Responsibilities accepted by a Business

The influences determining which responsibilities are accepted by a business and which are not

The stakeholders of a business all have different amounts of power; some are more powerful than others. The firm’s decision makers are more likely to take into account the social responsibility that the most powerful stakeholder’s would like to implement.  Firms will accept responsibility for some stakeholders, however it won’t for others. For example a firm may treat customers well but are late at paying the suppliers. There are many factors that affect the amount of responsibility a firm takes for the different stakeholders.

One factor that affects the amount of responsibility a firm accepts to the stakeholders is the Legislation that is imposed. Abiding by legislation is the minimum requirement for firms however it can be the most influential factor determining the responsibility accepted by the firms. This is to make sure businesses are socially responsible to the minimum extent; however it is down to firms to accept the responsibility and possibly go beyond this. This impact of a business of enforcing legislation is the added costs to the business. There are many laws that a business has to abide by, many guarantee rights for the firm’s employees. One law that protects employees is the 1970 Equal Pay Act, which ensures that employees are provided with equal pay for different genders and the disabled. The impacts of the Equal Pay Act being imposed on a business is that the costs of wages will increase as everyone would have to be paid the same. However this is not necessarily bad for the firm as some people, dependant on the type of worker they are, may be financially motivated. If the workers are theory X workers then they will be more motivated and so in turn the productivity for the business will increase. Therefore the overall unit cost may drop as the wages are being spread amongst more products.

Sometimes firms will try to sidestep the law and so aren’t being socially responsible. If firms don’t comply with certain laws then there will be fines imposed. Another example would be the 1990 Environmental Protection Act and the 1995 Environment Act which gives companies fines for pollution, encourages environmental waste management and encourages firms to have the responsibility to clean up their own land and make sure it isn’t contaminated.

Fines are imposed in order to encourage compliance with the law. If they aren’t significant enough, in relation to the size of the business or their savings if they don’t abide by the law, then they won’t work. Also whether the firm would accept the fine would be down to the costs to the firm of not accepting against the actual fine. It is questionable whether the fines incurred by firms actually make them more socially responsible in the long run or whether it has no effect over the way they operate. If the fine that is imposed creates a lot of media attention for the business then they will be more willing to pay the fine as they wouldn’t want to damage the reputation of the business.

An example of when a company has received fines for not acting responsibly is Toyota when they incurred major fines due to defects in their cars. Due to many defects in the floor mats pushing down on the accelerator pedals in cars made by the company Toyota have caused many deaths. However later it was found that there was default in the making of the cars and it was not due to the floor mats. Toyota has recalled 8.5m vehicles worldwide over accelerator problems. Whether or not Toyota would pay the fines incurred from these faults would be down to whether the fine outweighed the cost of litigation because if it did then they would not pay this and just pay the litigation fees. However Toyota has paid its £20.9m to the US government for failing to swiftly recall millions of vehicles with faulty brakes and steering.

The different types of Stakeholders exert a lot of power and interest over a firm and how it is run, however different stakeholders can exert more power than others. Stakeholders can be categorised by the level of power and interest that they have over a firm. This is shown by the Power Interest Matrix. Those stakeholders that have a high level of interest and or power are referred to as key players, these would generally include shareholders. However those with a low level of power and interest are said to have minimal effort, an example for most firms would be the community. Those that have a high level of power and low interest the firm needs to keep satisfied and those with high interest and low power the firm needs to keep informed.

Shareholders have a high level of power over firms as they invest money into the firm and so have the right to vote on issues. Also shareholders have power over the firm as they can sell their shares and if a large number decide to sell theirs then it means there would be a fall in the share price. This ultimately would mean that the company would become worthless and so more vulnerable to takeover.  Due to the problems with the recalls of the cars the share price for Toyota dropped significantly by 5.6% as many shareholders sold their shares. This may be due to the fact that they didn’t was to invest in a business that was deemed risky or because they didn’t want to invest in a business that wasn’t socially responsible and was causing harm to consumers. Due to the shareholders selling their shares reduced the company’s market by billions. 

The amount of power that a firm has over the firm is dependent on the amount of shares that they own, the more shares they own the more say they will have in the business. Shareholders can also have power by threatening to sell their shares and so reducing the worth of the business, therefore if the firm wants to prevent his then they must keep the shareholders happy. Even though the shareholders can vote for decision they want to happen, if they have a low amount of share then they individually may not have a large influence over the firm.

