This dissertation discusses and undertakes an analysis of some data gathered on Environmental Corporate Social Responsibility within organizations in the Fast Moving Consumer Goods Industry. The environmental social responsibility activities to be looked at within the selected companies are their water usage level, emissions, waste produced and total energy used with regard to being aware of environmental concerns. In this chapter, the aim and objectives of the study are outlined and a brief introduction is furnished.
1.1 BACKGROUND AND OVERVIEW OF STUDY
In recent times, there has been much debate about whether corporations should be socially responsible or not and also the extent to which they should be responsible. With the global recession at the moment, the future years will show if CSR has been taking on by corporations or if it is, as critics say, merely a marketing stunt designed to make their business attractive (The Independent, 2009).
The phrase social responsibility is often hard to pin down because of the fact that there are several schools of thought concerning this notion. Milton Friedman questions if companies are required to take responsibility for social issues (Kok et al., 2001, p. 286). He stressed that the sole social responsibility of any organization is to boost its profits through legal ways and that donating an organization’s funds to the society is harmful to the organization as this might reduce the organization’s profit or cause an increase in product price or, in exceptional cases, have both effects (Pinkston and Carroll, 1996). Some researchers on the other hand are of the opinion that because of the ever changing competitive environment in which businesses are carried out, it is essential that organizations incorporate some sort of Corporate Social Responsibility standard that will help foster its sustainability in the environment. Boynton (2002) asserts that social responsibility is “a value that specifies that every situation – from family to firm- is responsible for its members’ conduct and can be held accountable for its actions”. This research work supports the notion that organizations should continually engage in corporate social responsibility activities; therefore, as a conscious strategy, corporations must endeavour to incorporate environmental CSR in their diverse functions and operations.
Fast moving consumer goods (FMCG) also known as Consumer Packaged Goods (CPG) industries focus on the production of consumable goods which people require from day to day. Fast Moving Consumer Goods can be said to be “low price items that are used with a single or limited number of consumptions” (Baron et al., 1991). Examples of FMCG or CPG products are food and beverages, footwear, clothing products, tobacco and other general products. The FMCG or CPG industry is an umbrella for wholesale and retail consumer goods producing companies. A number of companies function within this industry: examples are Nestle, Procter and Gamble, Pfizer, Reckitt Benkiser, British American Tobacco, Cadbury and Smithkline just to mention a few.
According to Jarvis (2003), business organizations endeavour to maximise profits as much as they can. Fast-moving consumer goods companies cannot therefore be left out in the quest for profit maximisation as the goods they produce are sold to consumers in order to make some sort of gain. FMCG companies provide humans with day to day products they require and as such one of their responsibilities is to ensure that the manufactured products meet the required quality standard. In manufacturing their products, some FMCG companies make use of some natural resources such as water, wood, soil etc., and sophisticated machineries which in some way affect the environment. Making use of the earth’s natural resources without any provision for replacing the resources leads to depletion, while emissions from machineries pollute the environment.
Corporations implement CSR activities because they hope they will give them a competitive advantage over their rivals. Branco and Rodigues (2006) assert that CSR offers internal and external gains. The benefits are referred to as internal if engaging in social responsibility activities helps a corporation build, develop and manage its wealth and abilities, for instance: corporate culture and expertise. External benefits, on the other, are those linked to a corporation’s status, staff awareness and culture; these are essential indescribable assets which, though hard to easily replace or duplicate, can be developed or trashed depending on whether a corporation is socially responsible or otherwise. Moreover, because companies take from the environment directly or indirectly, it is their responsibility to ensure that the environment and society at large, and not only the stakeholders, benefit from some kind of social responsibility activities set up by the companies (Stoner and Wankel, 1988).
Speaking of the FMCG industry in United Kingdom, Bourlakis and Weightman (2004) assert that the industry, which includes the food and grocery sector, contributes immensely to the country’s economy as it provides employment to over 3.2 million people. This figure accounts for close to 17% of the country’s total workforce. The same authors also mention that the FMCG industry accounts for over £130 billion of consumer spending yielding, representing over 9% of the GDP.
