The Impact of Corporate Social Responsibility Essay Example

question by discussing the concept of business performance in chapter one, exploring recent developments in CARS in chapter two, and proposing a possible answer in chapter three. The paper concludes with final remarks and prospects for future research. Relevant literature can be found in the reference section at the end of the paper.

Business Performance refers to how effective and efficient a company's actions are, whether overall or specific processes. It provides important information about a company's success, development, and future outlook. While large companies often have Business Performance Measurement Systems supported by Information Technology like Data Mining or Data Warehouse, small and medium-sized companies often lack well-performed strategies in this area. Additionally, there is limited research on Performance Measurement Adoption.LThe concept of Business Performance can ultimately be categorized as either "good" or "poor" based on an individual's expectations and analysis of available data at a given moment. The company's top management has a strong interest in Business Performance and must intervene to restore growth if it is weak. In an increasingly competitive market with globalization requiring better competitiveness, business leaders need to closely monitor Business Performance. However, while it is acknowledged that analyzing and evaluating Business Performance is necessary to improve policies and processes, implementing this concept is not as simple as it may seem. Figure 1 depicts the dual approach to Business Performance, illustrating its connection to company management, business strategy, and processes. It demonstrates a top-down relationship where leadership establishes the Business Strategy and expects Business Performance to meet or exceed their expectations. Simultaneously, there is a bottom-up relationship where selected indicators measure Business Performance, informing management about whether expectations are met and

providing essential information for making necessary adjustments to business processes. The figure highlights the significance of both normative definitions and descriptive measurements in determining Business Performance.Normative definitions, which are based on Business Strategies such as Total Quality Management (TTS) and Management by-strategies, establish the desired performance standards. Descriptive approaches, conversely, focus on selecting indicators to evaluate the current state of business processes. Recent developments like the Baldric Performance Excellence Program and the FEES model have already incorporated descriptive components into the strategy model. Once indicators are chosen, it is necessary to identify their unique characteristics and assign predefined weights to measure the company's current performance. This measurement process is typically conducted periodically for management to assess improvements or deterioration and take prompt action. The auditing process can be carried out internally or externally.

Performance Measurement Systems were initially defined in 1995 as metrics used to quantify efficiency and effectiveness of actions. Information technology enables automation of these systems. Larger companies often have financial means and necessary human resources to purchase and implement IT equipment like software programs such as SASS or ORACLE. Smaller companies, however, often lack these resources despite their desire to implement performance management systems. Consequently, equipping smaller companies with easily understandable systems containing measurable indicators becomes crucial.
The FEES model, also known as the European Foundation for Quality Management, was established in 1988 by several prominent companies. It is based in Brussels, Belgium and has over 500 member organizations in more than 55 countries and 50 industries. The foundation's goal is to provide a European version of an excellent quality award based on the philosophy of Total Quality Management. The initial FEES model took

inspiration from the American Malcolm Baldric National Quality Award but introduced new developments such as a broader stakeholder approach and equal weighting of enablers and results.

In the European Union, the FEES model gained recognition in the economic and scientific communities and attracted many non-profit organizations as members. In May 2009, during the financial and economic crisis, the Board of Governors of the FEES Foundation formally requested an update to its Business Excellence model. This request was influenced by various stakeholders including members, assessors, partners, trainers, learning networks, and EX representatives.

As a result of this request, the revised model incorporates current key drivers of Business Excellence and reflects the growing awareness of the need for sustainable economic and social performance. Figure 2 displays the latest version of this model.The FEES has established 8 criteria grouped into two main categories, Enablers and Results, to assess and compare business performance. Enablers represent factors that support companies in achieving their desired outcomes. Excellent businesses exhibit leadership that promotes sustainable development, establishes a consistent strategy, collaborates effectively with partners, optimizes resource utilization, and prioritizes people. Additionally, processes, products, and services are also evaluated. The evaluation of results includes both traditional measures like market share and profit as well as softer factors such as the impact on employees, customers, and society. Corporate social responsibility is seen as just as important as shareholder value in this assessment model which incorporates social and environmental responsibility. However, maintaining this commitment becomes more challenging during times of rapid technological innovation, international competition, and economic crises. Figure 2 illustrates the FEES 2010 model while Figure 3 displays the new weighing of criteria in organization capacity.Source: Gemots

(2009) The Gemots (2009) model evaluates business performance using five "enabler criteria" and four "results criteria", with capacity and performance each contributing 50% to the total score.Figure 3 showcases the updated weighting percentages for the criteria. While the criteria themselves have not undergone significant changes, there have been some shifts in the underlying concepts. The goal of these revised concepts is to promote a more balanced and sustainable business culture and processes. The structure of the model remains unchanged, but there have been modifications to certain criteria and their weights.

