The Importance of Corporate Social Responsibility in Business

Corporate Social Responsibility (CSR) is a hot issue among companies and CEOs like talking about what their company gives back to society. CSR encompasses an organization’s commitment to behave in an environmentally sustainable manner while honoring the interests of its stakeholders. Firms have realized that socially-responsible business practices are beneficial not only for their employees but also the society at large. Social responsibility reshapes the way business is done, both for profit and when not-for-profit.

Importance of Corporate Social Responsibility in Business

Corporate Social Responsibility is a concept that frequently overlaps with similar approaches such as corporate sustainability, corporate responsibility, corporate sustainable development and corporate citizenship. Many see CSR as the private sector’s way of integrating the social, economic and environmental activities. In addition to integration into corporate structures and processes, CSR also frequently involves creating innovative and proactive solutions to societal and environmental challenges, as well as collaborating with both external and internal stakeholders to improve CSR performance.

From a progressive business perspective, CSR usually involves focusing on new opportunities as a way to respond to interrelated societal, economic and environmental demands in the marketplace. CSR is generally seen as the business contribution to sustainable development which has been defined as development that meets the needs of the present without compromising the ability of future generations to meet their own needs, and is generally understood focusing on how to achieve the integration of environmental, economic and social imperatives. CSR commitments and activities typically address aspects of a firm’s behavior (including its policies and practices) with respect to such key elements as; environmental protection, health and safety, human rights, community development, corporate governance and consumer protection business ethics, supplier relations, labor protection, and stakeholder rights.

Corporations are motivated to involve stakeholders in their decision-making and to address societal challenges because stakeholders are increasingly aware of the impact and importance of their corporate decisions upon society and the environment. Corporations can be motivated to change their corporate behavior in response to the business case that a CSR approach would potentially promises. This includes:

  1. Stronger financial performance and profitability (e.g. through eco-efficiency),
  2. Improved accountability to and assessments from the investment community,
  3. Enhanced employee commitment, and
  4. Improved reputation and branding.

Nature of Social Responsibility Challenges and Opportunities

There is increasing focus on both the private and public sectors to be proactive in the area of Social Responsibility. The challenges faced are increasingly recognized in public policy debates as well as in the marketplace by different companies and industry associations. Stakeholders are beginning to challenge corporations to start social responsibility roles. Challenges generally focus on more than one elements of CSR such as corporate governance, environmental protection, human resource management practices, community development, human rights and consumer protection. The challenges often call for voluntary actions to demonstrate the responsible behavior and effective responses to environmental and social. The demand also calls upon the public sector to reinforce leadership and to use policy tools to encourage CSR. The challenges can differ from one stakeholder group to another. For example, the demands can range from a call for more disclosure of information or to demands for improved stakeholder involvement to requests for changes in management practices to proposals for altering the relationships between different stakeholders. Some of the challenges are oriented to the ways that businesses manage their internal operations such as human resources management while others are directed at the ways that a business interacts with the community and society

Accountability Factor

Peter F. Drucker, in an interview says, “If you find an executive who wants to take on social responsibilities, fire him. Fast.” Those who believe in favor of social responsibility may be shocked. But, bravery is needed to scrutinize the very heart of business practice, without which we may get misled when addressing the role of business and corporations. Social programs and economic regulations were created by governments to protect the citizens from being neglected by the market and from exploitation by organizations.

Organizations are free to engage in questionable behavior without even the fear of censure. Research conducted recently by international human rights organizations such as a study by Amnesty International and by Human Rights Watch found international businesses were involved in several human rights violations in the countries they operated. These violations included forced displacement of people, torture, forced or bonded labor, violations against the right to form unions and practices that infringed on the rights of women, children. The reports have highlighted the importance of social responsibility in business.

Principally, the Social Responsibility recognizes company’s responsibility not only to their shareholders but also to all of their stakeholders — all the parties affected by a business including workers, government, suppliers, the local community and consumers. In recent developments, the environment has also been put into the equation.

The new understanding of Social Responsibility is known as the triple bottom line — Profit, People and Planet. That is business goals are always for profit, and that business and organizations are supposed to take part in the efforts to fulfill people’s welfare and this requires active participation in securing the planet’s sustainability. Organizations now highlight social and environmental initiatives on their websites and annual reports.

The oil company Exxon Mobil, for example, is much bigger than the combined revenue of the poor 80 countries, money does not reflect power, but it is certainly a parallel to power. About 85 percent of the world’s flour stock is controlled by only six TNCs. Five TNCs now control 90 percent of the music industry and seven companies own 95 percent of the world’s film industry.

This is why “Corporate Social Responsibility” needs a serious rethink. “Corporate Accountability” would be a more correct term, for accountability deals with the control of the exercise of power while responsibility merely counts on individual entities’ voluntary action.

Arguments for Social Responsibilities of Business

  • Change in public expectations: The needs of today’s consumers have changed which has resulted in a change in their expectations of businesses. Since businesses owe their profits to society, they should therefore respond to the needs of society.
  • Business is a part of society: Business and society are benefited when there is a symbiotic relationship between the two. Society gains from economic development and from the employment opportunities and business benefits through the workforce and the consumers provided by society.
  • Avoiding intervention by government: By being socially responsible, corporations attract less attention from regulatory agencies which results in greater freedom and flexibility in their operations.
  • Impact of internal activities of the organization on external environment: Most firms are open systems, i.e., they interact with the external environment. The internal activities of such firms have a deep impact on the external environment. To avoid such a negative impact on the external environment, the firms should be socially responsible.
  • Protecting shareholder interests: By being socially involved, an organization can improve its image and also protect its shareholders’ interests.
  • New avenues to create profits: Social responsibility involves the conservation of natural resources. Conservation can be beneficial for organization. Items that were considered waste earlier (for example, empty soft drink cans) can be recycled and thus profitably used again.
  • Favorable public image: Through social responsibility, an organization can create a favorable image for itself. By doing so, it can attract customers, investors and other stakeholders.
  • Prevention is better than cure: It is in the best interests of organizations to prevent social problems. Instead of allowing large-scale unemployment which could lead to social unrest (which will harm business interests), organizations can be sources of employment for eligible youth.
  • Best use of resources: Organizations should make best use of the skills and talent of its managerial personnel as well as its capital resources to provide good quality products and services. By doing so, the organizations will be able to fulfill their obligations toward society.

Arguments against Social Responsibility of Business

  • Excessive costs: When a organizations incurs excessive costs for the social involvement, it passes the cost on to its customers in the form of higher prices. Society, therefore, has to bear the burden of the social involvement of organizations by paying higher prices for its products and services.
  • Opposes the principle of profit maximization: The main motive of a organizations is profit maximization. Social involvement may not be economically viable for a organizations.
  • Weakened international balance of payments: A weakened international balance of payments situation could be created by the social involvement of organizations. Since the cost of social initiatives would be added to the price of the products, the MNCs selling in international markets would be at a disadvantage as compared to domestic organizations which may not be involved in social activities.
  • Lack of accountability: Until a proper mechanism to establish the accountability of organizations is developed, they should not get involved in social activities.
  • Increase in the organizations power and influence: Organizations are equipped with a certain amount of power. Their involvement in social activities can lead to an increase in their power and influence. Such influence and power may corrupt them.
  • Lack of consensus on social involvement: There is no agreement regarding the type of socially responsible actions that a organizations should undertake.