Corporate Social Responsibility Candidate number-64556

EXECUTIVE SUMMARY

In this report I have been explaining about corporate social responsibility. Have explained why
an organization should work responsibly and should also take into consideration the welfare of
the society and should not only think about making profits. The best example of a company that
I could think of while making this report was IKEA. IKEA is one of the biggest manufacturing
concerns that not only engages in making profits, but also concentrates in the well being and
the welfare of the society. In this report I have also stated the various factors that compel an
organization to act responsibly.

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Corporate Social Responsibility Candidate number-64556

INTRODUCTION
Companies play a vital role in the lives of all of us. The decisions and actions of management in
organizations have a vast impact on the individuals, other organizations and the society. One of
the major reasons for this in Globalization. Companies are expanding very quickly and as they
are expanding their influence on economical social and ecological environment on a particular
area is also increasing. It is not possible for an organization to just isolate itself from the society
where it is existing. The main aim of this report is to explain the various reasons for why and
how these should act responsibly. To start with in this essay I would be explaining the theory,
which can be referred to while I am explaining about corporate social responsibility. Secondly I
would be explaining the range of responsibilities that organizations have been using with some
relevant examples.

We have been noticing that new theories have been evolving with respect to social
responsibility. The in 1970’s Firedman came up with a theory in which he stated that the sole
responsibility of any organization is to give maximum financial profits to its shareholders
(Firedman 1970). Carol in the 1990’s came up with a relatively new approach, known as the
pyramid of corporate social responsibility. According to him a company has four major
responsibilities, which are philanthropic responsibilities, ethical responsibility, legal
responsibility and economic responsibility. One more theory related to this is known as
stakeholder theory. According to stakeholders theory the main responsibility of a company is
towards its stake holders. Now in this I am going to explain on the triple bottom lines of the
stake holder’s theory. Triple bottom line was first developed by John Elkington in the 1990’s. to
encompass social and environmental, as well as economic pressure. This theory developed by
John Elkington is based on the thory of 3 p’s, which includes responsibility for people,
responsibility towards the planet and profit. Responsibility towards people refers to the
responsibility of the organization towards the society or the responsibity towards the people.
Responsibility towards the planet refers to the respononsibility of the organization towards the
environment and profit stands for the economic responsibility. The theory of triple bottom line
is based on the theory of corporate sustainability. Corporate sustainability comes from the joint
action towards economic, social and environmental responsibility.

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Corporate Social Responsibility Candidate number-64556

Types of Stake Holders

There are various forces that compel a company to play a responsible role. These forces are
divided into two major categories, namely micro environmental forces and macro
environmental forces.

Micro environmental factors are those forces that have a direct and a strong impact on the
company. These forces are again diversified into various categories, such as-

 Customers- Organizations survive on the basis of meeting the needs, wants and
providing benefits to their customers. Failure to do so will result in a failed business
strategy.
 Employees- Employing the correct staff and motivating these staffs is an essential point
that should always be kept in mind. Employees are also a type of stakeholders in any
company.
 Suppliers- One of the main and the blackening factor of any organization are the
suppliers. Finished products are usually reliable on the type or quality of the raw
material used produce them and if single mistake is committed by the supplier then the
blame for the bad produce of the product comes on the head of the producer.
 Competitors- The world market runs on the concept of having USP( Unique Selling
Product). In other words one has to flexible enough to change its plans and to be vigilant
about what the competitor is doing. The will help the company to excel in the market in
the long run.
 Shareholders- Shareholders are the owners of the company and have full righ to express
their views and feelings within the organization. Growth in the company depends on the
expectations of the shareholders from the company.

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Corporate Social Responsibility Candidate number-64556

Given below is a chart showing the various forces that affect an organization for corporate
responsibility.

Now coming down to the macro environmental forces. Macro environmental forces are those
that work on the PESTEL model or the PESTEL framework (Jhonson and Scholes2002 :102).
Macro environmental factors are divided into various categories that are as under.

 Political- political forces are those forces that include government policies, taxation
scheme, foreign trade regulations, economic welfare policies. all these forces have a

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heavy impact on the companies to act responsibly. The most basic example of this can
change the welfare policies.
 Economic-These forces are divided into three types, namely economic conditions,
economic policies and economic system. These three factors have a great impact on the
company to act responsibly as minting profit I the main and the biggest criteria for the
existence of a company.
 Socio-culture- This refers to the impact on the business by some social and cultural
factors that are over the limit, or above the control of the companies. So examples of
these can people, culture, religion, customs, family structure, etc.( Terhan, 2009: 9)
 Technological- during the years, there has been a vast growth in the technology. As
Tehran in the year 2009 had stated that technology has enabled to save lives, produce
and allocate energy, has invented new materials, and has taken place instead of manual
work to computers. Therefore the existence of technology also plays a vital role in
pushing an organization to act more responsibly.
 Environmental- The most biggest challenge that a company has to deal with in todays
world is to deal with the scarcity of resources. It has to use these resources in such a
manner that these scarce resourses don’t get wasted. Therefore the company has to act
accordingly in such a manner that it uses its resources efficiently and in a proper
manner.
 Legal- being legally correct or abiding by the laws is the most basic responsibility of not
just a company but also by the individuals. A company has to abide by the legal
responsibilities that have been set up by the government of country or the state in
which the company has its organization.

