ms-91 mba assignment july dec 2010 Question 5

5. Critically examine the systems model of a business used in the measurement of Corporate Social Responsibility (CSR).

THE MEASUREMENT OF CSR

Briefly, CSR is measured following a systems model of a business into three levels:

• Principles of social responsibility
• Processes of social responsiveness
• Outcomes as they relate to the firm’s societal relationships

Level I Principles of Social Responsibility

            This level of the CSR model is about the relationship between business and society at large and it has three major elements:

• Legitimate concerns of business as a social institution and it frames the analytical view of the interrelationship between business and society.

• Public responsibility concerns of the individual firm and its processes and outcomes within the framework of its own principles.

• Managerial discretion whereby managers and other organisational members are moral actors. Within every domain of corporate social responsibility, they are obliged to exercise such discretion as is available to them, towards socially responsible outcomes.

Level II Processes of Social Responsibility

Corporate social responsiveness is a business’s capacity to respond to social pressures. This suggests the ability of a business organization to survive through adaptation to its business environment. To do so, it must know as much as possible about this business environment, be capable of analyzing its data, and must react to the results of this analysis. But the environment of business is not static; it is a complex and ever changing set of circumstances. This environment can be unchanged for decades, if not centuries, and then it falls apart and is reformed like a kaleidoscope with increasing rapidity. The ability to successfully scan, interpret, and react to the business environment requires equally complex mechanisms. Three elements are identified as basic elements of this level of the CSR model:

• Business Environment Scanning: indicates the informational gathering arm of the business and the transmission of the gathered information throughout the organization.

• Stakeholder Management: A stakeholder is defined as any group or individual who can affect or is affected by the achievement of the firm’s objectives. For example, owners, suppliers, employees, customers, competitors, governments; nonprofit organizations, environmental and consumer protection groups and others. Stakeholder Management refers to mapping the relationships of stakeholder to the firm (and among each other) whilst finding, listening and meeting their expectations and seeking to balance and meet legitimate concerns as a prerequisite of any measurement process.

• Having identified the motivating principles of a firm and having determined the identities, relationships, and power of stakeholders, attempt then is to turn to the main issues which concern stakeholders.

Level III Outcomes

The main focus of measurement is the third level of the CSR model. To determine if “CSR makes a difference”, all of the stakeholders relevant to an issue or complex of issues must be included in any assessment of performance. There are, again, three main categories:

• Internal stakeholder effects – those that affect stakeholders within the firm. An examination of these might show how a corporate code of ethics affects the day to day decision making of the firm with reference to social responsibility. Similarly, it can be concerned with human resource policies such as the positive or negative effects of corporate hiring and employee benefits practices.

• External stakeholder effects concern the impact of corporate actions on persons or groups outside the firm. This might involve such things as the negative effects of a product recall, the positive effects of community related corporate philanthropy, or assuming the natural environment as a stakeholder, the effects of toxic waste disposal.

• External institutional effects refer to the effects upon the larger institution of business rather than on any particular stakeholder group. For example several environmental disasters made the public aware of the effect of business decisions on the general public. This new awareness brought about pressure for environmental regulation which then affected the entire institution of business rather than one specific firm.