1.2 THE MANUFACTURING SECTOR
The British Prime Minister, Mr. Gordon Brown, declares that “…for this government manufacturing not only has been, but remains and will always be, critical to the success of the British economy…” (BIS, 2008). The United Kingdom is the 6th largest manufacturing country in the world (See appendix 1 for details). It provides the economy with about £150billion per annum. The country’s productivity has increased by about 50% since 1997. The United Kingdom attracts “more foreign direct investment than any country apart from the USA” (BIS, 2009). In UK, manufacturing accounts for 13% of the GDP; also, between 1997 and 2004, the average labour productivity grew by 4% over the United States, 5% above France and also 15% over Germany. The figure below shows a graph of the growth in productivity.
Sheldon’s study on ‘social responsibility of management’ indicates that industries exist with the aim of servicing the society (Sheldon, 1923). The developments which various industries have made lately show that there is a link between the society and the industry. It can therefore be said that the purpose of creating industries is so that the society can benefit from it as well as sustain it. Sen (1999) observes that “as people who live – in a broad sense – together, we cannot escape the thought that the terrible occurrences that we see around us are quintessentially our problems. They are our responsibility – whether or not they are also anyone else’s’” (Sen, 1999). The manufacturing sector is very huge and includes a range of industries such as: Aerospace, Biotechnology, Chemical, Food and beverages, Pharmaceuticals etc. The FMCG industry is one of the sub industries within the manufacturing sector. They sometimes face a lot of problems and as such struggle with criticisms from stakeholders on social responsibility matters even though they have functional CSR agendas.
From the size of the British manufacturing industry, it is fair to say that it uses a huge amount of energy compared to the rest of the European Union.
1.3 STATEMENT OF PROBLEM
From looking at FMCG Company’s website and their social responsibility/sustainability reporting materials, it will be seen that they engage in corporate social responsibility at different levels. Looking closely at FMCG companies within the United Kingdom, it will be seen that almost all of them if not all, consider corporate social responsibility and its effect on their business operations particularly as it pertains to their corporate image, competitive advantage and even their finances. Davis (1973) in his work asserts that engaging in corporate social responsibility can improve an organization’s finances and image.
1.4 AIM OF PROJECT
The aim of the project is to contribute to the body of empirical data in the area of Corporate Social Responsibility by gathering information that will help in the analysis of environmental corporate social responsibility within organizations in the Fast-Moving Consumer Goods industry. The findings of this research should provide managers and the academic world some more information in the area of Environmental Corporate Social Responsibility.
1.5 RESEARCH OBJECTIVES
The main objective of this study on the analysis of data gathered on environmental corporate social responsibility in some organizations in the Fast Moving Consumer Goods Industry is to critically look at the steps the corporations take in being environmentally responsible and also how they measure the progress.
Also, this dissertation will be attempt to:
- To analyse the data from selected FMCG companies relating to their environmental CSR practices
- to identify the indicator/metrics used by the companies to benchmark their performance on environmental CSR in their organizations;
- to determine factors that encourage environmental responsibility practices.
- To draw some conclusions and make some recommendations about the state of environmental CSR in the selected organizations.
1.6 SCOPE AND LIMITATIONS OF THE STUDY
The FMCG industry is very large and as such it may not be feasible for the researcher to report on all the companies in the industry bearing in mind the limitation of time and adequate resources. Therefore the scope of this study will be limited to environmental corporate social responsibility in selected FMCG companies. The study will take a look at the environmental corporate social activities they have embarked on with respect to water usage reduction, CO2 emission reduction, reduction of waste produced, and total energy usage of each of the companies.
Owing to lack of time and resources, the researcher will not be able to conduct a survey of environment corporate social responsibility in all UK-based fast moving consumer goods companies. It is worth noting though that a lot of them carry out environmental corporate social responsibility activities and also report on them using indices to which some of them are benchmarked.
