The goal of this report is to provide detail information regarding the significance of Corporate Social Responsibilities and why an organization should implement CSR for increasing their profitability. The organizations around the world are facing many challenging due to which not only their performance gets affected but also sustaining, in the long run, become a tough task. CSR activities can help the organization to fight with the challenges they are facing. In the report, Costco Corporation has selected as a case to investigate how CSR initiatives impact their operations. Costco is an American corporation and considers among the world largest retail corporations. The headquarter of Costco is situated in the state of Washington, USA. Costco is a Fortune 500 organization, and over the years, the revenue of the organization has experienced immense growth. According to 2016 statistics, the organization is the biggest retailer of wine, organic food & rotisserie chicken.

The paper is divided into four main sections; the first is the introduction part, which provides a brief overview of the report. The first section discusses the social & ethical issues which different organizations are facing today. In the second section, an organization has selected for evaluating the impact of CSR activities on the operations. In the third section business case is developed which support the CSR initiatives. In the last section, the conclusion is provided which discuss the recommendation for CSR initiatives.

Evaluation of Ethical & Social Issues Facing Organizations

In the 21^st century, the organizations around the world are facing many challenging due to which not only their performance gets affected but also sustaining, in the long run, become a tough task. Following are some of the key social and ethical issues which many organizations in the world are facing today:

Ethical Issues of Technology usages

Usage of Technology

The technology around the world is changing rapidly, and today, almost every organization rely on technology so that it can perform its various activities efficiently. However, there are many ethical concerns related to the use of technology. Many employees who use the technology of the organization does not know up to what extent the usage of organizations technology is considered as fair usage. Sometimes the employees start using the technology of organizations for their own private purpose, which might not be in the best interest of the organization. Therefore it can be said that technology has raised many ethical issues which should be mitigated by creating new policies.

Bad Leadership

In various organizations, the leadership sometimes unable to play their role in making the organization successful. The leaders are sometimes unable to understand the actual needs & preferences of the organizations. The leaders sometimes create rules for their employees, but they do not follow the rules by themselves, which creates working environment issues in the organization. In simple words, it can be said that the bad behaviour of the leaders is a major ethical concern in many organizations of the world (Visser, Matten, Pohl, & Tolhurst, 2010).

Employee Favoritism

In many organizations, the managers or top management of the organizations start liking some number of employees within their organizations. The employee favouritism is one the most common ethical issue which the organization faces. The reason for employee favouritism might occur due to personal ling or disliking. Sometimes the managers like those employees who come from the same background from which they have come or both individual share the same cultural background etc. However, favouritism can have negative consequences on the performance of the organization because managers start giving incentives to those employees who they like and ignore the deserving ones (AnsKolk, 2016

Accounting Practices

In organizations, the accounts have to be maintained according to the rules & regulations which are set by the authorities. The organizations follow standards given by GAAP or IFRS. However, sometimes, the employees manipulate accounting information to gain economic interests. This is a major ethical issue because not only it affects the accounting reports, but also the organizations might be unable to attract the investors in the future. When the investors are not going to get clear information than they might not invest in the organization. 

Managing Cultural Diversity

Managing cultural diversity is highly important in the organization because if the diversity is not going to be managed appropriable than the working environment of the organization get disturbed. Sometimes the organization give favour to the individual who belongs to certain ethnicities and ignores the people who belong to other cultures. This creates a major ethical issue in the organization. It is important for the management to treat each and every employee equally without focusing on their cultural; background. It is not ethically correct that culturally diverse individuals in the organization do not feel welcomed or consider the working environment inappropriate for work (Searcy, 2012).

Social Issues of health

Safety & health of employees

The organizations today are focusing especially on the safety and health of their employees. Society raises concerns regarding the health of the employees because people want to work in such organizations which focus on their health. The health and safety of the employee is a major social issue which the organizations are facing today. If they are not going to focus on safety than not only the employee can face injuries but also the reputation of the organization will decline because the society will consider the organization unsafe for workers. Despite the implementation of many safety standards, sometimes an accident occurs on the work sites which raises questions on the safety measures of the organizations (AnsKolk, 2016).

Environment Protection of employees

Another major social issue which the organizations are facing today is the environment protection. Global warming has become a major issue and organizations are trying to eliminate their carbon footprint. The corporations today are highly investing in environmental protection initiatives to become sustainable. However, environment protection initiatives increase the organization's cost, and sometimes organizations face the consequences due to high expenditures of environment protection initiatives (McNamara, 2018).

