Will Mandatory CSR Increase Company Cost?
The aforesaid legislation is silent on cost of managing the responsibility of mandated CSR. Planning how to spend money well will need investment in appropriate people and processes, as well as in oversight; and companies may be loath to take on the challenge of this extra cost of time, effort, and resources. For example, trying to find out the needs of local community is a long and drawn-out endeavor, and “is inherently constrained by the companies’ lack of developmental expertise and the technical/managerial approaches” dominantly adopted; thus it is highly likely that what passes as developmental needs are demands of locally influential persons (Frynas, 2005, p. 591). In an analysis of the management of charitable giving in large UK companies, it was found that there is considerable inertia in the processes by which the level of giving is determined (Brammer, Millington, & Pavelin, 2006).
Thus, companies may settle down for least cost options for spending the CSR fund by resorting to check-book philanthropy where one issues checks to various delivery partners to support sundry good causes. This low-cost emphasis on spending CSR fund is likely to create patronage-distributor tendencies in the company, toward various claimants for a share in the pie. Also, emphasis on spending would represent an end of process, rather than an ongoing engagement that can be “further developed and refined” (Waagstein, 2011, p. 462), leading to short-term expediency. This is more so as failure to spend the fund needs to be recorded in Annual Reports with public disclosure acting as implicit stress point. This can lead to a fragmented, defensive approach toward CSR, with focused intention on spending money.
CSR spend is expected to create private benefit to the business for its production of social benefits, say, in the form of increased customer and employee loyalty. However, if as argued above, CSR activities continue to be fragmented and oriented by top management’s personal liking or by threat of dangerous stakeholder, then even the expected private benefit for the firm will be a casualty.
A company is neither equipped in extending social benefits nor can it be expected to maximize performance in more than one direction (e.g., profitability and societal impact). Attention to its primary goal of profit- generation may get deflected by making special attempts to put something back into society (Davis, 1973; Jensen, 2010). The company will be spending other people’s money on other people; this may lead to profligacy (Friedman, 1970). Thus, resources may get poorly spent without any appropriate checks and balances, in the name of CSR. With every company trying to spend the money, there may be duplication of effort and wastage. Frynas (2005) shared an example of a road built parallel to another road built by the local development authority in Nigeria to highlight failure of planning and coordination, along with the absence of integration with macro-level development plan due to emphasis on short-term expediency which favors form more than substance. So, due to mCSR, companies may scale back voluntary initiatives, and the expected private benefit to the company may also be poorer.