The Importance of Corporate Social Responsibility to a Business - Coursework Example

The importance of Corporate Social Responsibility to a Business Student: Course: Instructor: Institution: Date: Introduction When a business is involved in social activities that are otherwise not part of its profitable activities or a legal requirement, it is regarded as engaging in corporate social responsibility (CSR) [Sha15]. It is a social “responsibility” since the business is expected to have a positive impact in the society where it generates profits by engaging in activities where the society does not pay to benefit [Mou11]. However, scholars such as Milton Friedman challenged the notion that a business should incorporate CSR in its strategic and operations plan. Friedman’s classical viewpoint held that the only responsibility that a business should concern itself with is maximization of profits for its shareholders [Mil62]. In so doing, a business will contribute to economic growth and offer jobs. However, several other researchers such as [Coe03]hold a socioeconomic view that disagrees with Friedman’s contention by arguing that a business does not exist in isolation, but rather in a society where it gets its production factors and should, therefore, act responsibly towards the same society. Clearly, a business should have broad aims that encompass socially responsible targets but not only profitability. Towards the last half of the 20th century through to 21st century, there has emerged a strong argument for CSR as a core business activity that should not be overlooked. Indeed, the development of the triple bottom-line accounting system that evaluates businesses’ social, environment, and financial performance is a response to the need to have business incorporate CSR in their corporate plans [Eng10]. Discussion on Corporate Social Responsibility Viewpoints Classical viewpoint Classical economists and theorists such as, Milton Friedman argued that the primarily concern of a business is profit maximization [Coe03]. This contention is founded on the belief that if the business concerns itself with activities that are not part of its core mission, it will lead to financial loss and distraction from its strategic plan. The business should simply leave social responsibility to other non-profit institutions in the society such as religious organizations, and government [Mil62]. A business will lower its efficiency by reducing profits, reducing wages, increasing prices and eventually reducing revenues by focusing on social endeavours. If the business fails to offer reasonable return on investment, its risks having some shareholders withdraw their resources and employees losing their jobs. Eventually the economy will experience reduced growth [Orl15]. Milton Friedman was a major advocate of a free market system where the forces of demand are allowed to set prices in industries [Mil62]. Such a capitalist system is anchored on the assumption that competition is healthy and should be encouraged. Businesses can only be competitive in capitalist economies by lowering prices or differentiating their products. In both options, businesses incur discounting or product development costs and are, therefore, financially limited to participate effectively in CSR activities [Coe03]. Friedman (1962) argued that business engagement in CSR was a promotion of socialism that would eventually lead to economic inefficiency as capitalist investors would have little incentive to risk their money. Friedman (1962) also argued that managers are agents appointed by shareholders to act for their best interest which is majorly profit maximisation. It is, therefore, unacceptable and imprudent for business managers to allocate funds to CSR at the expense of profit maximisation. Friedman further opined that managers can help the business be more socially responsible by observing the law and generating enough revenue to provide jobs and grow economy. Adam smith, another classical economist advocated for a free-market economy where the forces of demand and supply determined prices (Coelho et al, 2003). Smith also argued that the government should not interfere in any way whatsoever with the market dynamics. According to Smith’s argument, if everybody (businesses) is allowed to pursue their self interests as far as business is concerned, then the economy will be self-sustaining. Smith’s assumption is that everybody will exercise respect for others, justice and benevolence [Mou11]. Both the arguments by Smith and Friedman are anchored on weak assumptions that businesses will always be responsible and profit maximisation will benefit the entire society. However, it is fair to admit that business activities contribute to negative externalities such as emission of harmful gases that cause cancer and pollute environment, and overexploitation of resources. Therefore, it is only fair, that businesses engage in CSR activities as a way of minimising the impact of negative externalities in the society. However, as argued by Orlitzky (2015), it is also fair to acknowledge the partial validity of classical theorists’ arguments since businesses need to maximise profits to survive, grow and attract investors. Businesses may, therefore, only participate in CSR activities to the extent that they don’t harm their competitive position. Social economic viewpoint The socioeconomic viewpoint of CSR holds the argument that businesses do not exist for profitability and growth reasons alone, rather they should be concerned about societal