CORPORATE SOCIAL RESPONSIBILITY IN THE CZECH GAMBLING INDUSTRY

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1 CORPORATE SOCIAL RESPONSIBILITY IN THE CZECH GAMBLING INDUSTRY Liběna Tetřevová University of Pardubice, Czech Republic, Abstract The paper deals with the problems of social responsibility of the firms in the gambling industry. Firstly, we review the literature on corporate social responsibility (CSR) as the basic resource. The principal role within the framework of the social responsibility concept is played by the stakeholders. This fact implies that it is necessary to discuss relationships between the corporate social responsibility concept and the stakeholder theory concept. Subsequently, we discuss components of the corporate social responsibility and explain relationships among the corporate social responsibility, the corporate social responsiveness and the corporate social performance which are closely connected. Next, the attention is paid to the problems of firms involved in gambling. We define gambling and give full details of the possible activities of firms in gambling according to the Czech law. Finally, we identify the key indicators of the gambling firms social responsibility and then we analyze and evaluate how the chosen firms involved gambling in the Czech Republic fulfil the stated indicators in the area of economic, social, ethical, environmental and philanthropic responsibilities. Keywords: corporate social responsibility, components of CSR, stakeholder, gambling, gambling industry. JEL Classification: L21, M14. Introduction In the present turbulent environment of globalization, more and more severe competition and developing economic crises, the idea of corporate social responsibility becomes more and more important. One of the fundamental questions is whether all firms (firms of all branches) could be socially responsible. Typical questionable examples are firms in the gambling, alcohol service, tobacco and armaments industries. The paper deals with the problems of social responsibility of the firms in the gambling industry. Most professional and non-professional public share the opinion that gambling is a serious social problem and that is why gambling providers cannot be connected with socially responsible behaviour. However, Buchanan & Johnson (2007) note that it is important to recognise that, although gaming operators offer a legal product in the form of EGMs (electronic gaming machines), the potential harm caused to certain members of society through this product, along with negative publicity and community perception, means that adopting and practicing the major principles of corporate social responsibility (CSR) is paramount. The aim of the paper is to analyze and evaluate possibility of social responsibility of the firms in the gambling industry. The resource that helped us meet the given aim was the theoretical knowledge from the areas of the corporate social responsibility and the stakeholder theory. On its basis, we discuss the possibility of applying the CSR principles both generally in the gambling (gaming or betting) industry and specifically in the case of gambling providers in the Czech Republic. The author of the paper used the following research methods: interpretative-theoretical research, descriptive research, correlation research and structured interviews. The professional literature pays minimum attention to the problems of gambling. The article enhances the knowledge of the given area, and its main contribution can be seen in its original view of the CSR of gambling providers. Its partial benefits can be seen in redefinition of the CSR areas, identification of the CSR indicators from the point of view of the gambling industry and the outcomes of the pilot research focussing on application of the CSR principles by gambling providers in the Czech Republic, and the recommended changes. Academicians, managers in the industry and governments (on national, regional and local levels) can use this paper to understand the fundament, dimensions and possibility of fulfilment of the corporate social responsibility concept ideas by the firms in the gambling industry. Corporate Social Responsibility The idea of the corporate social responsibility (CSR) has been evolving for decades and the CSR has been conceptualized in a number of different ways. Significant examples include books and papers by 612

2 Bowen (1953), Brooks (2005), Carroll (1996, 1999), Clarkson (1995, 1998), Davis (1960), Pavlík & Bělčík (2010), Pinkston & Carroll (1996), Tetřevová & Sabolová (2010), Valor (2005), Wartick & Cochran (1985), or Wood (1991). The CSR was defined mainly in the 60 s and 70 s of the 20th century. Table 1 shows selected definitions of the corporate social responsibility and also alternative opinions on the corporate social responsibility concept. Study Bowen, H. R. (1953) Davis, K. (1960) Davis, K. & Blomstrom, R. L. (1960) Frederick, W. C. (1960) McGuire, J. W. (1963) Johnson, H. L. (1971) Manne, H. G. & Wallich, H. C. (1972) Eilbert, H. & Parket, I. R. (1973) Backman, J. (1975) Sethi, S. P. (1975) Steiner, G. A. (1975) Hay, R. D., Gray, E. R. & Gates, J. E. (1976) Carroll, A. B. (1979) Jones, T. M. (1980) Wartick, S. L. & Cochran, P. L. (1985) Table 1. Corporate Social Responsibility Selected Definitions Conceptions of Social Responsibility Businessmen have an obligation to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society. The social responsibility refers to businessmen s decisions and actions taken for reasons at least partially beyond the firm s direct economic or technical interest. The social responsibility refers to a person s obligation to consider the effects of his decisions and actions on the whole social system. The social responsibility means