A2 Business Studies Answer Guide: Corporate Social Responsibility - Lemonfizz

Corporate social responsibility (CSR) is one of the frequently tested topic in A2.  If students encounter a question asking for a discussion on CSR, they should first give a definition of it in their introduction paragraph.

Discuss the extent to which LF should consider corporate social responsibility in its decision-making. (16 marks)

CSR refers to the strategic pursuit of business enterprises in satisfying the interests of the other stakeholders such as the customers, the community and also the environment (Mother Nature can be a stakeholder of business) in order to achieve sustainable business operation rather than to merely work towards the objective of profit-making and profit-maximisation to bring in desirable economic return to the shareholders’ investment.  CSR are often practiced with the goal of achieving the triple bottom line - i.e. satisfying the interest of financial, social, and environment objective of the business.  Often this calls for business enterprises to work towards the objective of profit-satisficing.  In addition, CSR can include the ethical labour practice as employees are considered to be the stakeholders of the business and part of the community.

Other definition from various sources:

Financial Times Lexicon	“....a business approach that contributes to sustainable development by delivering economic, social and environmental benefits for all stakeholders.” “...CSR is a very broad concept that addresses many and various topics such as human rights, corporate governance, health and safety, environmental effects, working conditions and contribution to economic development. Whatever the definition is, the purpose of CSR is to drive change towards sustainability.” Source: http://lexicon.ft.com/Term?term=corporate-social-responsibility--(CSR)
Investopedia	“...a corporation's  initiatives to assess and take responsibility for the company's effects on environmental and social wellbeing. The term generally applies to efforts that go beyond what may be required by regulators or environmental protection groups.” Source: http://www.investopedia.com/terms/c/corp-social-responsibility.asp
The Business News Daily	“Corporate social responsibility (CSR) refers to business practices involving initiatives that benefit society.” Often CSR initiatives fall into four broad categories of activities - environment effort, philanthropy, ethical labour practice, and volunteerism. Source: http://www.businessnewsdaily.com/4679-corporate-social-responsibility.html

Students attempting the above question should do the following.

• Discuss the need for LF to engage in some charity campaign or volunteerism activities that can benefit the community in order to improve the reputation of the company which are getting hit with negative publicity.
• Explain the general benefits that can be brought by LF engaging in CSR initiatives.
• Go beyond identifying the health issues currently being faced by LF in the production and marketing of its product but asking yourself whether clearly indicating the amount of sugar content will pacify the concerns of the health-conscious consumer market and the worried community.
• In addition, students should argue despite offering an alternative product with lower sugar content in the form of Diet, this does not resolve the controversy of LF’s product having sugar content which holds no nutritional benefits when consumed.
• Students should go further to discuss whether it is worthwhile to engage in CSR.  It is possible for  students to argue that the importance of CSR will often depend on whether the management of the business is facing significant backlash that can hurt the company’s financial bottomline and which can subsequently threaten its sustainability.  If the management see that the reaction of the affected stakeholders are not severe to hurt the business operation, then LF can possibly choose not to consider CSR in its decision-making.
• Furthermore, with regards to use of advertisement that display anti-social behaviour, from a practical marketing standpoints, the utility of creating a controversy in the marketing communication can effectively gain the attention of the target audience and this may become a “necessary evil” especially when LF is operating in a highly competitive market where several competitors are vying to capture the market attention.  LF can thus put aside CSR consideration especially if only a small group of people that assertively voice their disapproval of its marketing communication practice which may not be substantial to hurt the company’s financial performance.  Even though a ban can be imposed by the Organisation of Advertising Standard (OSA) as indicated in line 14-16, LF can still adhere to the ban instruction but allow the controversial ad to create a buzz within the target audience.  It is possible that LF can forego CSR in its marketing communication decision, continue to roll out controversial ad with anti-social behaviour, feign ignorance, and withdraw it when instructed by some relevant authority.
• Students will need to recognise that in business as in life, LF cannot please everyone.  Inherently the products that LF produced are considered to be unhealthy but it must maintain its operation to produce as LF also has responsibility to the employees working within its organisation and the shareholders.  It will be difficult for LF to simply overhaul its product portfolio to produce something which are considered to be healthy.  Even if LF choose to add a new line of products that will provide health benefits, critics will still make complaints as LF continue to make its core products of sugar-laden drinks.

Some weaknesses I found in students’ answer.

• I read that a few suggested that LF should look into using better quality ingredient to make their drinks but my question what better quality ingredient can LF use as sugar remained as an integral element in the making of its beverage.
• Some mentioned that by engaging in CSR will allow LF to charge its product at premium price but did not explain how this may occur.  They should make reference to how by through CSR activities can help build the value of goodwill in the brand and thus enable LF to leverage on charging at higher price.  Yet, students must recognise the products that LF is selling as there merely fizzy drink where the markets are highly competitive unless we can assume that LF is a strong incumbent in the market.
• A significant number of students were able to indicate the general benefits of CSR. However, many did not include any evaluation in their answer to look at how CSR may not be considered to be important/significant for decision-making or that it can be ignored/put aside. You should look at your script and determine whether if there is any of these words evident in your writing - "But,..." "However,..." "Nevertheless,..." "Although ..." or any of their equivalent. If you have none, this often show that evaluation is missing in your answer which result in students getting a low credit or less.

To understand deeper on how to write your answer better, please read the following comments given by the external examiner.

"Many candidates started well with a definition or explanation of corporate social responsibility and went on to give examples of this. However, many responses quoted passages from the case study without adding to them. Many answers wrongly conflated CSR with observing legal or regulatory constraints. Most answers contained a general assumption that LF should consider CSR, but only the better ones gave detailed reasons why. These answers stated that LF should consider CSR without giving supporting reasons. Many answers assumed that because there was an issue with high sugar drinks LF should reduce the sugar and reformulate their product, i.e. that LF had some kind of moral responsibility to consumers that overrode any other considerations. And that this would automatically result in higher sales and profit. The better responses gave commercial reasons for this; for example, in terms of avoiding future legislation, appealing to the increasingly health aware consumer, repositioning as an ethical brand. These answers often referred to the possible cost of introducing more CSR and concluded by weighing up the advantages and disadvantages with a recommendation."

So as we can see in the examiner's comments, what they expect to see is for students to be able to give reasons why LF should consider corporate social responsibility in its decision making. However, the discussion with regards to reducing the sugar or reformulating the products does not seem practical as this is the core operation of LF business which will use sugar in making its products. It is also wrong to think that the LF must be morally responsible to the consumers at the expense of gaining profit. Better students can nonetheless provide evaluation that whether CSR is significant to be considered in decision is very much dependent on the weighing of negative reaction of the consumers and community and the primary obligation of the business to make profit to survive in the market. It can still be considered to be socially irresponsible if LF fails to sustain the business as it may result in the retrenchment of their workers as it is forced to shut down some or all of its operation.