1.7 STRUCTURE OF THE DISSERTATION
This study is structured into five chapters. Chapter one provides an introduction/background to the research study, together with a brief introduction of the sector and industry. Chapter two contains the literature review; it comprehensively and critically reviews previous work done in this research area. Chapter three highlights the research design and data collection process employed by the researcher. Chapter four contains an analysis of the data gathered together. Some findings and discussions of the research area are also furnished. The final chapter, chapter five, contains some recommendations and conclusions based on the findings in the course of carrying out this dissertation.
2.1 CORPORATE SOCIAL RESPONSIBILITY
Corporate Social Responsibility has progressed from an irrelevant and often discriminated concept to one that is today well-known and established in businesses round the globe (Lee, 2008). Corporate Social Responsibility can be thought of as an umbrella phrase that takes into consideration the various ways and means a corporation embarks on in trying to act ethically and morally. In the last couple of decades, CSR has become widely well-known (Campbell, 2007). According to some researchers, the first book on CSR was written in 1953 by Howard Bowen, with the title: Responsibilities of the Businessman (Carroll, 1979; Kantanen, 2005).
Defining Corporate Social Responsibility can prove to be a complex task as it has varied meanings to different people. This is due to the fact that there is no agreed definition and as such organizations that are meticulous in their goals of incorporating CSR activities into their businesses are faced with compound problems. Because of how complex CSR is, it is hard to provide a definition. Stakeholders therefore make use of different definitions that are in line with their business operations, goals and aims. The definitions are often also related to the sizes of the corporations and how they regard their officers who are responsible for CSR activities within their organisations. Thus there is no agreed definition of CSR, because different corporations translate it to suit them depending on their state of affairs (MacLagan, 1999: Campbell, 2007: Garriga & Mele, 2004). Bowen (1953) defines corporate social responsibility as “… the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society”. Manakkalathil and Rudolf (1995) explain CSR as “the duty of organizations to conduct their business in a manner that respects the rights of individuals and promotes human welfare”. It is quite a weak explanation which makes it somewhat tough to actualize. Aguilera et al. (2007) emphasize that corporations should not border their CSR activities on stipulated legislation regarding such issues but should also make provision for activities not stipulated in any legislation they adhere to. Aguilera et al. (2007) assert that “corporate social responsibility is a company’s considerations of and response to issues beyond the narrow economic, technical and legal requirements of the company to accomplish social and environmental benefits along with traditional economic gains”. Carroll (1991) states that CSR consists of four aspects: legal, economic, ethical and philanthropic (discretionary) responsibility (See Appendix 1). Carroll (1991) argued that for a corporation striving to be seen as good within the society, all four aspects should be fulfilled. Carroll (1991) cites renowned economists Milton Friedman’s assertion in trying to explain the relationship of the four aspects. On Friedman’s part, he was only interested in the first three parts of CSR stating that corporations exist “to make as much money as possible while conforming to the basic rules of society, both those embodied in the law and those embodied in ethical custom” (Carroll, 1991) and he totally objected to the philanthropic aspect saying “the business of business is business”. In saying this, he meant that the usual economic standpoint only acknowledges legal, ethical and economic responsibility as a crucial principle while taking part in altruistic activities do not yield incentives for corporations. Levitt (1958) has a different approach to the CSR issue called the functional theory which considers CSR as ethically neutral. Corporations are considered to have particular tasks or organizational codes that communicate their position in the society. Corporations are expected to fulfil their social responsibilities by conforming to existing legal frameworks, as the onus of determining social good is the responsibility of the state and not that of the corporations. The reliability and character of an organization is in its sensitivity to varying conditions and demand. Organizations that react positively to financial and other varying issues will thrive, while those that do not respond adequately will die. Consequently, if the immediate situation requires that corporations be “socially responsible” then the corporations must endeavour to be so. Davis (1960) implies that social responsibility pertains to corporations’ “decisions and actions taken for reasons at least partially beyond the firm’s direct economic or technical interest”. Eells and Walton (1961) debate the meaning of CSR and say that it pertains to the “problems that arise when corporate enterprise casts its shadow on the social scene, and the ethical principles that ought to govern the relationship between the corporation and society”.