Another stakeholder that has a lot of power over the business is customers. The customers have a lot of power over the business as they have the power to withhold purchases and so can be a significant threat to the business if large numbers of people don’t buy from them. This would obviously reduce their sales and so therefore have a significant impact on their profits. Many firms may also rely on repeat custom and word of mouth recommendations and so can’t afford to alienate the customers. After the cars made by Toyota were recalled the sales for the company fell by 16%. This is because customers no longer trust the brand as there has been so many accidents caused by faults with Toyotas cars. Also consumers have a legal right over the business. The 1987 Consumer Protection Act was enforced to ensure that the firm is liable for faulty products that cause harm to the customer.   

The amount of power the customers have over a firm is dependent on whether there are other substitute products available to them, if there are substitutes then they will have a lot of power as they can buy other products instead. Therefore the business will want to keep to customers happy so that this doesn’t happen. The level of power will also depend on how dominant the firm is, if they have low prices then they may have advantage over others. If larger firms slash their prices then other firms that are smaller may not be able to compete with them and so this eliminated the amount of choice that a customer has.

               

There are other stakeholders such as the community, that don’t have as much power over the firm. As the community is a non-connected stakeholder then it is bound to be in a weak position. The community however does have some legal protection against pollution and planning permission for example. The 1990 Environmental Protection Act and the 1995 Environment Act which gives companies fines for pollution, encourages environmental waste management and encourages firms to have the responsibility to clean up their own land and make sure it isn’t contaminated.

In conclusion most businesses, except form the most responsible and committed firms will generally only accept responsibility which is enforced by law and regulation. However this is only the minimum requirement of the firm and if they want to be socially responsible then they would have to go beyond this, the firm could incorporate their own code of conduct and so contributes to being more socially responsible. The amount of power the stakeholders have is shown by the Power Interest Matrix. The shareholders are obviously key players as they have a large amount of power over the firm. The customers are said to have high power but a low level of interest and so need to keep satisfied. Therefore they are not key players in the business, however if they aren’t kept satisfied then they can have a major impact on the firm. This was shown when customers weren’t satisfied with Toyota’s cars as they withdrawn from purchasing their products. The most influential stakeholder to Toyota would be the shareholders, however they also need to keep other happy otherwise they could also have more of an impact on the productivity of the business.

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Corporate Social Responsibility

The potential benefits of Corporate Social Responsibility relative to the costs for businesses and stakeholders

Introduction

Corporate Social Responsibility or CSR is about how businesses are encouraged to have a positive impact through its activities on the environment, consumers, employees, communities, and all other members of the public. CSR describes a company's commitment to be accountable to its stakeholders. Businesses have the commitment to behave ethically and contribute to economic developments whilst also improving the quality of like for the workforce. CSR is known as ‘doing well by doing good’.

Michael Porter took CSR one step further and created another approach known as Creating shared Value where companies would actually incorporate changes in the business in order to be more socially responsible. Creating shared Value is a concept by Michael Porter based on the idea that businesses should aim to create products that would not just be beneficial to the business but to society. When a business creates a benefit to society they can actually benefit themselves economically as they will have a competitive advantage over others.

The stakeholder concept is an example of an approach contributing to Corporate Social Responsibility. This concept is where a business tries to meet the needs to as many stakeholders as possible and not just the needs of the shareholders.

Whereas the traditional shareholder approach regards the maximising the shareholder returns as their main objective. They attempt to increase the firm’s earnings, increase the market value of the shares or increase the amount of dividends paid. This approach would be an example of capitalism. Capitalism is an economic system in which the means of production are privately owned and operated for profit.

Benefits

1.       Motivated employees

There are many businesses that have gained an advantage from being socially responsible in various ways. One advantage of a business being socially responsible is that they can have satisfied, motivated employees therefore meaning the recruitment is easier and cheaper as productivity is high also there is lower labour turnover and so therefore resulting in lower costs. An example of a business that has benefited from this is Marks & Spencer’s.  Marks & Spencer created The Marks & Start community programme which was launched in 2004. This programme was created to offer work experience to those who for whatever reason are unemployed. The people that it is aimed at include the homeless, disabled people, young unemployed, parents returning to work, students who are the first in their family to go to university  and also school students (aged 14-16).

