Corporate Social Responsibility (CSR) in the UK

Corporate Social Responsibility (CSR) in the UK ABSTRACT 1. INTRODUCTION Corporate social responsibility (CSR) involves with differentiating right from wrong and doing right (Scott, 2007). CSR is the compulsion to make choice and take actions that will contribute toward the wellbeing, interest, and benefits of the society as well as the company. 1.1 Problem of CSR CRS does not act like law which require people to follow. In contrast, it covers wide range of issues and many of which are unclear with respect to right and wrong (Frankental, 2001). As CSR is a self-interest practice, thus it is difficult to control the use of CSR because different companies which have different beliefs about which actions improve the welfare and benefits of the society (Luck, 2006). Companies can find themselves in difficult situations where they do not know how to act or what to do. In recent years, CRS is the key issue in all business sectors, including retailing industry. It is rather controversial to discuss whether supermarkets like Waitrose and Tesco should focus on driving toward or go beyond the field of strategic management. In countries with a dynamic market economy like the UK and the US, it is widely agreed that firms should not only concentrate on pursuing strategies that make economic profitability, but they must also have certain social responsibilities that must be fulfilled as well (Enquist et al., 2006). However, the agreement for firms to pursue both profitability and social responsibility and this should be the end of the discussion. Opinion about the issue, however, differs more or less with regard to the importance of profitability and social responsibility (Downey, 2004). Some people in a society look at the view of profitability as the most important purpose for economic organisations and that only social responsibility of companies is to achieve and pursue profitability within the boundary of law. Tesco is the UK leading supermarket with largest market share in retailing industry. As a face of capitalism, Tesco has been accused, criticised and involved in many social responsibility issues. According to the British Broadcasting Corporation (BBC, 2007), with substantial evidences, Tesco was revealed to make huge profits at the expense of farmers, communities and the environment. It is also abusing the power that results from its huge market share. In Tescos CSR report (BBC, 2007), Tesco was exposed to fail in supporting the UK farmers. In 2002, at the height of the UK apple season it was disclosed that less than half of apples on Tesco shelves were UK sourced. This practice is obviously contrasted with the Supermarket Code of Practice, which was meant to redress the balance between the biggest supermarkets and their suppliers. The big four supermarkets, including Tesco, were still using the same unfair trading practices that the Code was meant to stop. In response to such claim, Tesco states: We have a long-standing commitment to source as much UK produce as possible (Tesco, 2007). Tesco refers to its commitment to UK farming and claims that it has always provided support to British farmers in the past years. It said that as its business grows, so has that of its suppliers. It claimed that it has been developing long term working relationships with its suppliers and by working together, they can both meet customer needs and have both grown their market share together. In addition, according to the BBC (2006), Tesco has been blamed after one of its suppliers, Northern Foods which announced that it will close its Trafford Park Bakery in Manchester and this action lead to 690 jobs cut. The closure of Northern Foods is part of a shake-up announced in May after poor sales triggered two profit warnings. Critics claimed that as part of CSR practice, Tesco should be more supportive as promised in its CSR policy which stated that it has always been supportive to everyone involved in its business. In contrast, Tesco surprised and shocked the General Workers Union by doing nothing to support these 690 workers. Critics stated that this action of Tesco showed that it is throwing its buying power weight about by depressing prices and moving production at will to other plants (BBC, 2006). In response to the claim that it does not employ CSR practice and abuse power, a spokeswoman of Tesco said in respond that Tesco is regret to learn that Trafford Park is closing and that Northern Foods have taken the decision to resign Tescos pastry business at the site. Tesco spokesman said that they have been as supportive as they can be to improve the performance of the site. A spokesman of Tesco also added that when it was told by Northern Foods about the closure of Trafford Park, Tesco did ask if it could move this business to another site or sites. However, Northern Foods told that there is not enough capacity to do the business. Tescos spokesman also said that Tesco will continue to work closely with Northern Foods who will still supply it with a significant number of other products across other areas of its business. Tesco also emphasised that it will be working with its supply base to ensure the availability of sausage rolls, pies and quiches for its customers (BBC, 2006). However, from the eyes of critics, Tescos action does not