Deakin and Hobbs (2007) assert that corporations that go ahead and carry out CSR activities which are over the minimum legal requirements stand to benefit immensely. Margolis and Walsh (2003) in the research they conducted found that most corporations, however, only focus on particular aspects of CSR: mainly the economic aspect and try to shy away from the social and environmental aspects.
2.1.1 STAKEHOLDER THEORY OF CORPORATE SOCIAL RESPONSIBILITY
The most spoken about theory of corporate social responsibility is the stakeholder theory. Freeman (1984) explains the basic concepts and attributes of stakeholder management in his booked entitled Strategic Management: A Stakeholder Approach. He defines stakeholders to be ‘‘groups and individuals who can affect, or are affected by, the achievement of an organization’s mission” (Freeman, 1984) or otherwise regarded as ‘‘those groups who have a stake in or a claim on the firm” (Evan and Freeman, 1988). Freeman (2004) regards stakeholders as “those groups who are vital to the survival and success of the corporation”. Freeman explains that not only the owners of a corporation have genuine concerns about it but also persons and or groups of persons that might be affected or can possibly have an effect on the corporation’s doings and as such these groups of people have the right to be considered in any decision making process within the corporation. Kaler (2006) on the other hand refers to the stakeholder theory that supports the notion that corporations should be socially responsible. This theory states that “the shareholder’s value is boosted through employee commitment, customer loyalty, contractor cooperation and immense support from the community amongst other things. Some researchers are also of the opinion that the performance of organizations can be attributed to their strategies in trade and non-trade environments” (Baron, 2000). Freeman and Evan (1990) assert that corporations that embark on social responsibility activities often times do it because they trust that their managers are capable of boosting the corporations’ effectiveness in taking action regarding demands from external sources by handling and meeting the requests of the diverse shareholders.
Stakeholder theory can be said to be a managerial activity because it expresses and directs how managers function (Freeman et al. 2006). In analyzing stakeholder theory, Donaldson and Preston (1995) proposed ethical guidelines for considering and selecting stakeholders. They made reference to this as being “instrumental” in the sense that when corporations manage their stakeholder activities accordingly, their performance will improve tremendously in relation to their stability, growth and profitability. According to Freeman (1994), the aim of stakeholder theory is conveyed in two key questions and the first is determining what the function of the firm is. This influences managers to convey the feeling of importance built within the corporation and also display activities that pull together all the major stakeholders. This propels the corporation forward and makes it possible for it to produce outstanding performance, instituted with respect to its function and economic performance in the open market. The second question asked by the stakeholder theory deals with the sort of responsibility owed to the stakeholders by the managers. This motivates the managers to convey the means they take in conducting their businesses and particularly the kind of relationship they yearn for and have to build with their stakeholders in order to realize their purpose (Friedman and Miles, 2006).
The stakeholder theory concept can be further broken down into: normative stakeholder theory, which hinges on theories of how managers and sometimes stakeholders are supposed to behave, and also how they are supposed to view the beliefs of the corporation as they pertain to its ethical ethos (Friedman and Miles, 2006), and the descriptive stakeholder theory which is about how managers and stakeholders actually act and the perception of their responsibilities and actions.
The stakeholder theory that, in fact, relates very well with corporate social responsibility is the instrumental stakeholder theory. This theory is at times associated with a corporation’s strategic style: where the major concern for the corporation is how its managers perform if they are allowed to put their own interests and/or the interests of the corporation forward as it relates to profit maximization or the maximization of stockholder value (Friedman and Miles, 2006). Orlitzky et al (2003) mention that several authors are of the opinion that corporate social performance might help a corporation towards acquiring new abilities, raw materials and possibilities which are apparent in a corporation’s culture, expertise, business and workforce.