that businessmen should oversee the operation of an economic system that fulfils the expectations of the public. The firm has not only economic and legal obligations, but also certain responsibilities to society which extend beyond these obligations. A social responsible firm is one whose managerial staff balances a multiplicity of interests. Instead of striving only for larger profits for its stockholders, a responsible enterprise also takes into account employees, suppliers, dealers, local communities, and the nation. The main aspect of corporate social responsibility is that the behaviour of the firms must be voluntary. The corporate social responsibility concept involves two phases. On one hand, it means not doing things that spoil the neighbourhood. On the other, it may be expressed as the voluntary assumption of the obligation to help solve neighbourhood problems. The social responsibility refers to the objectives or motives that should be given weight by business in addition to those dealing with economic performance (e.g. profits). The social responsibility implies bringing corporate behaviour up to a level where it is congruent with the prevailing social norms, values, and expectations. The corporate social responsibility is a continuum of responsibilities ranging from traditional economic production to government dictated to a voluntary area and lastly to expectations beyond reality. The social responsibility requires the firm to make decisions and actually commit resources of various kinds in some of the following areas: pollution problems, discrimination problems, consumerism and other social problem areas. The social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time. The corporate social responsibility is the notion that corporations have an obligation to constituent groups (stakeholders) in society other than stockholders and beyond that prescribed by law and union contract. Business exists at the pleasure of society; its behaviour and methods of operation must fall within the guidelines set by society. Like government, business has a social contract an implied set of rights and obligations. Source: Modified according to (Carroll, 1979), (Carroll, 1999), (Tetřevová & Sabolová, 2010) and (Wartick & Cochran, 1985). The problems of the CSR were then elaborated by a number of other authors, and they were also largely supported on the institutional level, particularly on the level of the European Commission. According to the European Commission (2001) the corporate social responsibility is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. 613

3 We can state that the corporate social responsibility represents a superstructure of the corporate statutory responsibility, where the firm management and staff behave the way they not only fulfil the corporate economic mission itself, but they also facilitate meeting the intentions and objectives of all stakeholders. Corporate Social Responsibility and Stakeholder Concept The basic CSR problems include the question who the enterprise should be socially responsible towards. Already in the 60 s of the 20th century, which means almost twenty years before the genesis of the stakeholder concept, Davis & Blomstrom (1966) stated that businessmen should be socially responsible towards those who might be affected by their business actions, i.e. towards their stakeholders, as these entities are called now. The stakeholder concept, created by Freeman in 1984, was intended to help managers to detect who they should pay their attention to and specify who they should be socially responsible towards. Together with development of the stakeholder concept, which was connected with continuous extension of the spectrum of the involved parties, we can consider it utilization on the general level as questionable, and it is necessary to specify it for the needs of application of the concept of social responsibility. A stakeholder (interest group) is any group or individual who can affect or is affected by the achievement of an organization s purpose (Freeman, 1984); any individual or group who can affect or is affected by the actions, decisions, policies, practices, or goals of the organizations (Carroll, 1996); an individual or group that has some kind of stake in what business does and may also affect the organization in some fashion (Buchholz & Rosenthal, 2005); those persons or interests that have a stake, something to gain or lose as a result of its (the organization s) activities (Clarkson, 1998); persons or groups with legitimate interests in procedural and/or substantive aspects of corporate activity (Donaldson & Preston, 1995). The fact who the company considers as its stakeholder depends on the individual approach. The typical corporate stakeholders are customers, suppliers, employees, owners, competitors, trade associations, governments and their institutions, communities, environmental groups, consumer protection groups and media. However, the term stakeholder can include both actual and potential entities, past or future generations, Earth s atmosphere, hydrosphere, lithosphere, and biosphere, physical human form, non-human natural environment, non-living objects, or non-physical mental-emotional constructs (Starik, 1994). In our opinion, the entities representing either a certain opportunity or a certain threat for the organization can be considered as the relevant stakeholders. Components of Corporate Social Responsibility As for the areas of focus of the social responsibility, we can see a number of opinions. This problem was first addressed by Carroll. In 1979 Carroll distinguished four main components of the CSR economic, legal, ethical and discretionary responsibilities (Carroll, 1979). The economic component of the CSR represents the obligation to