fall into the scope of CSR practice. In the past years, many retailers have been taking part in Fare Trade products as they have become in the interest of customers. Thus, as the demand in for Fair Trade products, especially bananas has been increasing, Tesco has decided to support the scheme. However, a survey has revealed that Fair Trade bananas in Tesco are fall in the scope of Unfair Trade (Friend of the Earth, 2003). Banana Link, a small and dynamic not-for-profit co-operative founded in 1996 to campaign for a fair and sustainable banana trade, approximated the weekly profit from banana in Tesco for  £1 million and this is enough to employ 30,000 full-time banana plantation workers at a living wage. And this would be twice of what they are earning now. This means that workers in banana plantation are paid just a penny for every pounds worth of bananas sold in Tesco and this without a doubt is not enough to feed their families. While Tesco takes  £0.40p, importers hardly hit break even point just to stay as Tes co suppliers. If Tesco finds that suppliers make a mistake in packaging requirements, they have to pay Tesco  £25,000 as emergency product withdrawals (Friend of the Earth, 2003). Tesco requests suppliers to make the payments to cover the costs of its compliance with the Ethical Trading Initiative. This means that this demanded payment would be tough for smaller businesses. Supermarkets, including Tesco use bananas as a key item in their price wars. However, Tesco is not the one that suffers the cut in price. Since 2003, Tesco banana contract put its suppliers in the position where they cannot pay legal minimum prices in most banana exporting countries and are forced to supply fruit from the most environmentally and abusive socially sources. To rid such claim, Tesco insisted: Tesco supports the work of the Fair Trade Foundation. This year we launched our own brand Fair Trade bananas sourced from the Windward Islands (Tesco, 2008). However, many critics still find that this statement is unjustified and that the public did not get the whole truth, suggesting that Tesco needs to fully employ CSR practice. In term of sustaining communities, Tesco failed to meet the code of CSR practice. According to the BBC (2004) Tesco is facing a challenge to its purchase of the London-based Europa, Harts and Cullens stores. Trade body the Federation of Wholesale Distributors (FWD) made an appeal with the Competition Appeals Tribunal with an aim to block the deal. Tesco had received a clearance from the Office of Fair Trading to buy the convenience stores from their parent company Adminstore. However, the FWD said the deal would be both bad for consumers, competition and communities. This is because the FWD found that every time a large supermarket like Tesco opens, there would an average 276 jobs lost (BBC, 2007). The FWD said that Tesco may use convincing evidences to perverse that it boosts the local economy every time it opens new stores. However, what Tesco does is the opposite when it opens new supermarkets. It has been approximated that a supermarket opening will cause the closure of all village shops within a seven mile radius (BBC, 2007). And Tesco tends to import food into the area, making local sourcing to be just a niche market. To deal with such criticism, Tesco states in its official website and CSR policy: Tesco invests in all types of communities throughout the UK, providing jobs and careers for local people. Making jobs and economic activities stay in, or close to, local neighbourhoods starts to boost the local economy (Tesco, 2008). With regards to environment, the BBC (2007) disclosed that Tesco recycling campaign and its claim in the CSR report do not relate to the products on Tesco shelves. It was revealed Tesco stated its success rate of recycling in its CSR report as nearly 80% of its packaging waste relates to waste from its own operations, mainly from a long distance transit of produce which requires additional packaging. Thus, critics suggested that the best way for Tesco is to reduce packaging waste is to lessen the use of packaging materials in the first place rather than to recycle the materials after use. In response to this critic, Tesco say in its CSR report: Tesco is committed to protecting the environment by doing what we can to reduce our waste. We are looking for ways to minimise product packaging recycling wherever possible (Tesco, 2008). CHAPTER 2 2. LITERATURE REVIEW 2.1 Overview of Corporate Social responsibility (CSR) According to Kotler. P and Lee.n (2005, p.2) doing the most good for your company and your cause. By comparing good it has too many sights to give attention. A quick browse of different web sites for the fortune 500 reveals that good goes by many names, including corporate social responsibility, corporate community involvement, community relations, community affairs, community development, corporate responsibility, global citizenship, and corporate societal marketing. In order to do the best practice of CSR the authors prefer to use following definition: Corporate social responsibility is a commitment to improve community well being through discretionary business practices and contributions of corporate resources. A key element of this definition is the word discretionary, it referring to business activities, which