Welfare of Society

The customers have become quite aware of the CSR activities of the organizations. The customers want the organizations to provide maximum benefit to society. The organization today not only have to focus on environment protection but also on the welfare of society. The organizations perform charity, donations and other activities for improving the standard of living of the people. However, such initiatives come up with high costs, which creates issues for the organization.

Costco Corporation

Costco is an American corporation and considers among the world largest retail corporations. The headquarter of Costco is situated in the state of Washington, USA. Costco is a Fortune 500 organization, and over the years, the revenue of the organization has experienced immense growth. According to 2016 statistics, the organization is the biggest retailer of wine, organic food & rotisserie chicken. The organization has a presence in many parts of the world, which include Iceland, Taiwan, San Diego, Japan, UK and Canada. According to 2019 statistics, the organization has stores on 770 locations.

Financial Operations of Costco Corporation

Costco Corporation manages its financial quite efficiently. Due to the effective management of the operations, the financials of the organization are showing growth in income. The revenue of the organization in the last seven years have experience growth, which is a sign that the organization's customers are increasing with the passage of time. The increase in revenue shows organizations growth and significant for a higher amount of profit. The net income of Costco has also increased in the past 5 years, which is indicating the high financial performance of the company. Below is the income statement of Costco for the last 5 years. Through the income statement, the management of profitability & expenses can be analyzed critically

Source: http://financials.morningstar.com/income-statement/is.html?t=COST&region=usa&culture=en-US

The higher profitability and revenue are indicating that the financial analyst or managers are performing their duties effectively. The financial managers are managing the financials of the organization operationally due to which the corporation was able to achieve growth in net income. If the financial managers were unable to manage the financials accurately, then the financial reports might not show accurate financial results.

Impact of CSR on Financials

The CSR activities have a huge impact on the financials of the organizations. The CSR activities provide benefit to all the major stakeholders of the corporations, which include investors, employees, customers and communities. When the organization perform CSR its goodwill increase, which increases the value of the organization. Furthermore, the sales of the organization increases, which become the reason for an increase in the amount of profitability. However, CSR activities have some negative impact on financial performance as well because it increases the expenses of the company. The following are some key positive and negative impact on the financials of Costco Corporation:

 Positive Impact of CSR (Corporate Social Responsibility)

Some major positive impact of CSR activities on the financials of the organization are mentioned as follows:

Increase in Revenue of (Corporate Social Responsibility)

The CSR activities increase the revenue of the organization because the customers like such organizations who provide maximum benefit to society. Due to CSR activities, the organization become famous and due to high popularity, the sales of the organization experience boost. The higher sales bring a huge amount of profit as a result. If everything goes perfectly than through high sales, the organization can expand its business in a short amount of time (Visser, Matten, Pohl, & Tolhurst, 2010).

Increase in Goodwill

The high goodwill means that the overall value of the organization will increase. Higher goodwill not only creates customer loyalty but also help the organization to sustain in the long run. The goodwill of the organization is also important for attracting investment in the company. The investors usually invest in such organization who have high goodwill or reputation in the market. A company with low goodwill might be unable to attract higher investments (O'Sullivan, Smith, & Esposito, 2012).

Increase in Net Income (Corporate Social Responsibility)

As discussed earlier, the CSR activities increase the sales of the organization, and when sales of the organization increase the profit of the company also experience an increase. The high profitability of the company provides many opportunities for the company, such as expansion or improvement in the current performance. The organization can use the amount of profit to increase shareholder wealth as well. In short for profit maximization, the CSR initiatives can play a significant role.

 Negative Impact of CSR (Corporate Social Responsibility)

The negative impact of CASR activities on financials are explained as follows:

 Increase in expenses (Corporate Social Responsibility)

Although CSR nativities increase the sales & profit of the company, they are also a reason for the high amount of expenses. The CSR initiatives are expenses and can cause huge financial Burdon on the organization. If the CSR initiatives are not planned wisely than it can lead to financial loss, and ultimately, the efficiency and performance of the organization will suffer. That is why it is important to invest wisely in CSR activities. The organization should analyze its financial condition before taking any major decision regarding CSR activities. Otherwise, the organization might experience a financial problem in the upcoming years.

Divert from profit maximization goal of every organization

The main aim of every organization is to maximize its profit. This goal, however, gets seriously affected when the organization started focusing on CSR activities. The organization then focus more on the initiatives through which it can provide, maximum benefit to the society. The attention of the company diverts from its operations toward the activities which it performs for increasing its profit and sales. Due to diversion, the company might be unable to perform its operations more effectively, which leads to a decline in performance & efficiency. The ultimate result of this scenario would be of low profitability. That is why the organization should not divert from its key operations for performing CSR (Spender, 2014).

