Corporate Social Responsibility: Benefits and Drawbacks

Corporate Social Responsibility (CSR) policies have become popular among multinational corporations, as they enhance reputation and provide transparency in operations. While CSR has several benefits, including increased customer loyalty and environmental sustainability, it also has drawbacks such as shifting the company's focus from profit-making to societal benefit, increasing production costs, and potentially damaging the organization's reputation. Despite these shortcomings, CSR policies remain important for companies seeking to maintain a positive image and comply with government regulations.

Running head: CSR ANALYSIS 0
Corporate Responsibility and Ethics

CSR ANALYSIS 1
Table of Contents
Introduction................................................................................................................................2
Merits and Demerits of CSR Policies........................................................................................3
Conclusion..................................................................................................................................6
References..................................................................................................................................7

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Introduction
Corporate social responsibility or CSR has become significantly popular in past few decades
with the increase in requirement of transparency in business operations and embracing an
ethical culture in organisations. It is based on the old concept that corporations should not
only focus on enhancing their profits, they should also care regarding their duties as a
corporate citizen. The popularity of international corporations has grown significantly due to
globalisation, especially in developed countries. CSR policies ensure the social and ethical
behaviour of giant corporations in different countries. But there is no strict policy regarding
proper implementation of CSR policies. Many large corporations misuse their position even
after implementing CSR policies. This essay will analyse different advantages and
disadvantages of implementing CSR policies. Further, the essay will evaluate various theories
from experts and examine the situation from different company’s perspective.

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Merits and Demerits of CSR Policies
Corporate Social Responsibility has been a trending topic in past few decades. With the
globalisation of the economy, many organisations have enhanced their business in several
countries. In the beginning, most of these corporations focus on making profits rather than
developing countries. But the introduction of CSR policies stops companies from misusing
their powers and performing certain tasks for development of different parties. As per Crane,
Matten and Spence (2013), before CSR policy there were several other regulations such as
ethical policies and code of conducts which prevents corporations from misusing their
positions, but those policies were often misused by organisations. CSR policies are self-
regulated by the corporation, these are policies are against profitability motive and for the
goodwill of society. According to the book of Hopkins (2012), managers of large
organisations across the globe have accepted the importance of implementing CSR policies in
corporation’s strategy.
In modern times, there are several unethical actions conducted by organisations, such as tax
scandal of HSBC. As per Robinson (2015), the bank was letting rich clients evade tax and
also overvalued its value in financial statements. Another example is tax evasion scandal in
the United Kingdom, in which large corporations such as Facebook, Amazon, and Starbucks
was included. These scandals show the requirement of better and strict CSR policies in a
large organisation. The role of government has shrunk in past few decades and ethical
policies applicability is based on the voluntary and non-voluntary basis. The unethical
activities of corporations increased pollution and reduce the natural resources. It is important
for organisations to protect natural resources and reduce their carbon footprint.
Though the concept of ethical business practices has been known from 1800, due to change in
industries and people’s lifestyles, CSR has become popular in previous few decades.
According to Joshua (2016), more than 66 percent of customers have said on online platforms
that they would pay extra to purchase products from companies which follow strict
environmental and social responsibilities. The primary benefit of CSR is that effective CSR
policy benefits organisations in retention and recruitment process. The companies which
apply an effective CSR policy have more satisfied and happier workers. The reason is that
employees feel they are contributing their work to the improvement of society and
environment. Few examples of companies with strict and effective CSR policies include

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Google, Ben & Jerry’s and Target. Google has been awarded the best place to work several
times because of their effective CSR policy. As per Wang (2016), they are a large
corporation, but due to their ‘Google Green’ policy, they use efficient and renewable energy
to operate their processes.
As per Melo and Garrido-Morgado (2012), other than leaving an ethical impact, there are
numerous advantages of applying an effective CSR policy in the organisation. An effective
CSR policy enhanced the reputation of the corporation in the market. World’s largest and
most reputed corporations such as Apple, Google, Amazon, Microsoft, and Starbucks are
known for applying effective CSR policies. These organisations do not just focus on
increasing their revenues instead they give back to society and work better to help the
environment. Another benefit of CSR policies is protection and preservation of the
environment and its resources. Apple and Google are forming new ways to powering their
offices with natural energy. According to Alter (2017), Apple operates 100 percent of their
data centers and 96 percent of their other facilities worldwide with natural energy sources
such as solar, hydro and the wind. All the products manufactured by Apple are 100 percent
recyclable and made with environmentally friendly products.
Another benefit is that effective CSR policy attracts high capital inflow from different
sources. As per the research of Kim, Park and Wier (2012), modern investors prefer to invest
in companies with effective CSR policies because these companies maintain transparency in
operations and provide full disclosure to its shareholders. Another benefit is the reputation of
the company since corporation with better CSR policy has a high reputation in the market.
The change in lifestyle of people has increased the demand for environmentally friendly and
quality products in the market. Customers prefer to pay extra for a product which does not
pollute the environment. Starbucks has implemented this strategy successfully; the company
provides high quality and environmentally friendly products to their customers at a high price
than compared to their competitors.
With these benefits, there are few disadvantages of CSR policies as well. The primary
disadvantage of applying CSR policy is that company’s focus shifts from profit making. As
per Kim, Li and Li (2014), the main motive of organisations is to earn profits, but CSR
policies require organisations to think about benefiting society. The corporations forget about
their responsibility towards shareholders and instead focus on providing funds to society. The
second significant drawback of implementing CSR policy is enhancement in the cost of