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Corporate Social Responsibility Candidate number-64556

(3 responsibilities leading to corporate sustainability)

(sources: The sustainability advantage: seven case studies on benefits of triple bottom line)

Corporate Social Responsibility can be defined as Corporate social responsibility can be

defined as the contribution that a company makes in society through its core business

activities, its social investment and philanthropy programmes and its engagements in

public policy. The contribution made by the company is determined by the manner in

which a company manages its economic, social and environmental impacts and manages its

relationships with different stakeholders, in particular, shareholders, employees,

customers, business partners, governments, communities, and future generations (Zerk,

2006).

The stakeholder relations of the firm is perhaps the most popular and influential theory to

emerge from business ethics. The stakeholder approach starts by looking at various groups

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Corporate Social Responsibility Candidate number-64556

to which the corporation has a responsibility (Crane & Matten, 2007). By now, companies

seem to have accepted that compliance with human rights obligations is an important part

of being ‘socially responsible’.

Therefore the aim of this report is to analyze and summarize the stakeholder issues of the

company in order to improve working conditions and maintain its reputation in the global

market. In this report I would be stating u about the various ways in which IKEA

(Ingvar Kamprad Elmtaryd Agunnaryd) has acted responsibly towards its stake holders.

About the Company

IKEA is a privately held, Swedish international home products company that designs and

sells ready to assemble furniture, appliances and home accessories. The company is now
the world's largest furniture retailer.

IKEA was founded in 1943 by 17-year-old Ingvar Kamprad in Sweden. The groups of

companies that form IKEA are all controlled by INGKA Holding B.V., a Dutch corporation,
which in turn is controlled by a tax-exempt, not-for-
profit Dutch foundation. The intellectual property of IKEA is controlled by a series of
obscure corporations that can be traced to the Netherlands Antilles and to the Interogo
Foundation in Liechtenstein.

INGKA Holding B.V. owns the industrial group Swedwood, which sources the

manufacturing of IKEA furniture, the sales companies that run IKEA stores, as well as
purchasing and supply functions, and IKEA of Sweden, which is responsible for the design
and development of products in the IKEA range. INGKA Holding B.V. is wholly owned
by Stichting INGKA Foundation, which is a non-profit foundation registered in Leiden,
Netherlands. The logistics center Europe is located in Dortmund, Germany and Asian
Logistic center is located in Singapore.

Inter IKEA Systems B.V. in Delft, also in the Netherlands, owns the IKEA concept and
trademark, and there is a franchising agreement with every IKEA store in the world. The
IKEA Group is the biggest franchisee of Inter IKEA Systems B.V. Inter IKEA Systems B.V. is

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Corporate Social Responsibility Candidate number-64556

not owned by INGKA Holding B.V., but by Inter IKEA Holding S.A. registered
in Luxembourg, which in turn is controlled by the Interogo Foundation in Liechtenstein.
Ingvar Kamprad has confirmed that this foundation is controlled by him and his family.

The company which was originated in Små land, Sweden, distributes its products through
its retail outlets. As of October 2010, the chain has 313 stores in 38 countries, most of them
in Europe, North America, Asia and Australia. The IKEA Group itself owns 276 stores in 25
countries and the other 37 stores are owned and run by franchisees outside the IKEA
Group in 16 countries/territories.2006 saw the opening of 16 new stores. A total of at least
15 openings or relocations are planned for 2010. On February 17, 2011, IKEA announced
its plans for a wind farm in Dalarna County, Sweden, furthering the furniture giant's goal of
running on 100 percent renewable energy. The IKEA Website contains about 12,000
products and is the closest representation of the entire IKEA range. ([Link])

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Corporate Social Responsibility Candidate number-64556

Corporate Social Responsibility undertaken by IKEA

The responsibilities undertaken by the company are described on the basis of the triple bottom
line theory.