produce goods and services that society wants and to sell them at a profit. The legal responsibility is determined by the laws and regulations under which firm is expected to operate. The ethical component of the CSR includes additional activities and behaviours that are not codified into law but nevertheless are expected of business by society. The discretionary (or volitional) responsibility represents activities which are not required by law, and not even expected of business in an ethical sense, e.g. philanthropic contributions, programs for unemployed or for drug abusers, providing day-care centres for working mothers. In 1991, Carroll revisited a four-part CSR definition and renamed the discretionary component to philanthropic; its principle rests mainly in implementation of giver activities (Carrol, 1999). Carroll notes that the postulated weightings of the four CSR components economic, legal, ethical, and philanthropic are 4:3:2:1 respectively (Pinkston & Carroll, 1996). According to Leisinger (2007) and Adamonienė & Astromskienė (2010) the following key components of the CSR can be identified: a) profitability, good working conditions, friendly decisionmaking; b) corporate responsibility, a sense of citizenship; c) corporate philanthropy. Another point of view of the focus of social responsibility can be found in the work of Muijen (2004) or Pavlík & Bělčík (2010), who define 3P of social responsibility, which refer to the economic area (Profit), the social area (People) and the environmental area (Planet). 614

4 If we base our theory on the classical concept of the areas of corporate social responsibility by Carroll, and if we take into account the theoretical basis of social responsibility (see e.g. Jones (1980), Manne & Wallich (1972), Prskavcová & Maršíková (2007) or European Commission (2001)), which places emphasis on the voluntariness of the corporate social responsibility, we can state, considering the 3P approach, that respecting the legal standards represents the basic obligation, and hence the legal responsibility cannot be considered as part of social responsibility, but as the key precondition for functioning and future existence of a company. In our opinion, the CSR should cover the following five areas: 1) economic area ensurance of products and services that are useful for the society in the required quantity and quality and for reasonable price, together with generation of an adequate profit for the owners; 2) social area respecting a wide range of needs and interests of the human resources; 3) environmental area preventing occurrence of negative externalities and pro-active environmental measures; 4) ethical area creation, fulfilment and promotion of wide application of ethical standards; 5) philanthropic area support of volunteer activities of the employees and donorship. Some other possible concepts of social responsibility components are suggested by Steinerová & Makovski (2008), who define the following four areas: the market (focus on transparent business, positive relationships to the investors, the customers, the suppliers and other business partners, the company s positive impact on the economy), the working environment (focus on the employees, their remuneration, working environment, quality and loyalty), the local community (establishing good relationships with the neighbours, and taking part in solving local problems), and the environment (i.e. diminishing the negative impacts on the environment, and activities in the area of the environment). Apparently, this concept of the CSR areas has a close relation to the question who these CSR activities are focussed on, i.e. the question of stakeholders. Corporate Social Responsibility and Alternative Concepts The CSR concept was gradually followed by some other concepts, particularly by the corporate social responsiveness (CSR2) and the corporate social performance (CSP). While a number of authors consider them as synonyms, some of the others see them as a mere complement of the CSR concept see Wartick & Cochran (1985). According to Carroll (1979) and Clarkson (1995) CSR2 represents managerial strategies and processes of response (social forecasting and planning, social decision making, organizing for social response etc.). Table 2 shows main differences between CSR and CSR2. Table 2. Differences between CSR and CSR2 CSR CSR2 Major considerations Ethical Pragmatic Unit of analysis Society The firm Focus Ends Means Purpose Window out Window in Emphasis Obligations Responses Role of the firm Moral agent Producer of goods and services Decision framework Long term Medium and short term Source: (Wartick & Cochran, 1985). Carroll (1979) and Wartick & Cochran (1985) posit that the corporate social performance is the three dimensional integration of the corporate social responsibility, the corporate social responsiveness and the social issue; see Figure

5 Principles Processes Policies Corporate Social Responsibilities Corporate Social Responsiveness Social Issues Management Economic Reactive Issues Identification Legal Defensive Issues Analysis Ethical Accommodative Response Development Discretionary Proactive Directed at: Directed at: Directed at: The Social Contract of Business The Capacity to Respond to Changing Minimizing Surprises Societal Conditions Business as Moral Agent Managerial Approaches to Developing Responses Determining Effective Corporate Social Policies Philosophical Orientation Institutional Orientation Organizational Orientation Figure 1. Corporate Social Performance Model Source: (Wartick & Cochran, 1985) Gambling in the Czech Republic People have been playing certain games since time immemorial. Archaeological finds of gaming dice, stones and sticks from the Celtic, Germanic and Slavic periods form the earliest