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Businesses and academic researchers have shown increasing levels of interest in Corporate Social Responsibility (CSR) during recent years. The concept of corporate social responsibility is gaining a greater importance in the ever-changing business world. Corporate leaders face a dynamic and challenging task in attempting to apply societal ethical standards to responsible business practice and leadership (Maak & Pless, 2006, p.6; Burchell, 2008, p.1). Companies especially those operating worldwide are required to consider the social, economic, and environmental aspects of their business so as to be able to build shareholder value.
This paper looks at issues of CSR auditing system basing on the analysis of current CSR materials and the Group being a company engaged in business that helps in children’s development creativity and ability by offering play tools and learning (Charkham, 2005). The company offer toys, learning and playing experiences and teaching materials for children in more than 125 countries. Its head office is in Billund, Denmark. The paper also looks at creating a framework for CSR auditing attuned with a current profitably fruitful environmental audit system (Habisch, Jonker & Schmidpeter, 2005, p.337).
It also examines the perceptions of CSR in different sectors and the role it plays in those sectors. It emphasizes the key issues surrounding the establishment of an applied CSR auditing procedure in organizations such as LEGO. It further explores the possibility of developing practical measurement systems for CSR, and examines the procedures that are currently being implemented.
KEY ISSUES CONSIDERED WHEN AUDITING CORPORATE SOCIAL RESPONSIBILITY PRACTICE
Formal strategic process helps in measuring a company’s actual social performance against the social objectives it has set for itself, and how decision-making, mission principles, and mission statement and business conduct are matched with social responsibilities. The audit helps in analyzing the interests and objectives of its workers and stakeholders (Habisch, Jonker & Schmidpeter, 2005, p.337). The company’s goal is usually to find out which nonprofit organizations and social causes their employees would like to support, and how they can incorporate their employees’ interests into the business plan. What employees have done in the past is discussed and what other companies are doing in your business space is found out.
The auditing process can be conducted internally or externally by an outside consultant who will not be biased, which will be more beneficial to the company. Once the social responsibility audit is complete it may be distributed internally, or both internally and externally, depending on the company’s goals and findings. Some publish a separate periodic report on their social initiatives such as booklets or magazines and later have it available on their Web site. At present, nearly all publicly traded companies include a section in their annual report devoted to social responsibility activities (Habisch, Jonker & Schmidpeter, 2005, p.41).
CSR Framework for LEGO
The audit may be used for more than simply monitoring and evaluating a company’s social performance. The auditing process can be used to scan the external environment and to determine the company’s shortcomings, then find ways of launching new social initiatives within the company. Companies searching to differentiate themselves in their marketplace start with an audit to help them creative new social cause marketing initiatives with projects that do not directly bring profits. These initiatives aid in capturing market share from direct competitors, and even help introduce new products. Here are some of the key issues that have to be looked into in the process (Habisch, Jonker & Schmidpeter, 2005):
Key CSR models for LEGO
Organizations focused on diminishing their environmental effect ordinarily make an arrangement of environmental standards and benchmarks, frequently including formal objectives. At least, most such explanations express an organization’s plans to regard the earth in the configuration, generation, and conveyance of its items and administrations. That is, to submit the organization to be in full consistence with all laws and go past agreeability at whatever point conceivable; and make an open-book policy whereby workers, group individuals and others can be educated of any conceivably unfavorable impacts the organization may have on nature.
Prior to an organization endeavors to decrease its effect on nature, it is vital that it first picks up a full comprehension of it. For most organizations, this as a rule includes an environmental audit. The objective of audits is to comprehend the sort and measure of assets utilized by an organization, product offering or office, and the sorts of waste and discharges produced. A few organizations likewise attempt to evaluate this information in fiscal terms to comprehend how everything adds up effect. This likewise serves to set needs in the matter of how an organization can get the best profit for its endeavors.
