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Assessment 2
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Assessment 2: Essay
Does the responsibility a corporation has towards its shareholders conflict with society’s expectation that
it should also be a good corporate citizen? Discuss in relation to Kmart’s communication about the 2013
Bangladesh factory collapse.
Despite it being a relatively recent business concept, corporate social responsibility (CSR) has evolved
into a crucial business element in which companies can benefit from. However it is also a field in which
they can come under immense scrutiny for. Scrutiny such as that inflicted against Kmart Australia
following the factory collapse of an unsustainable Bangladeshi supplier whose cheap and unethical labour
was used to provide on cheap price promises to Australian consumers. But despite the profitability
responsibilities Kmart obviously had towards its shareholders, there was no conflict with society’s
expectation that they be a good corporate citizen within this issue. The reason being that – in not
respecting social progress and the human rights of its overseas suppliers – Kmart’s reputation and,
therefore potential profit and sales, has suffered damage equivalent to the losses of the higher costs
associated with nurturing an ethical workplace environment. In being responsible towards CSR a
company is, in turn, being responsible towards its shareholders.
“Consumers and employees are now well informed about the challenges facing the world, they have little
faith in government’s ability to change things, they acknowledge the corporation as the most powerful
social construct of the present era and, most importantly, they are willing to regard corporations who are
responsive to their concerns.” (Andriof & McIntosh 2001) It is for this reason that CSR has become an
integral part of regular business operations. Garriga and Mele (2008: 7) defined CSR as “contributing to a
good society by doing what is ethically correct.” This, however, conflicts with some theories which argued
that, early on, the corporation’s sole responsibility was to provide a maximum financial return to
shareholders (Crane, Matten & Spence, 2008). Instrumental theories suggest that “CSR…is only a
strategic tool to achieve economic objectives and, ultimately, wealth creation” (Crane, Matten & Spence
2008). Windsor (2001) suggested “a leitmotiv of wealth creation progressively dominates the managerial
conception of responsibility.” He also proposed that the main intentions behind CSR included maxamising
shareholder value, competitive advantages and the ability for product differention through cause-related
marketing. Despite this responsibility to shareholders, organisations must take CSR into account as it has
the ability to damage an organisation’s reputation which, in turn, can significantly impact the profitability of
that organisation. We could argue that, due to the potential of negative impacts on reputation and sales, a
corporation who partakes in initiated CSR activities is also upholding its responsibilities to its
shareholders despite the short-term costs of providing ethical practices. This theoretical approach is not
dissimilar to Crane, Matten and Spence (2008: 8) who said “considering a range of interests and impacts
on a variety of stakeholders… social responsibility should not conflict with profitability.” They went on to
explain that an organisation’s reputation is affected by treatment of employees and are responsible for
good working conditions, health and safety and human rights (p.8).
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Ethics are a driving force behind CSR; Gower (2008) stated that practitioners have a moral obligation to
themselves, their clients, employees, colleagues and society. Ethics is “the application of knowledge,
understanding and reasoning to questions of right or wrong behavior in the professional practice”
(Parsons 2004: 10). The introduction of ethics and CSR can be linked back to the social legislation of the
early 1970’s which saw the formation of the Environmental Protection Agency, Equal Employment
Opportunity Commission and the Occupational Safety and Health Administration (Crane, Matten &
Spence, 2008). Today most western society’s have strict workplace regulations, something which is
unfortunately absent and taken advantage of in third-world countries such as Bangladesh. Davis
(1960:70) said that “business is a social institution and it must use power responsibly.”
CSR has the ability to bring out both the good and the bad in the world’s largest corporations, such as
Apple who, despite their mass of wealth, continue to neglect suppliers. Apple has been criticized for its
lack of transparency on environmental friendliness and is lagging behind competitors in environmental
sustainability efforts (Sullivan 2010). An issue which turned into a public relations crisis in 2010 when
Apple reported that over 100 employees of a Chinese supplier were seriously injured by toxic chemicals
(Morrison & Bridwell 2011). It was argued that Apple, of all companies, has the resources to prevent this
type of crisis. However in such a large company, an issue such as this would have minimal, if any, impact
on its shareholders.
Starbucks is seen as a leader in CSR and is one of millions of corporations globally reaping the benefits
of positive engagement programs. A study of business owners by Crisan & Borza (2012) showed that, of
those surveyed, 28% believed CSR programs increased reputation, while 12% have indicated they have
influenced sales growth, 20% felt that CSR adds value to the company and 40% have shown that social
involvement brings the owner satisfaction. On the contrary, however, a significant 78% have observed
that social involvement has not brought any economic benefit to their enterprises. As an example of a
market leader in CSR, Starbucks prioritises their employees within the business environment, evident in
their mission statement. Store managers have discretion for local community donations. While these
grassroots activities are taking place head office collaborates with several NGO’s (non-government
organisations) which advocate and take action on environmental and social and political justice issues.
Starbucks also set up a large global relief and community issues networking website (Cornilessen 2008).