Corporate social performance is closely related to corporate social responsibility and it is sometimes assumed that it will help advance managerial abilities that boost employee contribution, organization and harmonization together with a ground-breaking management approach (Shrivastava, 1995). The reputation perspective theory on the other hand, states that “superficially, corporate social performance might encourage the development of a positive figure with a corporation’s customers, its investors, banks and contractors which it can in the long run benefit from through having access to capital and also possibly draw high-quality employees towards it and also enhance the good will of its current employees towards the organization which over time the corporation might benefit from in financial terms” (Orlitzky et al, 2003). In recent times, it will be seen that so many corporations and/or establishments have planned and sustained their businesses in ways that correspond to the concept of the stakeholder theory (Collins and Porras, 1994). For example, corporations like Procter and Gamble, Reckitt Benckiser, British American Tobacco, to mention a few, present an excellent example of the value managers place on the fundamentals of stakeholder theory. It is worth noting that these corporations place high importance on their stakeholders and organizational wealth but at the same time do not stress on profitability as the push factor of their business. This is because they are fully aware of the worth and relationship with stakeholders as an important factor if they are to succeed.
Friedman (1970) on the other hand is of a contrary opinion. He is of the opinion that when executives take decisions it should only be for the purpose of wealth creation for its stakeholders. It is evident that Friedman does not support the concept of CSR. He holds that the principal duty of directors is towards their staff. In his opinion, a corporate executive may take decisions that directly concern himself but should never take decisions concerning, for example, price mark down of products or pollution due to carbon emission, beyond the obligations imposed on the corporation by law. Friedman states further that by doing these, the corporate executive will be spending the corporations’ wealth and forcing its stockholders to pay tax while at the same time taking decision on the expenditure of the corporation’s tax returns. Friedman (1970) asserts that governments demand taxes from corporate entities, ensuring that there are adequate governmental, legal and constitutional measures in place to force compliance. Friedman stresses that executives are selected by stockholders as representatives to protect their interest and this motivation dies gradually if the corporate executive wastes the stockholders wealth on social activities.
Friedman’s belief is that government instructs corporations to pay a certain amount as tax and if paid, government use the tax appropriately, thereby making it unnecessary for corporations themselves to engage in any CSR projects. In this regard, one assumes that such taxes will be adequate to ensure the effective handling by the government of CSR activities that benefit the environment and the larger society. In Friedman’s perception, the corporations that pay their taxes as and when due are responsible. Jensen and Meckling (1976) assert that corporate social responsibility may have an adverse effect on corporations especially if the cost of implementing CSR projects becomes exceptionally high.
There are certain contrary views that claim that many ostensibly socially responsible corporations actually benefit far more from their CSR activities than the target societies that were expected to be the main beneficiaries. For example, relying on a report by Corporate Watch (2006), more than “80% of corporate CSR decision-makers were confident in the ability of good CSR practice to deliver branding and employee benefits. To take the example of corporate philanthropy, when corporations make donations to charity, they are giving away their shareholders’ money, which they can only do if they see potential profit in it. This may be because they want to improve their image by associating themselves with a cause, to exploit a cheap vehicle for advertising, or to counter the claims of pressure groups, but there is always an underlying financial motive, so the company benefits more than the charity”.
Paine (2002) affirms that the choice to neglect corporate social responsibility will in some way indicate the corporation’s disrespect for its stakeholders who include its workers, suppliers, clientele and the society at large. Quoting CIPD (2009), “When CSR is done well; it means a precious, though precarious, trust in your business. Successful CSR can bring benefits such as a distinct position in your marketplace, protecting your employer brand, and building credibility and trust with current and potential customers and employees. It can help significantly with recruitment, engagement and retention of employees”.
Some academics believe that some corporations embark on corporate social responsibility projects for strategic reasons. Xueming and Bhattacharya (2008) affirm that in recent times, corporate social responsibility matches the strategic plan of many corporations. They mention that although some corporations carry out a range of socially responsible activities such as philanthropic acts, corporate responsibility and sustainability reporting, marketing and stakeholder events to mention a few, they do so not because they feel it is the “right thing to do” but regard it is a “smart thing to do”.