are managed by law or moral ethics. Like as voluntary commitment to its serving community. If this sort of practices is managed by the company than it will be describe as socially responsible. According to Price Waterhouse Coopers (2005-2008) the greatest asset of any retail and consumer product company is its reputation and its perceived value among consumers. Today, consumers around the world, particularly in Europe, are concerned how a company manufacturers its product and whether it is managing for continued sustainability through attention to economic, environmental, and social performance. If not, a brands reputation can decline, and with it, an attendant decreases in future sales and profits. It is especially important for retail and consumer product companies to maintain the reputation integrity of their brand and to be socially responsible throughout their business operations since their products and services are usually marketed directly to product purchasers. According to the World Business Council for Sustainable Development (WBCSD) defines CSR as the commitment of business to contribute to sustainable economic development, working with employees, their families and the local communities (WBCSD, 2001). Hence the fundamental idea of CSR is that business corporations have an obligation to work towards meeting the needs of a wider area of stakeholders (Clarkson, 1995; Wad dock et al., 2002). More generally, CSR is a set of management practices that ensures the company maximizes the positive impacts of its operations on society or operating in a manner that meets and even exceeds the legal, ethical, commercial and public expectations that society has of business(BSR, 2001). 2.2 Definition of CSR The Institute of Directors, a UK-based trade group, has also presented another Good definition of CSR: CSR is about businesses and other organizations going beyond the legal obligations to manage the impact they have on the environment and society. In Particular, this could include how organizations interact with their employees, suppliers, customers and the communities in which they operate, as well as the extent they attempt to protect the environment (Lea, 2002). I think the above definition captures most of what CSR is all about. According to Tom Cannon (1994, p, 32, 33, 38, 44, 45,) corporate responsibility, the role of business in society is depending on business types and as well time of change. Business corporations exist primarily to produce goods and service that society wants and needs. Achieving this objective is their first and foremost responsibility; if they are unsuccessful in this mission, they cannot reasonably be expected to assume others. Simultaneously, business depends for its survival and long-term prosperity on society providing the resources such as people, raw materials, services, infrastructure which it needs to convert inputs into profitable goods or services. Business relies on society supplying a means of exchange typically money to allow it to convert the goods it produces into assets. Society is expected to provide an environment in which business can develop and prosper, allowing investors to earn returns while ensuring that the stakeholders and their dependents can enjoy the benefits of their involvement without fear of arbitrary or unjust action. An organization must support the established or prestigious programme; develop those activities, which endorse or sustain its position; and concentrate its investment in certain areas. Society expects many things of its corporate sectors, from the corporate its stakeholders expects lots of outcomes and they are classified by the relationship to the business. For the owners point of view the primary expectation will be financial returns, if the corporate is able to return good financial returns to its owners then the corporate will added values to the company. Same like the employees pay and additionally the working environment and training facilities. For customer it needs to supply of goods and services and secondly the quality of goods. Creditors need to have the assurance and secondly the security of money backs on time. The supplier wants firstly their payment and secondly long-term relationships. The community wants safety and security and secondly wants contribution to community. And the government wants from the business the compliance and secondly wants the improved competitiveness. According to Ramanathan (1976) argued that there is a social contract between organization and society. Jaggi and Zhao (1996) also agreed with the social contract view when they argued that organizations do not exit in a vacuum, but are part of a society, which creates and supports them. Society will not take too kindly to corporations, which fail to recognize and support important social values. Organizations are aware that society will not hesitate to use different sanctions to punish or bring to book any irresponsible act or omission by an organization as and when deemed necessary. In work done by (Gray et al, 1995, 1996; Guthrie and Parker, 1990; Patten, 1992; Roberts, 1992). Holland and Foo (2003) noted that the unregulated nature of the disclosure in CSR reports could only allow the development the relationship of reporter, which provides a degree of accountability. Corporate stakeholders have the right to know what contributions corporate entities are making to society. The provision of information, which satisfies this need, is known as accountability; hence Gray et al. (1996) defined accountability as the duty to provide an account of action or reckoning of those actions for Which one is held responsible. Hackston and Milne (1996) also supported the view that corporate entities should be held responsible for their actions that affect society. In the light of this, a recent survey (DTI, 2001) of 45 global and large companies operating in the EU showed that over 90 per cent reported on their mission, vision and values, workplace climate, community involvement, local economic development, market place and environmental impact. 