welfare and engage in socially responsible activities [Mou11]. The minimum moral obligation of a business is to prevent societal harm by integrating measures into their systems that prevent harm caused by factors such as environmental pollution, labour exploitation, and over-exploitation of resources [deB12]. In the recent past, several multinationals including Nestle and Unilever have been criticized by environmental lobby groups that accuse them of sourcing palm oil that is produced in socially irresponsible practices in Indonesia. Production of palm oil Indonesian forest has led to massive deforestation and clearance of peat lands [Sha15]. The socioeconomic viewpoint also holds the contention that the affirmative duties to do “good” as also another way for a business to be socially responsibility. Business should, therefore, be committed to activities that enhance the wellbeing of society. For example, tree-planting and fundraising for noble causes are common way through which a business can do “good”. Indeed, the business has the moral obligation of not engaging in activities that cause harm. It should also prevent harm and affirmatively promote “good” [Eng10]. The Kew Garden principles and CSR The Kew Garden principles reinforce the contentions of socioeconomic views of corporate responsibility. Kew Garden is an ethical conduct framework for business that comprises four principles [Jos14]. The first principle is the need. The need principle holds that an organization is obligated to go beyond following the rules in ensuring the welfare of others who are in need. The second principle, proximity, argues that the more closer an organization is to a problem the greater its responsibility to do something to improve the situation. The third principle, capability, contends that an organization may be judged unfavourably if it was in close proximity to a need it was aware of and was capable of doing something, yet it did not engage in any way. However, the last resort principle holds that one can only be held accountable if there is a need he or she is reasonably expected respond to at the particular time being considered. In complex situations and contexts it is difficult to know who the last resort is as everyone hopes that someone else who is the last resort will act to contain a situation. If there is no one else who is likely to intervene, the organization that meets the first three principles has a greater obligation to do something [Jos14]. In light of Kew Garden principles, it is logical to hold the view that a business should seek to satisfy all its stakeholders and not just the shareholders and the employees of the business. For example, the business should be concerned about the welfare of the society where it operates by funding projects such as clean water and healthcare and feed programs. It shows the business has responded to a need since it was aware, in close proximity and capable of offering a solution. Indeed, the socioeconomic view of CSR is radically opposed to the notion that business should be narrowly focused on profit maximisation and would therefore be disadvantaged by engaging in social causes in society [Sha15]. Benefits of CSR to a business Corporate Social Responsibility (CSR) may be costly to a business not only financially but also in terms of the distraction that it may cause on the strategic focus and operations [Orl15]. Businesses that put more focus of CSR may be less dedicated a lot of resources and time in socially responsible activities that will not generate revenue or enhance their competitiveness (Engen et al, 2010). However, according to Park & Kim (2015) and de Bakker et al, (2012) a business may also enjoy some benefits by engaging in CSR activities as highlighted below. Brand differentiation – A business may improve the perception of its brand by being socially responsible. Community support – A business is unlikely to face opposition for its strategic projects if it conducts its operations in socially responsible and sustainable ways. Cost cutting - a business avoids costs such as raw material wastage and costly litigations by being environmentally responsible Positive publicity – A business receives free and positive media coverage by engaging in impactful CSR activities Attraction of investors – some investors are morally or legally bound to invest only in socially responsible business with a good public image. Conclusion Clearly, Milton Friedman’s view that a business should only be concerned with profit maximisation is not founded on a strong conception of a business in the 21st century society. A business must be socially responsible by responding to societal problems such as need for clean water in impoverished communities. The business has a moral obligation to uplift the society not only in jobs creation but also in tackling problems that is capable of solving. CSR helps businesses to improve their brand strength and public image. CSR is also a strategic issue in businesses as it can used to attract crucial investors and cut production costs by limiting resource wastage. However, it is important to note that a business also should remain focused on revenue generation while still engaging in CSR to avoid accumulating inefficiencies and low profitability. References Sha15: , (Shaw & Barry, 2015), Mou11: , (Moura-Leite & Padgett, 2011), Mil62: , (Friedman, 1962), Coe03: , (Coelho, et al., 2003), Eng10: , (Engen, et al., 2010), Orl15: , (Orlitzky, 2015), deB12: , (de Bakker, et al., 2012), Jos14: , (Weiss, 2014), Read More