Leadership organizations perceive that to be successful, an environmental policy needs to be grasped by workers all through the association, not simply those whose work is identified with the environment. To do that, organizations take part in an assortment of exercises, particularly training, to help representatives comprehend the environmental effect of their employments and to backing their endeavors to roll out positive improvements. A few organizations go further, helping workers get to be all the more environmentally dependable all through their every day lives, helping them construct a genuine environmental ethic. Other than instruction, numerous organizations make motivators, prizes, and recognition programs for representatives who exhibit their environmental duty.
To help guarantee that their merchandise and processes are environmentally mindful, numerous organizations look to purchase greener items and materials from their suppliers. A few organizations partake in purchasers’ gatherings in which they influence their aggregate purchasing clout to push suppliers to consider option items or processes.
Goods themselves may be designed to be all the more environmentally well disposed, with respect to, for instance, the control of emanations, clamor, lessened wellbeing and dangers, and diminished vitality prerequisites.
Essentially, all CSR activities are founded on the principle of voluntary approach. For this reason, stakeholders are capable of observing environmental externalities that are every so often not verifiable (.p4).
Shareholders: a CSR audit gives shareholders enough pride and satisfaction that the company is doing well not only financially, but also in charity activities that improve the lives of those in the community, who, presumably, do business with LEGO.
Customers: LEGOs customers gain more confidence in the operations of the business by virtue that the company is grateful enough to give back to them by donating the society through CSR programs. Some of the CSR programs directly benefit customers. For instance, sponsoring community members for further studies or improving health facilities in the business establishment neighborhood has a direct positive impact on LEGOs customers.
Suppliers: material, software, and hardware vendors or suppliers of LEGO have more confidence in working with the company when they know that their partner is engaged in open CSR activities. It is a sign of taking responsibility to appreciate a relationship the business has enjoyed in a given locality over time.
Employees: this is a crucial element in CSR activities. They are responsible for running CSR programs and have direct and indirect benefits from such programs. They are sometimes allowed to select or nominate projects or communities that CSR programs should target to benefit many people.
Local business community: this consists of people in the community neighboring the premises of a business. Too often, corporations believe that they have a responsibility to offer charitable donations for community projects in their neighborhood as a ‘give back to society’.
Society: often, companies such as LEGO have an international business presence in one way or another. Carrying out CSR improves their image across a wider society and brings in greater benefits including shareholding, improved brand adoption, and revenue (.p4).
Government: the government where LEGO operates is also an important stakeholder. The government regulates businesses in several ways and is keen on the observation of CSR guidelines in a competitive market.
The company has to consider whether it has violated any of its Corporate Social Responsibilities, Its suppliers, any of its buyers and any of its direct competitors. In addition, whether any of them has ever violated any of their responsibilities and the reason for that.
The company’s mission statement and how it aligns with its responsibilities to the community and stakeholders (Maak & Pless, 2006, p.6). Its goals, corporate values, and whether the business plan reflects the findings also form part of the situation analysis. What the community and stakeholders think about the company and the industry, the competitors, the end users, and the customers and whether the findings are positive or negative and the trends and directions are analyzed.
The company will also look at how it describes and defines the ethical standards and norms in the industry it belongs, its corporate code of conduct and how it came about, how the company shares and communicates it with employees and how the company knows that they know it (Crane et al., 2008, p.234). The last time it was reviewed and if it needs any changes, whether the competitors have a corporate code of conduct, and what the direct competitors is doing in respect to social cause programs.
The social cause programs that have worked in their industry and the reason for that, the social cause programs that have not worked in their industry and the reason for that, and what the future and the trend analysis, indicate for their industry. Other significant trends shaping the industry and the regulations that may influence their industry; how they came about and what their root cause is together with how companies in other industries are complying with their social responsibilities that are similar to the company. Benchmarking example for the Lego Group include; Best-Lock Construction Toys, K’nex, Laser Pegs, Lite Brix (The LEGO Group, 2014)
This is done based on the findings and discovery above, what can be done differently, to strategically set the company apart from others? What the company wants to do better and what things need improvement at the company. What the company wants to continue doing and the things it is doing better than their competitors do is also checked. The area of the community, or who in the community, is most affected by the business and in which way is brainstormed. The community issues that are likely to affect the business and/or employees, what role the company wants to play in the community and what the company has done in the past to help this relationship is also uncovered.
