Question-   Literature Review on Corporate Social Responsibility

Solution-

Answer:

One of the most important task of organizations is to perform its social obligations and responsibilities towards the global society. These responsibilities are gathered under a common name: Corporate Social Responsibilities (Crane & Matten, 2007). There are different definitions of CSR but the most common definition is provided by Harrison and Freeman (1999). According to their definition, “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large” (Harrison & Freeman, 1999). Companies’ social responsibilities cover not only the people in the society but also the environment people live in. However, one of the most important responsibility people in charge carry on their shoulders is the company’s responsibility to the stakeholders. Sometimes, the people who are in charge of managing the company fail to fulfil their responsibilities to stakeholders and shareholder, which are two significant parts of the corporation, as it happened in the case of Toshiba’s accounting scandal in 2015. This report will analyse the responsibilities of the companies to their stakeholders and shareholder by providing examples from Toshiba’s accounting scandal.

Harrison and Freeman (1999) describe stakeholders as “any identifiable group or individual who can affect the achievement of an organization’s objectives or who is affected by the achievement of an organization’s objectives” (Harrison & Freeman, 1999). According to this definition it can be said that stakeholders are the person, group or organization that can be affected by the actions of the company directly or indirectly. According to Tokoro (2007), “Stakeholder as an umbrella term for groups with a vested interest in an organization includes customers, employees, business partners, communities, investors and the environment”. In order to explain the vital relationship between the company and the stakeholders, the scholars have come up with the “stakeholder theory”. This theory suggests that the company’s future behaviour and outcomes depend on the nature of the stakeholders, their ideas, values and decisions. Therefore, in order to maintain sustainability within a corporation it is important to maintain balance between the different viewpoints of the stakeholders. There are different explanations of the stakeholder theory but Werther and Chandler (2010) has summarized all the different explanations by stating that  “the stakeholder theory can be regarded as a perspective of the firm that focuses on the question of which stakeholders deserve or require management attention”. Stakeholders are considered as the core of corporate wealth creation so they are the key elements of the corporation therefore it is essential for them to be equipped with correct information. Vos (2003) defines the concept of stakeholders as “all individuals and constituencies that contribute, either voluntarily or involuntarily, to its wealth-creating capacity and activities, and are therefore its potential beneficiaries and/or risk bearers”. Based on this definition stakeholders can be examined under four categories which are benefit providers, benefit receivers, risk provides and risk bearers. All these categories shape their actions towards the society and the company based on the information that is provided by the company management (Carrol & Buchholtz, 1996). Moreover, stakeholders also hold a significant place in the Corporate Social Responsibility scheme of the companies as their actions play important roles in company’s movements in the markets (Crane & Matten, 2007). In summary, from the stakeholder’s perspective, it is essential for the corporate responsibility plans to include the stakeholders due their contributions to company’s wealth generation processes. Therefore, it is essential for the companies to reduce the risk and increase benefits for the stakeholders but it is also essential for the companies to do this while ensuring fair distribution of benefits.

It can be said that, based on these definitions, the company management has the responsibility to provide accurate and correct information on the financial and operational parts of the business to the stakeholders. However, in the case of Toshiba it is clear that the company management failed to provide correct information on the financial operations of the company by showing their profits higher than actual figures (Elhandur & Adel, 2016). This misleading information may have altered the decisions the stakeholders made or plan to make in the future, which can have significant effect on the course of the business. Toshiba’s executive management has simply lied to the stakeholders as well as the shareholders for 7 years making them believe they are making more money than they actually are which may have caused the stakeholders to make biased decisions about their efforts and investments. The company had a responsibility to both its stakeholders and the shareholders with providing them the correct and accurate information about the finances of the company. Beside of this responsibility, they had the responsibility of protecting their benefits in all circumstances (Elhandur & Adel, 2016). However, by giving false information about the accounts of the company, in seven years they made the stakeholder believe that the company had extra 1.2 billion dollars more profit but they did not. When this became public, the damage was tremendous for both stakeholders and the shareholders. Due to declining share prices both parties lost money and the company lost its reputation in the market. This shows that how important for the companies to follow the CSR ethic rules to protect the benefits of its stakeholders and company’s prestige.

In conclusion, it is in company’s best interest to follow the ethical rules and obey the economics regulations to maintain its sustainability. Every company has important responsibilities towards its stakeholders and shareholders and by fulfilling these responsibilities; they can ensure sustainable prestige and success in the market. When the companies fail to do that, like in Toshiba’s case, the consequences can be damaging not only for the stakeholders of the company but also for the shareholders of the company.

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