The aim of this programme is to give these individuals a taste of the working environment and the encouragement and the ability to gain employment. Each participant, regardless of target group, receives a two to four week placement in either a M&S store or office; the allocation of a ‘buddy’ (a M&S employee) as a mentor; the provision of travel expenses, lunch, a uniform (where necessary) and a reference (when requested).

M&S have benefited from the Marks & Start programme in various ways. This knowledge and skills of the workforce would have improved as they would now have an understanding of how to treat different customers, e.g. working with those with disabilities. Due to the employees being more motivated, they will produce more products and so therefore the unit costs of the products will go down as their wages are spread over more products, this will therefore increase the profit for the business.

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2.       Differentiation

M&S introduced the ‘Plan A’ in 2007, which included setting 100 things the company could do, by 2015, in areas such as waste, supply chain, climate change, health and sustainable raw materials. M&S has also been doing a lot of work within its supply chain and their first goal is to get 10% of its clothing to come from Fair-trade.

An example of how M&S has achieved this in another of its programmes is through its partnership with Oxfam. Together the organisations have established the Clothes Exchange designed to raise money for Oxfam’s work also reducing one million tonnes of clothing that ends up in landfill in the UK each year. The Clothes exchange was set up to encourage people to donate clothing that they don’t wear. If the clothes that are donated are from Marks and Spencer’s then they will receive a £5 gift card. The clothing that gets donated will be given to Oxfam in order to raise money for work internationally. Since 2008 the Clothes Exchange has raised £2.5m for Oxfam’s charity work.

M&S have benefited from ‘Plan A’ as they are now differentiated. By setting up this plan Marks and Spencer’s now have a USP as they are trying to be socially responsible, whereas other firms aren’t. Due to them implementing CSR this means that they would be able to charge higher prices as many people would rather pay more for products that they know have been made in a sustainable way, than products that are low cost and no made in such ways.

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Disadvantages

1.       Costs

Even thought there are many advantages to a business to implement CSR there are also some disadvantages. The main disadvantage to implementing CSR is the initial costs to set up such strategies. Marks & Spencer’s ‘Plan A’ cost £200million to set up, which is a large investment. However in the long run the initial invest would pay off because the profits of the business would be increased due to the increased prices. This would still depend upon whether people still demanded the firm’s products as the price would be higher.

2.       Loss of customer

Another disadvantage of using CSR is that due to the increasing prices they may lose some customers. As Porter's strategy suggests a business has to be low cost or differentiated otherwise the business will fail as it can't incorporate both. M&S's aren't low price as there are other firms that compete against prices such as 'Tesco', however by them using CSR it makes them differentiated. Even though the CSR strategies may make the firm more differentiated the customers of M&S may not think that these methods are so important and would rather pay a lower price for products than for ones that are fair-trade for example. Therefore as the prices have risen for these products customers may go to competitors as they are low cost. However this will all depend on the morals for the consumers. Obviously the CSR strategy is implemented in order to benefit the stakeholders, however if the business is losing customers and therefore not generating the revenue that would have been expected, then it would be down to the shareholders to decide whether the CSR strategy has been a worthwhile investment or not depending on their values. It isn't clear to determine whether shareholders want to implement the CSR strategy in order to increase the revenue and not for the purpose of benefiting the stakeholders.
 

Conclusion

In conclusion it is Obvious that CSR represents a benefit to stakeholders; however the question is whether CSR benefits the shareholders in the form of lower costs or more customers in order to increase the revenue for the business. A major debate about CSR is whether having a long-term successful company allows you to undertake CSR or does CSR contribute to a long –term successful company. If a company does undertake CSR then for the process to be successful then it would need to do a lot of advertising to show consumers how they are benefiting the stakeholders, this would have to be done in store and in other various ways. This would need to be done so that consumers have awareness about what that company are trying to achieve, also it will show them that by buying the products they could also help them benefit society etc. If this is done properly then this could mean that they increase the amount of customers and so therefore revenue. If the business is already successful then if they undertake CSR it may be easier to make customers aware about the things they are doing. As they already have a large amount of repeat customers if they undertake CSR then may increase the amount of customers that they have. Overall I think that a business doesn’t have to be successful in order to undertake CSR they just need to make sure their customers are aware of their practices. 

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