evidence for the existence of gaming in the territories of Bohemia and Moravia. (Poberová & Tejkalová, 1998) Generally, we can divide games into knowledge games or skill games (e.g. knowledge contests, chess, sports games), games of chance (dice, betting on match scores) and combined games (e.g. more sophisticated card games). Playing chance games that are played for a consideration with the aim to win financial or other economically measurable prizes, i.e. games for money, is called gambling (Kramář & Hušák, 2006). These games separated from the classical party games with the invention of money. Modern history of the Czech gambling industry is connected with the year of 1990, when Act No. 202/1990, on lotteries and other similar games, which brought the monopoly of Sazka to an end and opened space for development of entrepreneurial activities in this business, was adopted. According to the above Act, gambling represents games in which persons who pay bet take a voluntary part while no return on the bet is guaranteed. It is a chance, a circumstance unknown in advance or an event in accordance with the gaming conditions that decides on a win or a loss. Gambling can be carried out on mechanical, electromechanical, electronic or similar devices. Gambling can be provided in the form of cash or non-cash lotteries based on lots, a raffle, a number lottery, an instant lottery, gambling machines, betting on match scores and other sports results, a bingo, odds bets, horse bets, or betting games in casinos. In the Czech Republic, gambling can only be provided by a legal entity based in the area of the Czech Republic with the appropriate licence. In most cases, the legal form of the business and the scope of the capital are also specified. As for most forms of gambling, the provider has to be a joint-stock company, whose shares are registered and the basic capital is at least CZK100m (i.e. about EUR4m). And horse betting can only be provided by the state or an authorized organization. Gambling providers are obliged not only to respect the applicable legal regulations, but also to ensure the proper technical equipment, they must not disturb the peace, and they have to contribute the fixed percentage of their yield (6-20 % depending on the amount of the yield) to social, health, sports, environmental, cultural, or other public purposes. Furthermore, gambling providers are obliged to pay the administrative charges (e.g. a yearly charge of CZK 30,000 for a licence for operating a gambling machine), the local charges (e.g. a quarterly charge of CZK 5,000 for a licence for operating a gambling machine), and also the cost of the state supervision (1 % of the yield). Gambling Industry and Corporate Social Responsibility Generally, gambling and gambling providers are considered, mainly by the non-professional public, as the area and the economic entities that cannot be connected with the category of social responsibility. This fact arises in particular from the historically given rules of the Christian morality conforming to the God s words: By the sweat of your face you will eat bread. (Kramář & Hušák, 2006). Gambling, which enables quick and high wins (but also a loss), are thus inconsistent with the socially accepted opinion that wealth and 616

6 respect must only be achieved by useful work for the society. It is a well-known fact, that gambling is connected with a number of negative externalities relating to, above all, pathological gamblers (financial problems, family breakdown, suicide, crime, health system costs etc.), and potential non-transparent monetary transactions (e.g. money laundering) or displacement of existing business and spending (Hancock, Schellinck & Schrans, 2008). On the other hand, it is also necessary to take the positive externalities into account, i.e. where gambling is an important source of income of the public budgets, a source of job opportunities, and a supporter of a number of public activities. It is also necessary to consider the fact that games are primarily intended for entertainment and fun. They satisfy the human need for games, competitions, but also for taking a risk with a vision of an unearned profit, and moreover, they also bring desirable excitement. And it is up to the free will of the game participants how often they will play and how much they will bet. In so doing, each capable citizen is able to assess the risk exposure. Most of the activities which individuals undertake can be harmful if taken to excess. Eating unhealthy foods can cause problems. Even drinking too much water can be lethal. (Pratten & Walton, 2009) The gamblers addiction is certainly questionable, however, as stated by Kasal (1995), the gamblers addiction as a disease occurs very rarely; it is just frequently abused by psychopathic individuals to excuse their crimes. According to Hušák nevertheless the absence of an ethical dimension of betting games and lotteries does not apply in case where part of the profits raised serves some socially-acceptable purpose. In this case, not only the winner but the whole society benefits from the game. (Poberová & Tejkalová, 1998). In our opinion, even the companies involved in the gambling industry can be socially responsible and apply the CSR concept to the full extent. CSR of Gambling Providers in the Czech Republic Attention is paid to the problems of assessment and measurement of social responsibility both in the context of CSR (e.g. Blažek, Doležalová & Klapalová, 2005; Brilius, 2010; Franc, Nezhyba & Heydenreich, 2006; Pavlík & Bělčík, 2010) and in the context of CSP (e.g. Bunčák & Bussard, 2005; Igalens & Gond, 2005), while the specified methods are identical. The main methods used are measurements based on analysing of the contents of annual reports, pollution