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production of companies. As per Reverte (2012), in order to apply environmental friendly
energy sources, organisations are required to change their entire manufacturing procedures.
This change requires a high level of expenditure which cannot be afforded by small or even
medium corporations. Increase in cost of production also reduced the overall net profit of the
corporation.
The third disadvantage of CSR is that the constant disclosure and transparency can negatively
affect the reputation of the organisation. As per Dhaliwal, Li, Tsang and Yang (2014), the
corporation is required to provide shortcoming of their products and services which reduce
the trust of customers in the corporation. For example, car manufacturing companies calling
back their vehicles due to its flaws eventually reduce the reputation of the organisation.
Customers and investors prefer to associate with popular and reputable corporations, so
companies do not prefer strict CSR policies since it can affect their reputation adversely.
Another disadvantage is that in case of customers, in the beginning, they prefer a company
with strong CSR policies who is doing good for society, but lack of instant result made them
think these policies are not working (Rivera, Bigne and Curras-Perez, 2016). Also, due to the
low economy, most customers prefer to pay less for same products and services, even if they
pollute the environment.
Due to its popularity, most organisations implement a CSR policy, but in order to generate
profits, most companies do not comply with their CSR policies. There are several examples
of companies failing to maintain their CSR policies, such as Volkswagen, the company do
not care about polluting the environment with their vehicles (Dans 2015). Many corporations
evade tax from governments, such as Starbucks and HSBC bank, which reduced the net
income of country. To avoid these drawbacks corporations are required to maintain an
effective CSR culture in organisational environment and government should also form strict
regulations for better compliance of CSR policies by companies.

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Conclusion
From the above essay, it can be concluded that currently, corporate social responsibility
policies are significantly popular among multinational corporations. Most companies use
these policies to enhance their reputation in the market. These policies also assist in the
preservation of environmental resources by using of natural energy in the manufacturing
process. There are several shortcomings of implementing CSR policy’s, such as most
organisations do not strictly company with such policies. Most shareholders and investors do
not prefer CSR policies since it changes company’s focus from profit making. Despite such
shortcoming, the popularity of CSR policies is rising significantly. For successful and
effective implementation it is necessary that government prepared several regulations. Some
effort from companies is also necessary to establish a CSR environment in the corporation.
The benefits of CSR policy considerably overcome its shortcomings.

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References
Alter, L., 2017. How green is Apple? A look at their Environmental Responsibility Report.
TreeHugger. Retrieved from < https://www.treehugger.com/environmental-policy/how-
green-apple-look-their-environmental-responsibility-report.html >
Crane, A., Matten, D. and Spence, L.J., 2013. Corporate social responsibility in a global
context.
Dans, E., 2015. Volkswagen And The Failure Of Corporate Social Responsibility. Forbes.
Retrieved from < https://www.forbes.com/sites/enriquedans/2015/09/27/volkswagen-and-the-
failure-of-corporate-social-responsibility/#460f7af4405c >
Dhaliwal, D., Li, O.Z., Tsang, A. and Yang, Y.G., 2014. Corporate social responsibility
disclosure and the cost of equity capital: The roles of stakeholder orientation and financial
transparency. Journal of Accounting and Public Policy, 33(4), pp.328-355.
Hopkins, M., 2012. Corporate social responsibility and international development: is
business the solution?. Earthscan.
Joshua., 2016. 66% of consumers willing to pay more for sustainable goods, Nielsen report
reveals. Ashton Manufacturing. Retrieved from < https://ashtonmanufacturing.com.au/66-of-
consumers-willing-to-pay-more-for-sustainable-goods-nielsen-report-reveals/ >
Kim, Y., Li, H. and Li, S., 2014. Corporate social responsibility and stock price crash
risk. Journal of Banking & Finance, 43, pp.1-13.
Kim, Y., Park, M.S. and Wier, B., 2012. Is earnings quality associated with corporate social
responsibility?. The Accounting Review, 87(3), pp.761-796.
Melo, T. and Garrido‐Morgado, A., 2012. Corporate reputation: A combination of social
responsibility and industry. Corporate social responsibility and environmental
management, 19(1), pp.11-31.
Reverte, C., 2012. The impact of better corporate social responsibility disclosure on the cost
of equity capital. Corporate Social Responsibility and Environmental Management, 19(5),
pp.253-272.

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Rivera, J.J., Bigne, E. and Curras-Perez, R., 2016. Effects of Corporate Social Responsibility
perception on consumer satisfaction with the brand. Spanish Journal of Marketing. Retrieved
from < https://doi.org/10.1016/j.sjme.2016.06.002 >
Robinson, N., 2015. HSBC bank 'helped clients dodge millions in tax'. BBC. Retrieved from
< http://www.bbc.com/news/business-31248913 >
Wang, U., 2016. How Google is using big data to protect the environment. The Guardian.
Retrieved from < https://www.theguardian.com/sustainable-business/2016/oct/12/google-
environmental-sustainability-data-kate-brandt >