The Importance of Corporate Social Responsibility

Introduction:

The idea of Corporate Social Responsibility presupposes that there is in existence an entity or what can at best be described as a corporation. The key word there is “corporate” which denotes a coming together of two or more people to propagate an idea. This idea could be floating of a business or establishment of a Non-Governmental Organisations (NGO). In other words, as opposed to government owned establishments, private individuals are allowed by law to organize themselves for the sole purpose of either doing business or fighting a particular course. 

A corporation therefore is a legally distinct entity that has many of the rights attributed to individuals. Put differently, there is a law recognizing the existence of these organizations or business arrangements. Corporation in this context could be business partnership, registered companies and non-governmental organizations. 

Social responsibility on the other hand is a theory that asserts that businesses, in addition to maximizing shareholder value, have an obligation to act in a manner that benefits society. 

Brief Historical Background:

Corporation is an aged long form of arrangement, especially business arrangement. It has its root in antiquity. Studies revealed that the corporate form emerged from economic arrangements that mirrored the concept of limited liability offered by modern corporations. One such arrangement was the “commenda,” a system developed in Eleventh Century Italy, wherein a ‘passive partner’ provided funding for a merchant vessel to be sailed by a ‘managing partner’ who invested no capital. Upon completion of the voyage, the partners divided up the profits under a predetermined formula. This arrangement allowed the passive partner to limit his or her liability of their investment, while the managing partner assumed the risks associated with the cargo and the voyage. Soon, investors began pooling their funds to diminish the risk of losing their entire fortune on a single voyage. In doing so, the investors realized the benefits of pairing limited liability with diversification.   

Usually, one would expect every government to provide all the needed amenities in the society. However, these corporations in a number of ways give back to the society who basically patronizes them. In doing so, the particular corporate body contributes towards the development of the host locality.  

Understanding Corporate Social Responsibility (CSR):

Corporate social responsibility (CSR) is defined as;

“the commitment of business to contribute to sustainable economic development, working with employees, the local community and society at large to improve their quality of life”

Put differently, Corporate Social Responsibility (CSR) is a self-regulating business model that helps a company be socially accountable—to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society, including economic, social, and environmental. It is more of voluntary undertaking by the said corporation, a moral duty and an ethical obligation. It is in the light of this that CSR was explained to mean “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”. 

Corporate social responsibility is a three faced scheme to wit-

commitment/contribution of the corporate body to the local communities and society at large;

image booster before the government;

publicity/marketing device for the corporate body.

The purport of this scheme usually adopted by corporate bodies is that while they are in business trying to maximize their profits, social responsibilities afford them the opportunity to give back to the society for its development. They must in essence act in a manner that benefits society. Therefore, is often characterized by voluntary societal engagements by businesses as they are not obliged to undertake social and environmental responsibility practices. In other words, social responsibility and corporate citizenship encompass responsible behaviours that go beyond financial reporting requirements.

Importance of Corporate Social Responsibility (CSR):

As we earlier noted, CSR has a tripod effect, one to the people (the society), then to the government and the company in particular. Being a voluntary contribution of the company, its importance cannot be overemphasized. For the purposes of this exercise, few of the notable importance of CSR are:

Being a socially responsible company can bolster a company’s image and build its brand. 

Social responsibility empowers employees to leverage the corporate resources at their disposal to do good. In other words, CSR programs can boost employee morale and lead to greater productivity in the workforce.

Improved public image of the corporation- This is crucial, as consumers assess your public image when deciding whether to buy from you. For each of the development project executed by a corporation, especially within the local communities, the society will in turn appreciate same by patronizing your product or business. It is a symbiotic relationship, a give and take. 

Brand awareness and recognition- If you are committed to ethical practices, this news will spread. More people will therefore hear about your brand, which creates an increased brand awareness.

Cost reduction- Many simple changes in favour of sustainability, such as using less packaging, will help to decrease your production costs.

An advantage over competitors- By embracing CSR, you stand out from competitors in your industry. You establish yourself as a company committed to going one step further by considering social and environmental factors.

It also reduces the burden on the government to provide some of the amenities already funded.

In most cases, it creates chances for the corporation to enjoy certain benefits and privileges by way of incentives from the government. This can be in terms of tax waiver for a certain period of time, waiver of import or export duties, among other numerable benefits.  

We can say that the same thing charity does to a politician is what CSR does to a corporation. CSR is the means through which corporations appreciate the people for patronizing them.  

Legal framework of CSR:

At present, CSR has no codified law regulating it in Nigeria. It remains an ethical or moral code of a company with no specific force of law. As a moral code, companies are not bound to act in a particular manner in pursuit to their CSR. This, in itself is a clog in effective checks on companies’ activities, especially in their host localities.