The system, known as RADAR, follows the Plan-Do-Check-Act cycle and includes the FEES criteria and evaluation process. Similar to a radar system used in transportation, RADAR monitors the changing environment to identify potential negative impacts and prompt adjustments for improvement. These components form the fundamental principles for all business processes, including achieving balanced results, adding value for customers, and taking responsibility for a sustainable future. The RADAR system ensures that all processes align with these goals.

Figure 4 visually represents the RADAR system centered around the FEES criteria as shown on the FEES website [www.Fees.Org, Feb...8th, 2012]. The popularity of the FEES model is increasing not only for evaluating and enhancing quality but also for various management purposes. It has gained international recognition with companies and institutions from non EH-countries participating, including countries in the Persian Gulf region.The concept of Corporate Social Responsibility (CARS) encompasses both historical and current developments. In 2006, the European Commission defined CARS as the voluntary inclusion of social and environmental concerns in business operations and engagement with stakeholders. Currently, there is a lack of standardization as individual companies decide whether or not

to implement CARS measures. However, there are calls for legislation on an EX.Level that would make these activities mandatory. Supporters argue that companies have a societal role and should contribute to social progress, while opponents believe that such responsibilities should primarily lie with public agencies and private initiatives.

The idea of Corporate Social Responsibility has roots in ancient times. In the biblical text of Genesis, man is instructed to care for the earth and its resources, highlighting the importance of responsibility in using natural resources. Over time, this evolved into the belief that businesses also have a responsibility to engage in activities that benefit society, even if they may not immediately lead to profits.The ancient Codex Hamburg, discovered in the United States in 1902 and now housed in the Louvre in Paris, contains laws highlighting a business's responsibility for the impact of their products and processes on customers and citizens. These laws dictate severe punishment if a property developer constructs an unsafe house that leads to its collapse and the death of occupants. The Codex Hamburg dates back to around 1800 B.C., while similar laws were established by Sumerian king Our-Mamma about 300 years earlier.

From 2006 to 2011, the European Commission focused on refining CARS (Corporate Social Responsibility) definitions and strategies within EX.Member states. Some debated whether there should be a shift from voluntary actions to mandatory requirements for companies to implement a CARS strategy. Business associations, particularly in Seems, expressed concerns about overwhelming reporting duties. The Association of German Chambers of Industry and Commerce emphasized that CARS is already widely addressed at the management level in Seems, with voluntary approaches yielding optimal results. They believed

that change should stem from societal pressure and various stakeholders, including customers, rather than being imposed by political institutions.Business associations such as the German Chamber of Industry and Commerce have organized round tables and contests to showcase successful CARS activities. In October 2011, the European Commission updated its definition of CARS to include the requirement for businesses to integrate social, environmental, ethical, and human rights concerns into their operations and core strategy in collaboration with stakeholders. This revision replaced the previous voluntary approach with a weaker requirement using the term "should". The CARS process is expected to remain informal and intuitive for small and medium-sized enterprises, particularly micro-enterprises. To guide efforts from 2011 to 2014, the Commission has developed an action plan with eight areas of focus. The first area aims to increase visibility for CARS and good practices by establishing a new European award and facilitating formal meetings among stakeholders to establish common goals and monitor progress in affected companies' CARS strategies. The second area focuses on tracking and improving levels of trust through launching a public debate on enterprises' role and potential while conducting a survey on citizen trust in businesses. Additionally, the Commission plans to provide guidance for self- and correlation initiatives in order to drive improvement.In addition, the Commission aims to enhance market rewards for responsible business conduct through policies related to consumption, investment, and public procurement. There are plans to create a legislative proposal for companies to disclose their environmental and social performance. It is also important to integrate Corporate Social Responsibility (CARS) into education, training, and research with potential funding opportunities. Member states should present and update their national

CARS strategies in alignment with other international programs such as the COED Guidelines for Multinational Enterprises, the 10 principles of the UN Global Compact, the UN Guiding principles on Business and Human Rights, ILL, and ISO 26000 standards. The Commission's definition and strategy indicate that CARS will be a significant issue in the coming years with efforts being made towards making it more verifiable, well-known, and widespread. Although not new, public awareness of companies' social responsibility has grown since the late 1990s and early 2000s leading to an increase in literature and models for corporate conduct. During this time period, managers have started considering society's expectations of them along with their responsibilities.However, there was a belief that business and ethics were conflicting ideas that were difficult to reconcile. According to M. Friedman (1970), Corporate Social Responsibility (CSR) initiatives only benefited company managers by improving their reputation and leading to higher wages. However, some hardliners argued that these activities incurred expenses without generating profits. Friedman advocated for businesses to focus on increasing profits, aligning with Adam Smith's market-driven approach where maximizing profits was crucial. This raised the question of who companies were responsible to when conducting business.

On the other hand, an alternative view suggested that companies should be responsible for all stakeholders and actively address societal and environmental issues within their market. In this broader definition, stakeholders extended beyond investors and shareholders to include society as a whole. E. Freeman (1984) expanded on this concept of stakeholder theory, advocating for managers to consider the needs of all stakeholders instead of solely prioritizing shareholders.