 Economy/Profit- first of all the triple bottom line suggests the responsibility of making
profit (Willard, 2005: 5). History shows that the basic aim of an organization is to
produce goods and sell it to its customers with an aim of making profit. The basic aim of
entrepreneurship is still the same, which is to make profits. According to Maignan and
Ferrell (2003) “ A business has economic responsibilities to its direct stakeholders- its
investors, suppliers, employees and customers. Economic responsibility includes,
responsibly paying taxes, creating job opportunities for the society, maximum
productivity, job compensation, fair trade and ethical behavior. IKEA has 301 stores
worldwide(i.e in 37 countries approx) and is living to its economic responsibilities in
many ways. First of all most of its furniture is designed it such a way that it can be
assembled by its customers. This helps the consumers to lower down their cost for the
purchasing of that furniture. INGKA foundation which is one of the nonprofit able
organizations formed by the IKEA group of companies. The foundation had a net worth
of $36 billion and is unofficially the worlds biggest charitable foundation, beating the
much popular Bill and Melinda Gates foundation who have a net worth of around $33
billion. The company makes time to time donations to the needy people. For example in
the year 2005, IKEA had provided around furniture’s to around 100 bridge school in
Liberia.(Jhonson,2005).IKEA acts as a corporate citizen of the society. IKEA has made
these responsibilities as a part of its business strategy. IKEA also takes care of its
corporate reporting in such a way that it communicates its aims and its goals regarding
corporate responsibility on timely basis.

 Planet/Environment- Reinhardt (2000:180), suggests that the managers of any organization

must always address the environmental problems as a business issue. The managers must make
investments in the protection of environment in the same way as they as they invest in a
business as investments in environmental issues could lead to reduction in risk and delivery of
returns. As we all are aware about the scarcity of resources . few years back the problem with
these resources were that these scarce resources would finish in the long run. But now a days,
another problem has started and that is the problem of emission of harmful gases. This is a sign
that the companies have to look towards the nature. Environmental responsibilities include the
process in which the manufacturer produces his goods in a eco friendly manner. Supplier eco-
inspection must be done from time to time, and business operations must be eco-efficient, the
product should be eco friendly, beyond compliance which means it should be more than just

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compliance of rules and regulations and restorative to nature.(Willard 2005 : 5 ). The steps
taken by IKEA towards the environment are recommendable. IKEA used to transport goods
from its manufacturing place to its stores through the heavy use of trucks and trailers and
deliver goods from its retail outlet to the costumers. In this process these trucks and vans
emitted a lot of CO2. Therefore as a part of its environment responsibility the step taken by IKEA
towards the environment was called as smart packaging. Smart packaging was a process in
which goods were packed and more products were loaded into a single trailer. In this way the
company not only did save its transportation cost but also did act responsibly towards the
environment by limiting the emission of CO2 by its delivery vehicles. The company had also
come up with eco friendly vehicles to transport its goods from the retail outlet to the place of
the consumers.

 People/Equity- People are known as the human capital of any business. The people
aspect means treating employees, the community, and the region in which a
corporation conducts its business correctly. In this part of the TBL, business not only
ensures a fair day’s work for a fair days pay, but also reinvests some of its profits into
the surrounding communities through education, sponsorship, or donations or helping
in projects that promote the common good.

IKEA has acted responsibly towards the society in many ways such as by opening schools
for the children, by trying to abolish child labor,. IKEA has set up people around the
globe called as chilrens ambudsman, who get trained to protect and promote the rights
of the children. The ambudsman then trains a similar ambudsman for eah sub
contractor. IN PARTS OF India many children fall seriously ill or die as a result of worm
parasites, infant diarrhoea and the fact that too few children and women are
immunised. Illness also often leads a family into a spiral of debt, which can subsequently
force children into work.

Children and mothers are immunized against common illnesses such as measles, polio,
diphtheria and whooping cough. They also receive preventive medical treatment, such
as deworming medicines and vitamin supplements, and are given mosquito nets to
protect against malaria. Mothers are encouraged to breast-feed their babies, which
greatly reduces child mortality.

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CONCLUSION

To conclude with I would like to state that a company’s main motive is not only to make
profits but also to be responsible and helping to the outer surrounding. Every organization
operating in the society must be responsible enough take into consideration the welfare of
the society that is its people, place and the environment. Gone are the days when the major
aim of any organization was to mint money and only money. But in today’s era an
organization if needs to exist in the long run has to be responsible enough to not only
consider its profit maximization but has to also look at the growth of the society all
together. IKEA has been following these standard and has been doing a lot for the society
and as well as for itself.

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Corporate Social Responsibility Candidate number-64556

References

 Crane & Matten, 2007

 Jhonson and Scholes2002 :102
 Terhan, 2009: 9
 Zerk, 2006
 [Link]
hl=en&lr=&id=SQ6BhCQh728C&oi=fnd&pg=PA1&dq=environmental+responsibility+triple+botto
m+line&ots=HyiWBHBYHo&sig=ND61argaWxRDf62cYlGC7ymHiZg#v=onepage&q=environmenta
l%20responsibility%20triple%20bottom%20line&f=false( viewed on the 27 th of February 2011)
 [Link]
%20and%20Environmental%20Responsibility%20Initiatives%20-%20Business
%[Link]#Extending CSR to the Suppliers ( viewed on the 27th of February 2011)
 [Link] ( viewed
on the 27th of February 2011)
 [Link] ( viewed
on the 27th of February 2011)
 [Link] ( viewed on the 27th of
February 2011)
 [Link] ( viewed on the 27th of February
2011)

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