Though this may not drive direct profit for Starbucks, it definitely builds their credibility and reputation.
Surely that would keep shareholders more satisfied than the extra dollar they would get from utilising
slave labour.
As part of CSR, society has expectations on corporations to be good corporate citizens; “a notion of
corporations as a good neighbor, shoulder-to-shoulder with other fellow citizens, fulfilling their rightful
place in society” (Crane, Matten & Spence 2008). This means establishing partnerships between
businesses and communities towards some degree of political governance (Cashore 2002). In the context
of Kmart and other companies whose suppliers are in Bangladesh, we could argue there is no corporate
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citizenship as these organisations take no action in the proactive governance and social issues relevant
to progressing the societies in which they work. There is minimal evidence of sustainable development,
which seeks to meet the needs of the present without compromising the ability to meet future needs
(World Commission on Environment and Development 1987: 8). Brenkert (2004: 252) broke a company’s
responsibilities to corporate citizenship into the ‘3 P’s’, people, planet and profit. Paetzold (2010) said that
firms who do not meet these P’s risk a negative reputation and loss in market share. In discussing the
Kmart factory collapse issue, Kazi Hossain said in a media interview (‘Please don’t abandon us:
Bangladeshi workers’, 2013), “Australian companies came to Bangladesh because the price here is the
cheapest in the world, and they have made huge profits from Bangladeshi labour.” Hossain went further
to explain, from a Bangladeshi perspective, what is expected of a company in terms of corporate
citizenship – “now, there are problems in our industry, and they, I feel, have a duty to improve it. They
should stay in the country to assist the people, not abandon them.” This comment summarises perfectly
the notion of corporate citizenship. Because CSR has been suggested as a way to maximize shareholder
values, organisations who participate in good corporate citizenship would therefore, in turn, be honouring
their responsibilities towards shareholders.
In 2013 Kmart faced a CSR crisis as a result of the collapse of unsafe factory, Rana Plaza, which was
home to supplier Ratul Fabrics. The tragedy followed shortly after an evacuation due to the building being
deemed unsafe, but Ratul workers were ordered back to work by baton wielding bosses. The collapse of
the highly unsafe factory saw more than 1100 fatalities and over 100 amputations to those lucky enough
to survive (Australian Broadcasting Corporation 2013). Bangladesh’s poor work safety record, affecting
3.5 million garment workers, includes 43 fires in 18 months. These events are in clear contradiction to all
CSR texts and is a clear sign of how their responsibility to shareholders is minimal compared to their
responsibilities to other stakeholders, particularly employees and suppliers. Since the story was released
by Four Corners on June 24 2013 it has received extensive print media coverage, prompting social media
attacks.
Prior to the factory collapse it appears Kmart had minimal CSR activities, however the impact of the issue
on future CSR decisions is clear. Following the factory collapse crisis Kmart took significant steps in
becoming a transparent organisation; “Kmart Australia has promised to reveal the locations of all the
factories… becoming the first major Australian chain to pledge complete transparency of its oncesecretive clothing supply network” (Doherty & Whyte, 2013: 2). The purpose of releasing this – to Kmart’s
credit – is to allow for independent checks on the safety conditions for workers; a significant step in
improving their reputation of CSR long-term, as truthfulness and transparency are part of Baker and
Martinson’s (2001) considerations of ethical persuasion. Following the collapse in April Kmart released a
media statement to announce “it is reviewing its operations in Bangladesh” (‘Kmart Australia reviewing
factory safety in Bangladesh’) Following this they also made their ethical sourcing code publicly available
on their website (Kmart Australia 2013). Kmart also thereafter signed The Accord on Fire and Building
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Safety in Bangladesh (‘Kmart Australia becomes signatory to the accord on fire and building safety in
Bangladesh’) and announced their perceived corporate citizenship responsibilities towards Bangladesh
(‘Why Kmart Australia will continue to support Bangladeshi suppliers’). In response to the issue Kmart
partnered with several overseas charities, all of which work with disadvantaged children in communities
they outsource to. These charities include the Room to Read Initiative, based in Bangladesh, the Salaam
Baalak Trust (India) and Half the Sky (China) (Kmart Australia 2013). Kmart also managed the prominent
impact on social media well by replying to every post on both of their Facebook walls, Kmart Australia and
Kmart Community. In replying to this they pledged to contact everyone personally by phone to honour
their promise to “provide a personal response to all concerned” (Kmart Communities 2013).
It is clear through the Kmart factory collapse crisis that poor CSR has the potential to cause significant
negative impacts on an organisation, regardless of its size. Sure, corporations have a responsibility to
their shareholders financially, but if the responsibility to being a good corporate citizen was adhered to or
exceeded companies could prevent future financial loss by minimising the impact of potential crises
through positive reputation and revenue, achieved as a direct result of CSR activities. In researching
CSR, it became clear that crises result in the reduction of share prices. Companies, therefore, who act
upon their responsibilities of corporate citizenship are, in effect, acting upholding their responsibilities to
their shareholders; reputational and financial.