Negative impact on Goodwill

            As CSR activities increase the goodwill of the organization, the CSR activities can also become the reason for the decline in the goodwill as well. The CSR policies ask the organizations to provide maximum detail to the customers about their products. It means that if any product as negative aspects than the organization would have to provide this information as well to its customers. After hearing the negative impacts of the products, the customers might lose confidence in the organization's products, and in the worst case scenario, the reputation of the organization might decline (Epstein, 2018).

 CSR (Corporate Social Responsibility) Initiatives of Costco

In order to achieve success in the competitive market, the organization have to look for various activities through which it can get a competitive edge over the competitors. Costco runs in the retail sector, which has high competition. The CSR initiatives of Costco can help the corporation to standout in the market. Costco’s CSR initiatives revolve around its key stakeholders, which are discussed below:

Employees of Costco corporations

Costco corporations’ top priority is its employees. Costco gives special attention to its employees because the organization knows that the employees are the one who performs the business activities. Due to the employee's performance, the organization experience growth. By keeping the importance of its employees in mind, Costco has many CSR initiatives for its employees which include leadership development programs, health benefit programs, life insurance, and reimbursement for elderly & childcare and lots of other CSR initiatives for the employees. With such initiatives, the motivational level of the employee's increases and they provide their best performance.

Customers of Costco corporations

The customers are the second priority of the organization. Costco tries its best to meet the expectation of its customers. The organizations understand the needs & preferences of their customers so that best customer services can be given. Costco meets the interests of its customers by providing them with high-quality products at low costs. Through affordability, the corporation has gained the trust of its customers, which have become the reason for higher revenue. In other words, through CSR activities, the company have not only increased sales bit have also created customer loyalty, trust and goodwill (Economist & Kourdi, 2015).

Investors of Costco corporations

The investors are second last priority of the corporation. The corporations know the importance of its investors because if investors are not going to invest in the organization than the availability of funds will decrease, which is important for running the operations of the business. The investors invest in the organization when they know that the organization I am meeting their interests. Costco meets the interest of its investors by keeping its profitability high. Due to high profitability, the organization expand its business in another part of the world. The investors attract the corporation by seeing the growth of the organization (Spender, 2014).

Communities of Costco corporations

            The communities are the last priority of the Costco organization. For communities, Costco has taken many initiatives like donations & charities. The organization not only protect the environment but also improves the standard of living of the people.

4.      Conclusion on Business Case to Support CSR (Corporate Social Responsibility) Initiatives

It is concluded that The CSR activities increase the revenue of the organization because the customers like such organizations who provide maximum benefit to society. Due to CSR activities, the organization become famous and due to high popularity, the sales of the organization experience boost. The higher sales bring a huge amount of profit as a result. The high profitability of the company provides many opportunities for the company, such as expansion or improvement in the current performance. The organization can use the amount of profit to increasing shareholder wealth as well. In short for profit maximization, the CSR initiatives can play a significant role.

Costco already has taken many CSR initiatives which revolve around its major stakeholders. The CSR initiatives of Costco has allowed it to increase its profitability and proved successful for the organization. It is recommended that the organization to continue its CSR initiatives because they are playing a key role in the success and growth of the organization. Without CSR initiatives, the company might be unable to increase its revenue.

 References of Business Case to Support CSR (Corporate Social Responsibility) Initiatives

AnsKolk. (2016). The social responsibility of international business: From ethics and the environment to CSR and sustainable development. 51, 23-34.

Economist, T., & Kourdi, J. (2015). Business Strategy: A guide to effective decision-making. PublicAffairs.

Epstein, M. J. (2018). Making sustainability work. Best practices in managing and measuring corporate social, environmental and economic impacts., 282.

McNamara, C. (2018). Business Ethics and Social Responsibility. Retrieved from https://managementhelp.org/businessethics/index.htm

O'Sullivan, P., Smith, M., & Esposito, M. (Eds.). (2012). Business Ethics: A Critical Approach: Integrating Ethics Across the Business World. Routledge.

Searcy, C. (2012). Corporate sustainability performance measurement systems: A review and research agenda. Journal of business ethics, 239-253.

Spender, J.-C. (2014). Business Strategy: Managing Uncertainty, Opportunity, and Enterprise. OUP Oxford.

Visser, W., Matten, D., Pohl, M., & Tolhurst, N. (2010). The A to Z of Corporate Social Responsibility . John Wiley & Sons.