Corporate Social Responsibility: What’s the Big Deal? One of the most contentious debates among scholars has centered on the proper role for a corporation in the pursuit of its business. In large measure the debate has crystallized around two points of view. On the one hand, some believe that a corporation’s chief responsibility role is to make and maximize profit. This belief has often been referred to as the Friedman Approach in homage to the economist, Milton Friedman. Friedman espoused the view that as long as a corporation stayed within the rules, its only responsibility was to return the maximum profit to its shareholders. On the other hand, other scholars have asserted that the social responsibility for a corporation extends beyond just making a profit and includes a responsibility to act in a manner that promotes and supports the welfare of society at large. What do you think about this so called “Shareholder vs. Stakeholder” debate? Do you have any personal experiences where you have observed the effects of this debate in terms of corporate actions? On which side of the argument do you come down on and why?
(Solved Homework): Corporate Social Responsibility: What’s the Big Deal? One of the most contentious debates…
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Corporate Social Responsibility:
What’s the Big Deal? One of the most contentious debates among scholars has centered on the proper role for a corporation in the pursuit of its business. In large measure the debate has crystallized around two points of view.
On the one hand, some believe that a corporation’s chief responsibility role is to make and maximize profit. This belief has often been referred to as the Friedman Approach in homage to the economist, Milton Friedman. Friedman espoused the view that as long as a corporation stayed within the rules, its only responsibility was to return the maximum profit to its shareholders.
On the other hand, other scholars have asserted that the social responsibility for a corporation extends beyond just making a profit and includes a responsibility to act in a manner that promotes and supports the welfare of society at large.
What do you think about this so called “Shareholder vs. Stakeholder” debate?
- What is CSR?
The field of corporate social responsibility (CSR) has encouraged companies to take the interests of all stakeholders into consideration during their decision-making processes instead of making choices based solely upon the interests of shareholders.
Example: The society or the general public are the external stakeholders of a business and come under the purview of an organization’s CSR. The societal problems include but not limited to environmental concerns, including pollution, climate changes, use of plastic, cutting down of trees, etc. that directly impacts the general public. Such decision against society could lead to higher profits for a business but can adversely affect the environment, mother earth, the future and present generation. Therefore, CSR creates a climate for corporations to make choices that protect social welfare, often using methods that reach far beyond legal and regulatory requirements.
Shareholders are part owners of the company and become owners through purchase of stock (shares). Shareholders are interested in the financial performance of the company to earn dividends and stock appreciation.
*Remember that a shareholder is a stakeholder but not all stakeholders are shareholders.
Stakeholders could include Employees of the Organization, Bond Holders (Not stock holders, who are part owners of the business), Customers and Vendors (suppliers, clients, distributors etc.)
The Debate:
Even though the two terms sound to be interchangeable, they are two different concepts. The concepts become even more important for the increasingly socially conscious companies and their business models.
Even though the shareholders are the larger group and are more concerned about a company’s overall performance, a company cannot achieve its financial goals without its stakeholders including largely its employees, customers, suppliers and the society at large.
Shareholders might pressurize a company to use not so efficient and shortsighted business strategies in order to maximize profits. Shareholders can, at any time sell their stock and move on to investing in another company. In short, the shareholders are invested in the short term success of a business and do not (always) have a long term vision. On the contrary, the stakeholders are hooked to a company’s long standing success. A company’s performance (profits or losses) have a direct impact on all its stakeholders. For example, if a company suffers losses, its employees are laid off, suppliers are restricted etc.
In conclusion, both the stakeholders and shareholders are key to a businesses’ success. They both must act rationally to ensure both short and long term success and viability of a business.
Do you have any personal experiences where you have observed the effects of this debate in terms of corporate actions?
As a personal experience, I would like to quote Deloitte’s contribution to CSR through their impact day. I had the opportunity of closely observing a few friends of mine who are working at Deloitte.
Deloitte’s Annual day of service – the Impact Day is a celebration of Deloitte’s year round commitment to local communities. The impact day is celebrated across all member firms of Deloitte world over where their professionals spend an entire day dedicating to community volunteering. On the Impact Day, Deloitte’s professionals and leaders come together in 80 cities across the country and abroad, to work on more than 1000 plus projects and working on 190,000 collective hours of service.
Even though the Impact Day is a single day event, the activities spread year round (through their year-round volunteerism programs).
Deloitte quotes that making a societal impact and impact matters is at the core of our business. It’s what gets us up in the morning and drives us to work harder for our clients. Because by making an impact that matters, companies can change the world for the better.
On which side of the argument do you come down on and why?
The argument is clearly not for large corporations foregoing their profits for societal welfare. Today’s corporations are powerful entities and have the power vested in them to protect or harm sovereign nations. Excessive corporate interest at the cost of communities, can lead to enormously detrimental effects not just on issues like the environment but also the society at large.
Examples like the Oil spills can do permanent damage to local ecosystems. Climate change can also be attributed in large part to corporations and it is difficult to deny that many corporations have profited from the deterioration of the global environment.
Areas of corporate culture have begun to embrace a philosophy that balances the pursuit of profit with a commitment to ethical conduct. Google Inc’s slogan sums up the idea of corporate social responsibility nicely: Don’t be evil. PepsiCo is committed to ‘Performance with Purpose’ – achieving business and financial success while leaving a positive imprint on society.
Companies can invest in local communities in order to offset the negative impact their operations might have.
E.g.: A natural resources firm that begins to operate in a poor community might build a school, offer medical services or improve irrigation and sanitation equipment.
E.g.: Similarly, a company might invest in research and development in sustainable technologies, even though the project might not immediately lead to increased profitability.
Today, a shift has occurred in the way people conceptualize corporate social responsibility. For decades, corporate business models have been assumed to be necessarily harmful to certain communities and resources. The intention was therefore to mitigate or reverse the damage inherent in doing business. Now many entrepreneurs consider profit and social-environmental benefit to be inextricable.
Some think corporate social responsibility is an oxymoron while others see CSR as a distraction of a different sort, i.e., from the lawful pursuit of profits.
While the debates and arguments continue, it is for corporations to seek a balance between attaining their aggressive financial goals but not at the cost of our communities.