2.3 History of CSR The nature and scope of corporate social responsibility has changed over time. The concept of CSR is a relatively new one—the phrase has only been in wide use since the 1960s.In the eighteenth century the great economist and philosopher Adam Smith expressed the traditional or classical economic model of business. In essence, this model suggested that the needs and desires of society could best be met by the unfettered interaction of individuals and organizations in the marketplace. By acting in a self-interested manner, individuals would produce and deliver the goods and services that would earn them a profit, but also meet the needs of others. The viewpoint expressed by Adam Smith over 200 years ago still forms the basis for free-market economies in the twenty-first century. In the century after Adam Smith, the Industrial Revolution contributed to radical change, especially in Europe and the United States. Millions of people obtained jobs that paid more than they had ever made before and the standard of living greatly improved. Large organizations developed and acquired great power, and their founders and owners became some of the richest and most powerful men in the world. In the late nineteenth century many of these individuals believed in and practiced a philosophy that came to be called Social Darwinism, which, in simple form, is the idea that the principles of natural selection and survival of the fittest are applicable to business and social policy. This type of philosophy justified cutthroat, even brutal, competitive strategies and did not allow for much concern about the impact of the successful corporation on employees, the community, or the larger society. In the 1960s and 1970s the civil rights movement, consumerism, and environmentalism affected societys expectations of business. Based on the general idea that those with great power have great responsibility, many called for the business world to be more proactive in (1) ceasing to cause societal problems and (2) starting to participate in solving societal problems. Many legal mandates were placed on business related to equal employment opportunity, product safety, worker safety, and the environment. Furthermore, society began to expect business to voluntarily participate in solving societal problems whether they had caused the problems or not. This view of corporate social responsibility is the prevailing view in much of the world today. 2.4 Benefits of CSR Disclosure Implementing the CSR concept in an organization, there are lots of benefits an organization can get examples are: increased customer loyalty, more supportive communities, the recruitment and retention of more talented employees, improved quality and productivity and the avoidance of potential reputational risks which may arise from environmental incidents. However, Cooper (2003) noted that the practical experience of early adopters of CSR reports was mixed. Some companies noticed that instead of the provision of the reports enhancing companies reputation, it actually attracted adverse comments by drawing attention to divergences between the values espoused by the company and its actual behavior. One can only view this as an inevitable teething problem, which would over time disappear from the corporate scene. Coopers survey of FTSE 250 companies found that less than 33 per cent of companies considered that their CSR activities resulted in improved customer loyalty while only 20 per c ent believed that it enhanced staff recruitment and retention. Cooper concluded that the benefits may be more subtle and realized over a longer timescale than is sometimes suggested, but there is no doubt that the resulting benefit will be enormous in the long run. Despite these perceived benefits, Schaltegger et al. (1996) have argued that one of the driving forces in the popularity of CSR reports was the need to appease some user groups, e.g. environmental activists. 