The employees’ interests and to the social causes they are committed, whether the company’s business plan and business strategy fit well with what it is uncovering. Whether the company’s business plan and business strategy need to be reworked and the timeline needed on getting the company plan and strategy revised.
The Company then considers one of these alternatives: co-branding, licensing, new product, Sponsorship, promotion, philanthropic investments, donations of products and services, and employee involvement. A decision is then made regarding one(s) that seem best for the company’s situation analysis and the reason for that, how to evaluate and measure the outcomes for the company’s social cause initiatives, the kind of resources the company is willing to commit and for how long. How the company will know it is doing well and who is going to be the judge of that, how the company is going to get its employees motivated and passionate to get behind its choice. Finally, how the company is going to select and who is going to help in selection is checked.
Create the Action Plan
The key talking points of the audit the company feels it needs to communicate right away are included in the action plan. Whether the company feels it is going on the “offensive” Or “defensive” and reasons for that choice and also the social cause initiative that looks like the best answer for the company’s situation. Some of the deadlines to get started and how fast the company should be moving on this are also considered. Moves the company think its direct competitors will do once they launch their social cause initiative or program. Who to share with the audit, how to do that, how they are expected to feel, think and act. What is needed to be shared with internal stakeholders (The LEGO Group, 2014), executives, employees, and investors and others make part of the action plan. Who can help prepare a summary of the corporate social responsibility audit and who is going to be the person in charge of creating and launching the new social cause initiative are also analyzed.
The LEGO Group History
LEGO is a private company owned by the Kirk Kristiansen family who founded it in 1932. It is consumer Product Company engaged in the manufacture and distribution of a wide range of toys, video games, and online games (Burchell, 2008). It also offers children’s creativity development products, as well as innovative playing and learning techniques. Lego’s principal product offerings include video games, online games and various brick toys to different age groups under the brand name LEGO. The company’s products are sold in more than 130 countries. The company, together with its subsidiaries, operates in Europe, Americas, Africa, Asia, and Australia. Lego is headquartered in Billund, Denmark. The Lego Group is involved in various corporate social responsibilities in order improve the image of the company and maintain good relation with the surrounding community (Dunphy, Griffiths & Benn, 2007, p.230).
The LEGO Group CSR
Some of the key areas in environmental issues that it has undertaken include; reducing carbon emission, sourcing and using their materials responsibly. Lego Company CEO Jorgen stated in a release on Lego’s website in February 2012. “One of our fundamental values is to enable future generations of children to grow up in a better world (Crane, Matten & Spence, 2008). We do that first and foremost through our play materials — but also by improving the safety of our employees, improving the energy efficiency of our production, and reducing the volume of waste. In the field of renewable energy our objective is an ambitious one….”
The Lego Group has been investing over $500 million from 2013 in green energy. Ole Kirk Christiansen, who was a carpenter in western Denmark, started the company in 1932.Christiansen started making wooden toys instead of furniture. He was later forced to rebuild after fire broke in his premises. He decided to start out making miniature versions of houses and furniture he had initially worked on whiles still a carpenter. He switched to plastic in 1947 and by 1949 had built over 200 plastic toys. Christiansen came up with “Lego” for a company name; Lego is derived from the Danish words “leg godt” meaning, “play well.”
The company purchased a 32% stake in DONG Energy’s wind farm, Borkum Fiffgrud. The wind farm is located 55 km off the north-west coast of Germany in the North Sea and has a capacity of close to 300 MW, which is enough power to supply nearly 330,000 households’ annual power consumption. It is also a carbon dioxide free energy (Danish Business Authority, 2008).