2.1.1 GOVERNMENT AS STAKEHOLDERS
Porter and Van der Linde (1995) believe that countries impose firm directives on home organizations, and the relationship government has with organizations’ corporate social responsibility issues positively affects them. It encourages them to create policies pertaining to the environment, cost reduction, sustainability of their products, and also increase the organizations’ competitive advantage in the international marketplace. This means that the government can control organizations and ensure they adhere to its directives and policies.
Even though government has great control on the way organizations operate their businesses through the use of regulatory guidelines and policies, the activities of organizations have also had a growing influence on the government. Thorne et al (2008) assert that “managing this relationship with government officials while navigating the dynamic world of politics is a major challenge for firms, both large and small”. They explain that because of the varied nature of the environment, there are several competitors and suppliers in the decision making process, and as such raising the economic risks. Being stakeholders, organizations and government are considered mutual stakeholders and as such both sides can cooperate and play a part in the decision making process. In a Questions-and-Answers session with the Chairman and CEO, Charles Holliday, of DuPont a science-based solution company, Holliday was asked on how businesses and the government can effectively collaborate on standards-setting and value-creation for their stakeholders. He replied as follows: “The complexities and opportunities of modern business and industry are too great to assume that regulation alone can get us where we have to go. Regulation, as we have seen historically, is not a precision tool for change. But it can overcome inertia and get things going. The landmark environmental legislation of the 1970s and 1980s set in motion the kind of change that in the U.S. has led to cleaner air and water. No one doubts that”. He further said that in regulating sustainability, “We can expect that government will identify some pressure points where regulatory instruments can advance the cause. But real progress in sustainability will come from what we build into products and services, in the way we design and operate our plants and distribution networks, in the way we think about the ultimate disposition of the things we make, even – and especially – in the way we direct our research and development. It’s hard to imagine regulatory protocols that can encompass all of that. Industry has to be imaginative and proactive and show that we can accomplish the things our stakeholders expect of us, especially those things that go beyond the letter of the law” (as cited in Freeman et al, 2006). He also mentioned that at DuPont, they have reduced their greenhouse gas emissions by 72% since 1990 and this is because it was expected of them by their stakeholders to be proactive, and that gave them the push. This further shows how corporations work on their own in accordance with government directives designed towards improving the society. Marcus (2002) and Delmas and Terlaak (2002) are quick to assert that some corporations might be discouraged if government implements regulations they consider stringent and as such corporations should be allowed to make their own decisions as they consider appropriate.
2.2 THE CORPORATE SOCIAL RESPONSIBILITY SCHOOLS OF THOUGHTS
The issue of whether corporations should be socially responsible or not, the extent to which they should be responsible, to whom they should be responsible and the context in which they should be responsible, has been a major debate amongst researchers. There are two schools of thought which have differing opinions on CSR matters. They are the restrictive and expansionist opinions. The restrictive school of thought upholds the profit maximisation stand while the other school believes that corporations should be socially responsible.
2.2.1 THE EXPANSIONIST SCHOOL OF THOUGHT
The expansionists believe that environmental problems are caused by businesses and for that reason they should be liable for their externalities. Stoner and Wankel (1988) maintain that corporations should take into consideration the impact of their environmental activities on the society and for that reason they should act responsibly not only for the benefit of their stakeholders but to the general populous. Davis and Blomstrom (1975) give an account of their opinion of how a model corporation should look. They assert that it should provide an opportunity for investment, a good working condition, be ethically considerate, be a good corporation to do business with, pay their tax contributions and support government’s endeavours, be good to the community they work in, contribute to social endeavours and public concerns. Crowther and Rayman- Bacchus (2004) assert that “the activities of an organization impacts upon the external environment and have suggested that such an organization should therefore be accountable to a wider audience than simply its shareholders”. They also mention that the “recognition of the rights of all stakeholders and the duty of a business to be accountable in this wider context therefore has been largely a relatively recent phenomenon”. In summary, corporate social responsibility should include responsibility to the owners of the business,
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