2.5 Framework of CSR CSR framework provides a standard for social and ethical accounting, auditing and reporting. It includes mandatory external verification and stakeholder engagement. Tescos CSR report published in annually and it has KPI, where the CSR people have to work hard to develop in next financial year. Work has done by the Institute of Business Ethics covers the fairness to employees, suppliers, customers, equity and loan creditors, contribution to community and protection of the environment. The framework provides that an independent verifier should assess the company performance annually. According to Social Accountability (SA) there are lots of fields to look at which are trade union, and non-governmental organizations (NGOs) on the basis of International Labors Organization (ILO) conventions the Universal Declaration of Human Rights and the UN convention on the Rights of the Child. This standard focuses on child labors, forced labors, health and safety, working hours, discrimination, discipline, free association and collective bargaining. Any organization recognizes that it has a duty to act as a responsible corporate citizen, by meeting its obligations to all its stakeholders shareholders, customers, employees and the local, national and global communities in which it operates. In this work done by Peter Jones, David Hillier, Daphne Comfort, Ian Eastwood in Management Research News, at Patrington: 2005. Vol. 28, Iss. 1; pg. 34, 11 pgs describes the awareness of consumerism and sustainable development. It provides the basic outline of sustainable development and how it relates to the business as a successful retailer. Here the retailers are increasingly recommending on social issues, for example, social inclusion, ethnical trading, healthy living, training, health and safety, community support initiatives under a broadly sustainable agenda. However, on this report there is no model used for measuring the standard of CSR. Here the author looking in different companys report and letting the reader, sustainable development is important and it gives the stakeholders enough confidences to invest or employees to work for the company. If the author add the model of Key performance Indicator (KPI) then it will be good enough to measure the level of CSR. In this wor k done by Peter Jones, David Hillier, Daphne Comfort, Ian Eastwood in International Journal and Retail and distribution Management, Bradford: 2005. Vol. 33, Iss. 2/3; pg. 207, 8 pgs suggests that the majority of the major retailers are addressing sustainability agendas, that they recognize, albeit in varying measure, the impacts their businesses have on the environment, the economy and society and several of them are looking to measure and benchmark their performance. But on this report the author did not mentions about fair trade and how it will impact on the supply chain on the organization. If any organization can build up a good relation between supplier and consumer providing good money to the supplier and best product and service to their customer then it will increase the market loyalty, which will increase the goodwill to its whole stakeholders. 2.6 CSR in UK Practice Within the last few decades corporate social responsibility (CSR) has been fast momentum across the business community and it is seen to be gradually higher on boardroom agendas. Many of the UKs top retailers are major employers, they continue to be very much at the leading edging of innovation and growth and many of them recognized the impacts they have on the environment, on society and on the economy. They are increasingly keen to communicate their commitment to CSR to their shareholders, their customers, their employees, to government and to the public at large. Mixtures of factors are cited as being essential in building the current momentum behind CSR. Ernst Young (2002) recommend that there are five key drivers, which have influenced the increasing business, focus on CSR namely greater stakeholder awareness of corporate ethical, social and environmental behavior; direct stakeholder pressures; investor pressure; peer pressure and a heightened sense of social responsibility. Th e Governments approach is to encourage and incentive the adoption and reporting of CSR through best practice guidance, and, where appropriate, intelligent regulation and fiscal incentives. The government also looks at Pensions Act Amendment, Transparency. The Government encourages companies to report on their CSR performance in a number of ways such as Issued guidance on environmental reporting, Supported initiatives promoting company reporting, Provide the guidance for the financial services sector and the ACCA sustainability reporting awards, Supported the Global reporting Initiative and The enhanced business review requirements of the Companies Act. The UK government focusing their attention in four key areas, namely promoting good practice, supporting work to demonstrate the business case, promoting international action on CSR and joining up action across government (DTI, 2001). The recommendations in the European Unions Fifth Action Programme on the Environment embedded in the report Towards Sustainability (1992) has contributed to the current interests in this area. The report calls on organizations to provide information on a number of areas, namely: details of their environmental policy and activities and the effects thereof in their annual reports, their expenses on environmental programmers, and make provisions in their accounts for environmental risks and future environmental expenses. A number of the top ten retailers report on the improvement and/or use of CSR Key Performance Indicators (KPIs). Tesco, for example, employs some 18 CSR KPIs covering economic, environmental and economic issues and containing 24 specific targets. In choosing these KPIs the company uses one or more of four criteria, namely customer priorities; staff priorities; business priorities; and compliance with legislation or public policy. The companys CSR report provides a brief description of the annual target for each KPI, outlines the actual performance against each target and sets a target for the following year. During 2003/2004 the company exceeded expectations on 18 of its targets, met 13 and was below target on three. Where possible verification of the data used for the KPIs is carried out using external sources including market share data, independent surveys, services bills and audits for the Emissions Trading Scheme and Climate Change Levy Agreement. 