Construction on the project began in 2013 and was ready for production by the beginning of 2015. Lego and its parent company made a plan to have their investment in Borkum Riffgrund producing more energy than they will use up to and including 2020. The LEGO Group also gets involved in other CSR activities. It has the LEGO School Club situated in the United Kingdom. The employees use their time, dedication and other LEGO products to engage children from over 20 schools in the building experience. There is also the Kidscamp close to Munich of Germany, in which 21 of their team members spend the day playing with children who face challenges in their daily lives.
There also exists the five kilometer Road Race at the Group’s US office in Connecticut, in which a lot of family fun is experienced combined with a fundraising activity for a local children’s camp; also the Mexican LEGO employees do support robotic workshops in public schools are also part of the system. Large or small, around the globe; the LEGO Group wants to be part of the local community. They participate across the LEGO play experience, their company values and the local communities where they operate all join forces in our Local Community engagement approach. Many LEGO sites in activities to create a close ‘family link’ between the LEGO Group and the local communities (Danish Business Authority, 2008).
In 2013, other European Central office celebrated its fifth anniversary in the town of Grassbrunn, Germany. Families from the local neighborhood were invited to join their LEGO ‘neighbors’ to share play experiences and participate in a special sale of LEGO products. All profits were dedicated to a local home for young children who had been removed from their families due to neglect thanks to CSR principles (Heal, 2008). While caring for these children, this home also offers therapy to parents, hoping to create a situation where the children can safely return to their homes. Over time, about 60% of the children and parents will be reunited. The potential impact of LEGO employees worldwide is immense. With the scale of the LEGO brand and the passion of their employees, they have a group of 13,869 advocates. Together, they need to equip, inspire, and activate champions for play.
Local Community Engagement takes on various forms depending on the location. Apart from social engagement, their employees are active in national Toy Associations, where they focus our efforts on promoting the value of play as a priority of the toy industry, legislators, and authorities. The LEGO Group is active in 16 national Toy Associations, helping to drive this priority. In 2013, the Vice President of their France/Iberia market focused his efforts as Board Supporting communities. Over 300 schools are now part of this programme, which has been credited with helping to reduce conflict in the schools.
During 2013, as their footprint has grown around the globe, they have worked to better define Local Community Engagement for the LEGO Group. As a result, they have begun to develop a structure where they can share experiences and learning and ensure LEGO values are represented in all of their local community activities, and that their teams in every location have the tools and support they need to engage with their communities (Habisch, Jonker & Schmidpeter, 2005, p.317). This includes defining the processes needed to ensure they coordinate and manage these activities around the globe.
STRENGTH AND WEAKNESS
Engagement in CSR for a company can enhance profitability and, hence, the value of the firm. Berman et al. (1999) provided an excellent overview of the various elements of CSR and the ways in which these activities can increase firm value. The major issue is that CSR and its activities are costly and that what is incurred in terms of expenses does not always outweigh the returns. Firms with CSR concerns and shortcomings would obviously not include negative information about their CSR performance in the public forums and advertising. The rate at which positive CSR information is given out is stronger for firms with an already good reputation (Frederick, 2007, p.189) than for firms with a tainted reputation; if there is no match between a firm’s current actions and its past reputation, customers will not respond positively, as expected to the CSR information.
Barnett (2007), who argued that the response to CSR activities by customers is path dependent, also echoes this same explanation; the same activity may lead to positive returns for one firm, but negative returns for another depending on the customers’ priors about the firm’s intentions. Du et al. (2010), likewise, conjectured that a good prior reputation amplifies the positive effect of CSR communication.
- CSR is also a product attribute valued by consumers, which they can only appreciate if they are informed about it.
- Advertising spending increases public awareness about the firm and prompts customers to become more informed about the firm’s CSR activities. CSR as a Signal of Product Quality (Fisman et al., 2008) suggested that CSR activities are more beneficial in more competitive industries with high advertising intensity.
- CSR can impact a company negatively if not taken into account in a proper way and implemented in the right manner.
- CSR involves use company funds hence increasing its expenditure with the believe that a good reputation of the firm will boost its image and hence a liking for its products and services. Hence, the resultant profits resulting from image covers the expenses incurred in Corporate Social Responsibility.
