Corporate social responsibility

A company’s stakeholders are all those who are influenced by and can influence a company’s decisions and actions, both locally or globally. Business stakeholders include (but are not limited to): employees, customers, suppliers, community organizations, subsidiaries and affiliates, joint venture partners, local neighborhoods, investors, shareholders (or a sole owner), and the environment.

Development and analysis

Today’s heightened interest in the proper role of businesses in society has been promoted by increased sensitivity to ethical issues. Issues like environmental damage, improper treatment of workers, and faulty production leading to customers inconvenience or danger, are highlighted in the media. Government regulation regarding environmental and social issues has increased. Investors and investment fund managers have begun to make investment decisions based on social sustainability as well as pure economics. Consumers have become increasingly sensitive to the social performance of the companies from which they buy their goods and services. This accumulation of industry forces pressure firms to operate in an economically, socially and environmentally sustainable way.

Once this was done by spending money on community improving projects, endowing scholarships, and/or encouraging workers to volunteer (blood drives and reading programs are common examples). For many corporations, community outreach programs create good will in the community. This can indirectly increase revenue.

Now, the mission of a socially responsible organization is to take into account the full scope of their impact on communities and the environment when making decisions, balancing the needs of stakeholders with their need to make a profit. This holistic approach to business regards organizations as full partners in their communities, rather than measuring them solely on the basis of products and profits.

Some companies have developed ‘triple line’ reporting to show not only profits, but also social and environmental impact. New measures need to be developed if the benefits from profits, social impact and environmental impact can be effectively weighed against each other.

Examples of corporate social responsibility

• Most large companies now produce social reports that cover CSR issues. The balance is different from company to company and it is not always clear that companies carry out what they say across the whole organisation. The UK Cooperative bank is considered a model but even tobacco companies like BAT produce social reports.

• Habitat for Humanity is funded primarily through donations from corporations

• The McDonald's Corporation established the Ronald McDonald House. (However, the McDonald's Corporation has been criticised by CSR campaigners for unethical business practices, and was the subject of a decision by Justice Roger Bell in the McLibel case which upheld some of these claims, regarding mistreatment of workers, misleading advertising, and unnecessary cruelty to animals.)
  

  Critical points of view

Proponents of CSR would suggest a number of reasons why self interested corporations, seeking to solely to maximise profits are unable to advance the interests of society as a whole:

• Corporations care little for the welfare of workers, and given the opportunity will move production to sweatshops in less well regulated countries.
• Unchecked, companies will squander scarce resources.
• Companies do not pay the full costs of their impact. For example the costs of cleaning pollution often fall on society in general. As a result profits of corporations are enhanced at the expense of social or ecological welfare.
• Regulation is the best way to ensure that companies remain socially responsible.

• In order to attract quality workers, it is necessary to offer better pay and conditions. Furthermore, investment in less developed countries contributes to the welfare of those societies, notwithstanding that these countries have fewer protections in place for workers. Failure to invest in these countries decreases the opportunity to increase social welfare.
• Free markets contribute to the effective management of scarce resources. The prices of many commodities have fallen in recent years. This contradicts the notion of scarcity, and may be attributed to improvements in technology leading to the more efficient use of resources.
• There are indeed occasions when externalities, such as the costs of pollution are not built into normal market prices in a free market. In these circumstances, regulatory intervention is important to redress the balance, to ensure that costs and benefits are correctly aligned.
  Whilst regulation is necessary in certain circumstances, over regulation creates barriers to entry into a market. These barriers increase the opportunities for excess profits, to the delight of the market participants, but do little to serve the interests of society as a whole.
  

  Ethics

CSR could be quite misguided, however. A company which recycles components in a manner which used more resources than were required to produce the original component is at best well intentioned, but in reality is harming both the environment and profits.

Some CSR initiatives result in positive social contribution at the expense of profits. These might include the use of more expensive recycled components, or charitable donations. It is very easy for managers to do this, and quite low risk for them. However, they need to be aware that it is not their own money that is consumed in this way, and that they are destroying shareholder value, depriving shareholders of a say in how their money should be used.

Other sources

• Business ethics
• Business philosophy
• "The Good Company", The Economist January 22nd 2005