2005),however, what those responsibilities might or might not entail have been the focal point of thedebate globally all these years. According to Dahlsrud (2008), who conducted a comparativeanalysis of 37 different definitions of CSR, refers to CSR “as a social construction and as such,its not possible to develop an unbiased definition” (Dahlsrud, 2008, pp. 2). Whilst according toMatten & Moon (2008), “CSR empirically consists of clearly articulated and communicatedpolicies and practices of corporations that reflect business responsibility for some of the widersocietal good. Yet the precise manifestation and direction of the responsibility lie at thediscretion of the corporation”. From being considered earlier as a voluntarily activity done bythe companies as part of their social and ethical responsibility (Carroll, 1991, 1979), towardstheir stakeholders, today CSR is being viewed by the firms globally as an effective tool not justfor creating goodwill among their stakeholders but also as an insurance against unforeseen andunpredictable things or events which may have the potential to damage the firm’s brand imagein the future (Muthuri et al, 2012). For instance, “Eighty-one percent of the executives in a 2005poll stated that corporate responsibility is essential to their business. They disagree about whatexactly ‘corporate responsibility’ means, but the majority believe that business should serve asa steward in society, and that it has a duty to investors, employees, consumers, communitiesand the environment” (Blowfield & Murray 2008, p.10). For a number of reasons, companiesnow have to work much harder to protect their reputation and the environment in which theydo business. Scandals such as at Enron and World Com in the past and most recently, the WallStreet financial scandals have shaken the trust in big business leading to heavy-handedgovernment regulation. Also the rapidly growing numbers of NGOs stand ready to do battlewith the multinational companies at the slightest sign of misbehaviour. Countless rankings andratings put pressure on companies to report on their non-financial performance as well as onIJRDO – JOURNAL OF BUSINESS MANAGEMENT SSN: 2455-6661Volume-5 | Issue-3 | March,2019 87their financial results, and more than ever, companies are being watched. Embarrassing newsanywhere in the world for example, a child working on an item of clothing with your company’strade name on it, can be put on the internet in an instant as happened with companies such asNike4 and Gap5 in the past. The growing concern over climate change is also one of the biggestdrivers of growth in the CSR industry of late and companies have had to have a serious look attheir own impact on the environment. In fact, 95% of CEOs surveyed in 2007 by Mckinsey, aconsultancy firm, said that society now has higher expectations of business taking on publicresponsibilities than it did five years ago6. Whilst a ‘Business for Social Responsibility’ reportcites a growing body of data – quantitative and qualitative – that shows the bottom line benefitsof socially responsible performance which include: improved financial performance, increasedability to attract employees, enhanced brand image and improved quality and productivity”7.According to Zadek (2010), companies increasingly adopt CSR strategies to (1) defend theirreputations (pain alleviation), (2) justify benefits over costs (the ‘traditional’ business case), (3)integrate with their broader strategies (the ‘strategic’ business case), and (4) learn, innovateand manage risk (New Economy Business case). Whilst in the words of Kurucz et al. (2008),companies engage in CSR activities to reduce cost and risk; (2) to gain competitive advantage;(3) develop reputation and legitimacy and (4) trying to create win–win outcomes throughsynergistic value creation for all the stakeholders (as quoted in Carroll & Shabana, 2010). Oneof the most famous studies exploring the link between corporate social performance (CSP) andcorporate financial performance (CFP) have been conducted by Margolis & Walsh (2003), whoargued that there is a positive relationship between a firm’s social initiatives and its financialperformance and those companies who are seen as socially responsible brands such as the Tatasin India or the Marks & Spencer Group in the UK are in a better position in dealing with andmanaging any unforeseen risk and externalities related to their business and reputation thatmay arise in the future.ConclusionFrom a reputational aspect CSR adds value and credibility to organisations whilst thoseorganisations who may not adopt CSR practices as part of their company strategy are moreexposed to negative publicity and loss of reputation which can pose a serious threat to their veryexistence as happened with companies like Nike, Gap and many others in the past. Thusalthough research may not have established a direct link between a firm’s CSP and itsprofitability (Geva, 2008), however, not being a responsible corporate citizen is without anydoubt prove to be highly damaging for a company’s reputation and brand value which wouldthen affect its financial bottomline negatively.4https://en.wikipedia.org/wiki/Nike_sweatshops5http://www.telegraph.co.uk/news/worldnews/1567849/Gap-sweatshop-children-saved-in-India-raid.html6The Economist. London: Jan. 19, 2008, Vol.386, Iss. 8563; p.37Leader to Leader, (2007), p. 57IJRDO – JOURNAL OF BUSINESS MANAGEMENT SSN: 2455-6661Volume-5 | Issue-3 | March,2019 88ReferencesAllen, J., & Root, J. (2004, September 7). The new brand tax. Wall Street Journal, B2.Carroll, A.B. (1999). Corporate social responsibility: evolution of a definitional construct.Businessand Society, 38, pp. 268–295.Carroll, A.B. & Shabana, K.M. (2010). The Business Case for Corporate Social Responsibility:A Review of Concepts, Research and Practice. International Journal of Management. Reviews,DOI: 10.1111/ j.1468-2370.2009.00275.x, pp. 85-105.Dahlsrud, A. (2006). How corporate social responsibility is defined: an analysis of 37 definitions.Corporate Social Responsibility and Environmental Management, September.Frynas, J.G. (2008). Corporate Social Responsibility and International Development: CriticalAssessment Corporate Governance: An International Review, Vol. 16, Issue 4, pp. 274-281.Keller, Kevin Lane (1993), “Conceptualizing, Measuring, and Managing Consumer- BasedBrandEquity,” Journal of Marketing, 57 (January), 1-10.Kurucz, E., Colbert, B. and Wheeler, D. (2008). The business case for corporate socialresponsibility. In Crane, A., McWilliams, A., Matten, D., Moon, J. and Siegel, D. (eds), TheOxford Handbook of Corporate Social ResponsibilityOxford University Press, pp. 83–112.Levy, Reynold (1999), Give and Take, Harvard Business School Press.Lodge, G.C. (2006), Multinational Corporations: A Key to Global Poverty Reduction – Part 1.Polonsky, M.J. & Jevons, C. (2006). Understanding Issue Complexity When Building a SociallyResponsible Brand, European business review, vol. 18, no. 5, pp. 340- 349.Sen, Sankar and C.B. Bhattacharya (2001), “Does Doing Good Always Lead to Doing Better?Consumer Reactions to Corporate Social Responsibility,” Journal of Marketing Research, 38(2) 225-243Werther, W.B & Chandler, D. (2005).Strategic corporate social responsibility as global brandinsurance.Business Horizons (2005) 48, 317—324Zadek, S. (2000). Doing Good and Doing Well: Making the Business Case forCorporateCitizenship. Research Report 1282-00-RR. New York: The Conference Board.IJRDO – JOURNAL OF BUSINESS MANAGEMENT SSN: 2455-6661Volume-5 | Issue-3 | March,2019 89
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