Do socially responsible businesses finish last or win the race? Corporate social responsibility (CSR) theories abound, but what will really work for your company?
Theories on Corporate Social Responsibility
Social responsibility is a concept that is frequently misunderstood in the corporate world. Many theories attempt to explain what role it plays and why it is necessary. Corporate social responsibility has often been mislabeled as "charity" or "good deeds." Businesses often perceive it as a waste of precious resources.
However, being socially responsible is very important for the success of many businesses. In light of many scandals in the early twentieth century (Enron, Worldcom, Tyco) ethical behavior has become a necessary element of the practice of doing business. Many citizens have lost faith in the practices of big corporations. Businesses have come to accept that they must go a long way to rebuild their trust.
Corporate social responsibility (CSR) involves looking after the needs of all stakeholders, as opposed to just shareholders and partners. There are a number of theories pertaining to corporate social responsibility and the role it plays in business:
Corporations should only be held accountable to shareholders. This has been the prevailing attitude for businesses for years. Businesses exist to make money. More importantly, they should be accountable to the very people who gave them that opportunity. Stockholders invested their money to give businesses capital. Corporations have an obligation to repay the favor and make sure investors are well compensated.
CSR helps corporate profits. Being socially responsible can help corporations profit in the long term. Many corporations have become socially responsible only to increase profit potential.
Corporations should forgo profits and do right by all stakeholders. This view is rarely expressed by corporations. Corporations are not in the practice of being philanthropists. However, some for-profit instutitions describe themselves as holding a "social motive." In contrast with companies with a financial motive, they do not prioritize increasing shareholder wealth.
Many arguments have been raised as to why social responsibility does or does not work.
Arguments Against Corporate Responsibility.
CSR can create a competitive disadvantage. Implementing socially responsible programs consumes resources. These costs can come in the form of donations, decreased production capabilities or increased expenses. For example, manufacturers who try to limit the amount of pollution they produce may limit production capabilites. They may also spend millions of dollars building a new screening process to filter out CO2 emissions. Either way, this creates a larger cost.
The argument can be extended further. Social responsibility involves being accountable to all stakeholders. Manufacturers attempting to limit pollution may need to pass those costs along to their consumers. Managers must consider all stakeholders and decide whether a practice is worth the cost.
Finally, many argue that the role of social responsibility should not be the burden of the private sector. They feel it is the job of the government to watch out for the best interests of society at large. Many feel that this statement is a cop-out. However, an argument could be made that one business adapting socially responsible attitudes may be ineffective. If one factory tries to limit the pollution it outputs, others will continue operating as they see fit. In the broader scheme of things, critics feel that private businesses adapting social responsibility programs is meaningless if government fails to implement these policies.
Potential Benefits of Corporate Responsibility
There are a number of reasons why socially responsible businesses can thrive. Despite concerns that it may create a competitive disadvantage, CSR may accomplish the opposite.
Socially responsible businesses create goodwill with their stakeholders. Employees feel encouraged and feel stronger loyalty to businesses that go the extra mile. Customers are often more likely to buy a product knowing it supports a social purpose they believe in.
Another element of CSR is that it reduces the risk that companies will be punished in some way. Socially responsible businesses are less likely to violate important regulations. They are less likely to be fined or prosecuted for cutting corners or placing stakeholders at harm.
The Debate on CSR
Corporate social responsibility will be discussed for a long time. Many theories suggest that it will have long-term benefits for business. Others state the opposite. Executives have their own ideas of social responsibility and the role it plays in their business.
For the most part, businesses think of social responsibity as to how it relates to them. The final priority of most businesses is to their stockholders. They will only implement socially conscious iniatives if they can do so without reducing profits or damaging relationships with their investors. They will most likely look at the potential returns on the policies they enact. Like all investments, CSR is viewed in the terms of a risk-return payoff.