Question

Question 3 - Week 11 The following quote appeared in an article entitled ‘Business and society in the coming decades’, which was available on the website of McKinsey & Company (accessed in October 2015). “There are compelling reasons companies should seize the initiative to drive social and business benefits. First, in an interconnected world facing unprecedented environmental and social challenges, society will demand it. Increasingly, a basic expectation among customers, governments, and communities will be that the companies they do business with provide a significant net positive return for society at large, not just for investors. This will be part of the implicit contract or license to operate”. Required: a) Explain the above statement in the context of corporate social responsibility. [Word limit 150-200 words] b) Further, do you think such a statement would impact the perceived ‘legitimacy’ of companies? Explain. [Word limit 200 – 250]

Answer 1

A. Explain the above statement in the context of corporate social responsibility.

Answer.

One of the most hotly debated discussions is exactly what obligations does a business have towards the society at large and the responsibility towards all the stakeholders participating in business systems.

It has become widely accepted that long-term capitalism requires the business’s role in a society to converge with the interests of the broader community.

The enterprises have compelling reasons why it has become crucial for them to initiate a drive towards social benefits:

1. The world has been facing unprecedented environmental and social challenges.

2. Integrating CSR ensures positive return and improving systems that helps in makng the business more more sustainable in the long term.

3. Every company should be able to contribute value to society through its core businesses.

4. With the rise of consumer demand for eco-friendly ans sustainable products, the companies have to shift their focus from fast fashion towards sustainibilty.

5. Globalization and technology together have created a stir in our social, environmental, and financial systems.

Further, do you think such a statement would impact the perceived ‘legitimacy’ of companies? Explain.

Answer.

Concerns about corporate social responsibility (CSR) increasingly permeate the socioeconomic landscape. We are all aware of the fact that companies which are likely to experience more CSR costs are likely to engage in a greater level of CSR disclosure than those companies that are less likely to experience CSR costs companies.
Legitimacy theory relies on the notion that there is a ‘social contract’ between a company and the society in which it operates. Specifically, it is considered that an organisation’s survival will be threatened if society perceives that the organisation has breached its social contract. Where society is not satisfied that the organisation is operating in a legitimate manner, society will revoke the organisation’s ‘contract’ to continue its operations. We all are aware of the notion that societal expectations are ever changing and hence never consistent. Hence, it requires organisations to be responsive to the environment in which they operate.

‘Legitimacy gap’ is the difference between the expectations of the stakeholders who propagate how an organisation should act, and how the organisation actually acts. Scholars suggests that when a legitimacy gap occurs, there is a threat to the entity’s legitimacy when a disparity exists between the two value systems. Hence, the companies that are considered 'structurally illegitimate' are pressurised to use legitimisation strategies than lower profile companies. As negative connotations are intrinsic in a high profile company’s major product, it is expected that higher profile companies would find it difficult to change their actual behaviour and would find it easier to change public perception or expectations or deflect attention through CSR.