In 2007, Senator Uche Chukwumerije (late) sponsored a Bill for the codification of CRS and establishment of a commission to that effect. The said Bill died a natural death.

Again, in 2018, the House of Representatives gave nod for an amendment to the Financial Reporting Council Act 2011 in a Bill seeking to amongst other things compel companies to adopt Corporate Social Responsibilities (CSR) in their individual corporate policies. To this effect, a Bill entitled ‘a Bill for an Act to Amend the Financial Reporting Council of Nigeria Act 2011 No 6 to Prescribe Social Corporate Responsibility Requirement by Companies and Other for Related Matters’ scaled second reading on the floor of the House. The sponsor of the Bill, Hon. Dr. Abubarkar Amuda-Kannike while debating the general principles of the proposed legislation said that he had observed that Corporate Social Responsibility CSR had become the standard business practice over time. According to him, with the passage of the bill into law, there would be the inclusion of CSR as part of the governance of a company and there would be complete transparency in the running of its affairs. Specifically, the Bill sought to amend section 8 (1) of the Financial Reporting Council Act 2011 that states that the Council shall monitor compliance with reporting requirements specified in the adopted corporate governance. Again Section 49 (h) of the Act that was proposed for amendment stated that there would be a mandatory percentage of CSR responsibility requirement by companies that earned an average of N50,000 000 and above in profits in three succeeding years. 

The above bill is yet to be acted upon. However, this does not mean that companies are to act indiscriminately without checks. While companies may not be said to have violated any specific law on CSR, reliance can still be placed on various laws to enforce good behavior.  

Corporate Social Responsibility (CSR) in Nigeria vis-à-vis the United States of America (U.S.A.):

The rationale for choosing U.S. is that the two countries (Nigeria and U.S.) operate capitalist economy. It is therefore apt to appraise how corporations assist in the development their host community. Save for time constraint, we would have examined the nitty gritty of companies’ operational policies in the two countries. While it is an integral part of one, U.S. it is never such in Nigeria. 

In U.S. today, corporate social responsibility plays an important role in a firm’s life. It is believed that it is not enough for companies to generate a profit, the citizens expect them to generate a profit and conduct themselves in an ethical and socially responsible manner. The U.S. Sentencing Commission Guidelines help organizations facilitate this expectation, which is vital for corporate growth and maintaining a competitive edge. 

It is an integral part of businesses in the U.S. today. Unlike what is obtainable in Nigeria, U.S. businesses freely acknowledge their ethical and social obligations. They accept the idea that businesses bear economic, legal, ethical, and discretionary responsibilities. Discretionary responsibility was defined by one author as the presumption that a company will voluntarily serve society. Such service reaches beyond economic, legal, and even ethical responsibilities. Most businesses support the fight against hunger. The U.S. Sentencing Commission’s Guidelines for Organizations in the U.S. helps facilitate such goals. Almost all businesses are covered. This includes labor unions, partnerships, unincorporated organizations and associations, incorporated organizations, nonprofits, pension funds, trusts, and joint stock companies.

Conclusion:

In conclusion, in any way one would look at it, CSR is a veritable tool in societal development. It encourages responsibilities and good behaviour of a corporation. It affords the corporation to appreciate the local communities in which they operate. Every responsible government ought to know that this is viable means of development. It is never expected that the government would provide everything, however, where there is a legal backing and an established commission to oversee the contributions of corporations, the hands and legs of the said government will stretch farther than it imagined.

One fundamental thing to note is that developed countries favour more of this CSR and maximize their inputs than it is in developing countries.

I therefore, recommend among other things for Nigeria to resuscitate these Bills for the purposes of giving a legal and statutory flavour to CSR in the country. This will encourage other corporations to take issues of CSR seriously.

Written by Gabriel Chikwado Eze (Esq.)

4 thoughts on “The Importance of Corporate Social Responsibility

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  1. Good read, we hope for more CSR legislations in Nigeria but I believe that the incentive based policies in place are suitable for our business clime and can be improved upon.

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  2. Good read, we hope for more CSR legislations in Nigeria but I believe that the incentive based policies in place are suitable for our business clime and can be improved upon

    Like

  3. Well written Gabriel. I also think CSR should be voluntary, I don’t think there is need for any law to enforce it. However asking for a company’s CSR when such company wants to expand may be necessary because they obviously doing well. So CSR could be a condition precedent for expansion of any company.
    Onyii Martins Okoye, Esq

    Like

    1. Well written Gabriel. I want to say that for any work/development to qualify as CRS, it ought to be voluntary. When a law is deployed to enforce CSR, the actual meaning of CSR may be lost. But what can we do when some companies have decided to be parasites to their host communities. I propose the need for legislation on CSR.

      Onyii Martins Okoye, Esq

      Like

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