indices, perceptual measurements derived from questionnaire-based surveys and structured interviews, corporate reputation indicators (e.g. Dow Jones Sustainability Index, FTSE4Good, Ethibel Sustainability Index) and data produced by measurement organizations (Igalens & Gond, 2005), while analysing the contents of the companies websites is an alternative method. Analysis of the contents of the websites and structured interviews were used as methods for assessing the CSR of the selected gambling providers in the Czech Republic. On the basis of the above stated, CSR was judged in the economic, social, environmental, ethical and philanthropic areas. The following indicators were selected on the basis of a research of a relevant professional literature (Blažek, Doležalová & Klapalová, 2005; Bunčák & Bussard, 2005; Igalens & Gond, 2005; Nejedlo, 2006; Pavlík & Bělčík, 2010; Tetřevová, 2010; Tetřevová & Sabolová, 2010; Trnková, 2004) see Table 3. The pilot research carried out with 5 gambling providers in the Czech Republic implies the following. In the economic area, the set CSR indicators are fulfilled. The fact that gambling industry is business with strong regulation and supervision shows itself significantly in this area. Attention is paid mainly to the relations towards the gamblers as the stakeholders, where the gambling providers focus particularly on their clients as well as any other entrepreneurial entity and increase the comfort of services, or offer a wide range of loyalty programs. It is also necessary to draw attention to the close links with the public sector institutions and organizations as another of the stakeholders. In the social area, all the given CSR indicators are fulfilled. This area can be evaluated positively in the case of small companies. These companies have the character of family firms, and they are distinguished by a significantly friendly social climate. In the environmental area, the given CSR indicators are fulfilled. It is supported by the fact that the devices used by gambling providers must be certified by the state laboratory, where they test, among others, their impact on the environment. 617

7 In the ethical area, we can consider it as a drawback that there are no ethics codes implemented by gambling providers. Moreover, these entities are exposed to a strong risk of bribery as they carry out a licensed activity. In the philanthropic area, the gambling providers run a number of public or community activities. The gambling providers carry out these activities on the basis of the law, and also some of them provide financial means for the public purposes outside the scope of their statutory obligations. The problem is that the law does not specify a concrete purpose of utilization of these means, and so there is some space for application of social responsibility. And the approach of individual entities from the point of view of fulfilment of the CSR concept differs in this area. Although a number of companies take part in funding public and community charity actions, we can also see the situation, where gambling providers direct their financial means to friendly foundations funding activities connected with the donor. Table 3. CSR Indicators Economic Part Corporate governance principles Relationships with stakeholders (especially clients, suppliers, employees, the Ministry of Finance and other government bodies, local government bodies, competitors and the public) Corporate transparency Quality and safety of the provided products and services Environmental Part Environmental products and services Recycling Resource savings Investments into environmental technologies Transportation management Philanthropic Part Cultural and education sponsorship Humanitarian and social sponsorship Investments in the local economy Endowment activities Cooperation with not-profit organizations Source: Own. Conclusion Social Part Employment Management Remuneration Policy Staff training and qualifications growth Working conditions Employees health and safety Equal opportunities in the workplace Employee participation Ethical Part Code of ethics Intellectual property protection Corruption disclaimer In conclusion, we can state that the gambling industry is a business branch where the entities can be socially responsible. As for application of the CSR principles by the monitored gambling providers in the Czech Republic, we have concluded, on the basis of judging the suggested indicators in the economic, social, environmental, ethical and philanthropic areas, that the monitored companies basically fulfil the CSR indicators in the given areas, and thus that they can be considered as socially responsible. To strengthen the social responsibility of gambling providers in the Czech Republic, we recommend taking certain measures. In so doing, we can draw on the foreign experience. It would be convenient to accept a code of social responsibility in the gambling industry (The Association of British Bookmakers introduced an account of good practice in Code of Social Responsibility, dealing with issues relating to responsible and underage gambling and cover such areas as advertising and promotion, age verification, staff training, customer communication and support for social impact initiatives (Pratten & Walton, 2009).) Gambling providers should also develop privately funded problem gambling treatment centres. It is also possible to enhance the willingness of gambling providers to be more open in the area of informing both about the winning ratios and about the concrete use of the means going to the public and community purposes. Also, broader and more complex presentation of CSR activities by gambling providers on their websites would be beneficial. 618

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