2.7 Criteria of CSR practices and Effectiveness In order to practices effectively it needs accuracy of commitment, facing the challenge and work with coordination in between corporate bodies in the entire business. In this case the effective can be measured by (KPI) at annually while doing the financial report. It also monitored and justified their work by different independent person for whole year and makes a comment for improvement if needed. By doing survey, how the business can improve such as expectation from stakeholders, community, and government and for its own employees then it can find some direction, which they can follow. By following those steps the company can reach its most effective practices at CSR level. 2.8 Conclusion This chapter has reviewed the literature regarding the CSR, measuring the performance within organizations. The literature review has examined some common themes emerging from the implementation of the CSR in real practices. After reviewing the past works, it is very clear that CSR is vast growing concern and its important in business is essential. So in real business CSR is seen quite common and practices by the corporate bodies effectively. In order to measurement the performances of CSR, they have to maintain the model, which called (KPI). Around the business many related groups looking for improvement of CSR performances because of their profit interest. CHAPTER 3 3. METHODOLOGY 3.1 Data collection After some deliberation, we decided on asking for perceptual data from the middle management individual responsible for CSR activity at the firm. Previous studies have principally relied on aggregate measures of financial performance that have provided inconclusive evidence for a CSR-financial performance linkage. Accordingly, we have focused on the firm project level in order to discover how value is created by strategic CSR. We began this paper by stating that Corporate social Responsibility in Tesco . As we argued earlier, there is no consensus that CSR can, or even should, be managed for profit, just as other business processes are managed for profit. As a result, well-intentioned CSR researchers have sought to find a way to demonstrate CSR profitability without having to claim that management takes strategic action to create value. This research agenda did not succeed because it could not specify how competitive advantage and value are created. In order to do so, we have chosen to focus on middle management, precisely because they are in the best position to explain the strategic intent of their portfolio of social action projects, Working from managerial intent requires accepting certain trade-offs. By shifting to a more micro focus, we also leave behind more objective indicators of value creation. On the project level, one would almost have to engage in a cost-benefit analysis of each project in order to determine the value created. Firms do not yet engage in such fine-grained evaluation of their CSR projects. Given the current state of the art of CSR management and reporting, we decided that we needed to rely on the perceptions of the managers responsible for CSR regarding the strategic goals of CSR projects. Such perceptions of firm benefits and of the quality of stakeholder relations may be biased. In response to this issue, we have applied the necessary methods to control for possible bias. Support for using perceptual managerial data rather than external stakeholders and other secondary databases come from the theoretical literature and from practical research issues. There is considerable theoretical support for using perceptual data if, in fact, managerial decision making is driven by the beliefs of top management, it makes sense to ask how management perceive the environment and the extent to which they believe they are responding to CSR challenges in a strategic fashion. It is crucial to test the extent to which top management seeks competitive advantage and value creation via CSR in an uncertain environment. On a practical level, external databases of CSR and reputation surveys in UK principally ask top management which firms they most admire. The resultant reputation and CSR rankings overweight firm size and profitability. External stakeholder groups, in particular NGOs, rarely deal with a large cross-section of firms and either speak favourably of partners with whom they collaborate or negatively of large firms that have conflicts with specific stakeholders. However, the managers we questioned are well aware of their firms PR and marketing programs for CSR and corporate reputation. These managers from the kinds of large companies we surveyed are well aware of their rankings in the CSR and reputation surveys. Our use of perceptual measures