- A company such as LEGO has to weigh the benefits of its planned CSR project against the resources it injects in the process and how it will be viewed in the long run.
On the LEGO Group website, issues in relation to Corporate Social Responsibility are addressed in the majority of the individual subsections in the main section of “Corporate Responsibility.” These subsections are; Health and Safety Policy”, ”People & Culture Policy”, “Responsibility Policy”, “Code of Conduct”, “ICTI CARE Process”, and the section titled “Global Compact”. Whereas the first four of the subsections are LEGO Group policies, the latter two sections (“ICTI CARE Process” and “Global Compact”) imply to international frameworks dealing with employee health and safety standards and issues and labor conditions, which the LEGO Group has joined and complies with.
The LEGO Group has a well structure CSR plan and clearly explains its priority area. Burchell (2008). Most of its products being ultimately consumed or used by children, it has prioritized this category of group in its plan. It has further taken into account environmental issue as a key area of concern given that it is in an industry in which if the environment is not looked at keenly then there will be a disaster.
Ethical labor requirements, fair pay.
It has been found out that Lego Group meets the ethical requirements in the industry it plays. It engages in CSR on a fair basis with its competitors and with the concern of the surrounding.
Diversity, safety, Energy/Waste/water/carbon
As of the project it implemented in 2013 and which still runs today, it has been seen to care for the environment from which it derives its resources.
Employees at Lego are allowed to volunteer, not by coercion for the various CSRs implemented by the company and they are encouraged to so.
There was no much information about General philanthropy activities of Lego Group even though it still indulges in activities outside its business area. This can be viewed as the weak point of the company because CSR does not have to be implemented only in projects that give back direct benefit to the company. It rather meant to help the community from which it derives its resources appreciate its existence.
Fair business practices e.g. pricing.
This was measured against its competitors pricing and it was found to be within the accepted margin hence it was assumed that it does not exploit the consumers of its products in terms of pricing.
The marketing strategy implemented was also seen to be good, not one of the cutthroat but it was fair to the competitors by providing customers what they wanted, informing them of what they have, and providing the same wherever the customer is (The LEGO Group, 2014).
LEGO’s CSR in the context of consumers, employees, and the government
In fulfilment of statutory requirements on CSR as found in section 99b of the Danish Financial Statements Act, LEGO commits itself to CSR activities as recorded in its annual responsibility reports, the latest being the Responsibility Report 2014.
Range of CRS activities LEGO is engaged in according to the 2014 report include the following:
- Employees: the firm cares about personnel workload so it keeps increasing worker capacity and opens more office spaces. Company decisions and processes are tuned towards improving care for its employees. The company even has a target of being top 10 in employee safety by end of the year 2015 (The LEGO Group, 2014, p.27). The year 2014 saw the firm report a high score on employee satisfaction and motivating using global benchmarks thanks to its employee care programs.
- Consumers: many of the consumers of the firm’s products are people in the neighborhood of LEGO’s establishments. Through establishment of play facilities for children, the firm makes a direct impact on the consumers. By employing from the local community, the firm is able to integrate well with the needs of the local communities while gaining more favors from the locals who find it a good gesture from the firm. LEGO does not pressurize consumers to buy its products, generate an impractical perception of product value or cost, or harm its consumer through its products (The LEGO Group, 2014, p.26).
- Government: LEGO engages with the government in many CSR activities such as making learning more interesting by instituting play facilities for children to help transform children’s behaviors and attitudes towards the process of learning (The LEGO Group, 2014, p.10). LEGO helps the government by reinforcing the latter’s efforts in fulfilling and protecting the rights of children. In terms of environmental protection, which is usually the role of the government, the firm has a positive impact on the environment by improving business processes. For example, LEGO is keen on creating and maintaining environmentally optimized production facilities. The firm also pays its taxes to the government as required by law (The LEGO Group, 2014, pp.5-6).
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