The strategic mandate for business leaders and top management level has made CSR a

favorable task (Carroll and Bucktooth, 2003). Over time, the stakeholder concept has been refined with more research conducted on the various constituents that should be taken into account.
Primary stakeholders, such as shareholders, employees, customers, business partners, communities, future generations, and the environment are essential to consider in Corporate Social Responsibility (CARS) practices. Secondary stakeholders encompass government bodies, regulatory bodies, civic institutions, special interest groups, trade and industry groups. Media and competitors also play a role. However, categorization is subjective and should be tailored to each company's unique circumstances. Due to limited resources available for CARS initiatives, companies should prioritize key stakeholders and align their approaches accordingly.

Donaldson (1990) argues that managers have a moral obligation to engage in CARS activities irrespective of strategic benefits or impact on the company itself. Engaging in CARS initiatives can prove advantageous for businesses as it fosters trust and credibility with stakeholders while positioning them favorably as market partners.

In contrast, companies without involvement in CARS are perceived as profit-driven entities indifferent towards the needs of partners and customers. This lack of social responsibility makes them unattractive choices for potential business collaborations.

Presently there exists a consensus among researchers and authors on the significance of ethics in achieving sustainable corporate success. Consequently, greater attention has been directed towards business ethics recently – particularly by large corporations grappling with globalization pressures.The availability of information through media has made customers more aware of issues like child labor, worker exploitation, and environmental destruction. Many companies feel the need to protect their reputation due to pressure from stakeholders and media coverage. As a result, corporate responsibility is now the second most influential factor in a company's reputation,

after product quality. Scientific research shows that customers evaluate companies based on their business practices, production methods, and societal impact as well as product features. Ethical concerns such as animal testing, environmental damage, irresponsible marketing, violation of land rights, trade union relations, fair wages, and working conditions are crucial considerations for companies now. These actions significantly influence customer decision-making. Managers have also recognized the costs associated with public scandals such as disruptions, legal battles, decreased employee morale recruitment challenges , internal fraud ,and loss of public trust . While scientific research on Corporate Social Responsibility (CSR) is still in its early stages with some describing it as "embryonic", it is important to note that examination has already taken place.
The first chapter introduces the indirect approach to measuring the impact of CARS on Business Performance. It presents the FEES model as a modern and intuitive way to integrate CARS activities into observing Business Performance and measuring Business success sustainably. Some companies have already implemented new CARS strategies connected with FEES evaluation. For example, in 2011, Budapest airport operator Prefer Lists developed and implemented a CARS strategy based on the FEES model in collaboration with its business partners. This initiative named "Committed to CARS excellence" combines quality concepts, pursuit of excellence, and CARS. The company aimed not only to implement a suitable strategy for the airport industry but also set an example for other Hungarian companies by leading through example.

Moreover, the FEES model serves as an ideal framework for measuring CARS activities' impact on Business Performance. It provides guidelines for assessing the importance of different criteria such as "enablers" and "results" in overall performance measurement. To study

the role of CARS in evaluating Business Performance, one must isolate its contribution to each criterion under examination. Additionally, relevant data from stakeholders associated with affected criteria should be collected.The stakeholder concept suggests using methods like interviews or questionnaires to gather data. In this concept, the satisfaction levels of different stakeholder groups serve as dependent variables, while the cumulated CARS activities act as the independent variable in a simple regression analysis. When collecting data for stakeholder satisfaction, it is important to eliminate other factors that may affect satisfaction levels. These factors include wages, gratification programs, retirement programs, career opportunities, and ergonomic workplaces. Therefore, questionnaires should specifically focus on the impact of only the CARS activities on stakeholder satisfaction. For example, an employee questionnaire can ask questions such as "Are you aware of your company's participation in program x?" and "Do you approve of your company's involvement in program x?". It can also ask if the company's involvement changes their perception of the company for the better and if they believe their company should increase its involvement in similar activities and in what areas. While these questions provide useful information about acceptance and impact of CARS activities, they do not automatically provide suitable data for econometric analysis.To achieve this goal, it is necessary to transfer the collected data onto a cardinal scale. This requires establishing a model that takes into account all relevant factors influencing the satisfaction level of various stakeholders and the overall satisfaction level. The process involves determining satisfaction levels for different stakeholders and calculating a weighted average to obtain a single value for econometric testing (referred to as 1 SSL SSL in this

calculation).

Similarly, a similar process needs to be developed to convert and represent the company's CARS activities on a cardinal scale. However, evaluating the CARS activities of different companies with varying sizes and comparing their impact on takeover satisfaction levels poses a challenge.

Since companies differ in size and operate in different industries, the best approach would be to measure CARS as a percentage of total business expenses over a specific period (CERES).