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References:
Australian Broadcasting Corporation 2013, Fashion Victims, 24 June, viewed 10 September 2013, <
http://www.abc.net.au/4corners/stories/2013/06/25/3785918.htm>
Andriof & McIntosh 2001 cited in Burchell, J. (ed) 2008, The corporate responsibility reader, Routledge,
Oxon, UK.
Baker, S. & Martinson D.L. 2001, ‘The TARES test: five principles of ethical persuasion’, Journal of Mass
Media Ethics, vol.16, no.3. pp.148-175.
Brenkert, G.G. 2004, Corporate integrity and accountability, Sage, London, pp.254.
Cashore, B. 2002. Legitimacy and the privatization of environmental governance: how non-state marketdriven (NSMD) governance systems gain rule-making authority. Governance, vol.15, no.4, pp. 503-529.
Cornelissen, J. 2008, Corporate communications : a guide to theory and practice, SAGE, London.
Crane, A. and Matten, D. 2007. Business ethics: Managing corporate citizenship and
sustainability in the age of globalization (2nd edn). Oxford: Oxford University Press.
Crane, A. Matten, D. & Spence, L.J. 2008, ‘What is CSR? Concepts and theories’, in Corporate social
responsibility: readings and cases in a global context, Routledge, London, pp.54-99.
Crane, A, Matten, D & Spence, L.J. 2008, Corporate social responsibility: Readings and cases in a global
context, Routledge, Oxon, UK, pp.6-7.
Crisan, CM & Borza, A 2012 'Social Entrepreneurship and Corporate Social
Responsibilities', International Business Research, vol. 5, no. 2, pp. 106.
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factories’, Sydney Morning Herald, July 11, p.2.
Garriga E & Mele D 2008, ‘Corporate social responsibility theories: Mapping the territory’, in A. Crane, D.
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Bangladesh’, press release, 7 June, viewed 15 September 2013, <
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Kmart Australia 2013, ‘Kmart Australia reviewing factory safety in Bangladesh’, press release, 21 March,
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http://mediacentre.kmart.com.au/LatestNews.aspx?udt_385_param_detail=114>
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Paetzold, K Aug. 2010, Corporate Social Responsibility: An International Marketing Approach, Diplomica
GmbH, viewed 10 Sep 2013,
<http://ezlibproxy.unisa.edu.au/login?url=http://www.UNISA.eblib.com.au/patron/FullRecord.aspx?p=5953
33>
Parsons, P.J. 2004, Ethics in Public Relations: A guide to best practice, Kogan Page, London.
Gower, K.K. 2008, Legal and ethical considerations for public relations, 2nd edn, Waveland Press, Long
Grove, Illinois.
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Walton, SB & Rawlins, B 2011 'Great expectations: Engaging employees in corporate social
responsibility', Public Relations Tactics, vol. 18, no. 9, pp. 16.
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Bibliography:
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http://www.abc.net.au/4corners/stories/2013/06/25/3785918.htm>
Andriof & McIntosh 2001 cited in Burchell, J. (ed) 2008, The corporate responsibility reader, Routledge,
Oxon, UK.
Baker, S. & Martinson D.L. 2001, ‘The TARES test: five principles of ethical persuasion’, Journal of Mass
Media Ethics, vol.16, no.3. pp.148-175.
Brenkert, G.G. 2004, Corporate integrity and accountability, Sage, London, pp.254.
Cashore, B. 2002. Legitimacy and the privatization of environmental governance: how non-state marketdriven (NSMD) governance systems gain rule-making authority. Governance, vol.15, no.4, pp. 503-529.
Cornelissen, J. 2008, Corporate communications : a guide to theory and practice, SAGE, London.
Crane, A. and Matten, D. 2007. Business ethics: Managing corporate citizenship and
sustainability in the age of globalization (2nd edn). Oxford: Oxford University Press.
Crane, A. Matten, D. & Spence, L.J. 2008, ‘What is CSR? Concepts and theories’, in Corporate social
responsibility: readings and cases in a global context, Routledge, London, pp.54-99.
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Bangladesh’, press release, 7 June, viewed 15 September 2013, <
http://mediacentre.kmart.com.au/LatestNews.aspx?udt_385_param_detail=116>
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viewed 15 September 2013, <
http://mediacentre.kmart.com.au/LatestNews.aspx?udt_385_param_detail=114>
Kmart Communities 2013, Facebook post, 10 July, viewed 15 September 2013, <
https://www.facebook.com/kmartcommunity?fref=ts>
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33>
Parsons, P.J. 2004, Ethics in Public Relations: A guide to best practice, Kogan Page, London.
Gower, K.K. 2008, Legal and ethical considerations for public relations, 2nd edn, Waveland Press, Long
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Whyte, S. & Doherty, B. 2013, ‘Right now we have nothing – inside story – hazardous conditions, low pay
and little hope of forging a better life’, Sydney Morning Herald, June 24, p.13.