A company must make a competitive return for its shareholders and treat its employees fairly. A company also has wider responsibilities. It should minimise any harm to the environment and work in ways that do not damage the communities in which it operates. This is known as corporate social responsibility. Bowen argued that corporate social responsibility rests on two premises: social contract, which is an implied set of rights and obligations that are inherent to social policy and assumed by business, and moral agent, which suggests that businesses have an obligation to act honorably and to reflect and enforce values that are consistent with those of society.
Companies that operate in a socially responsible way strengthen their reputations. In business, reputation is everything. It determines the extent to which customers want to buy from you, partners are willing to work with you and your standing in the community. Corporate Social Responsibility (CSR) is also known as corporate responsibility, corporate citizenship, responsible business, sustainable responsible business, or corporate social performance.
Three Perspectives of Social Responsibility
The three perspectives of corporate social responsibility are economic responsibility, public responsibility, and social responsiveness. The three perspectives represent a continuum of commitment to social responsibility issues, ranging from economic responsibility at the low end and social responsiveness at the high end. The economic responsibility perspective argues that the only social responsibility of business is to maximize profits within the “rules of the game.” Moreover, the proponents of this viewpoint argue that organizations cannot be moral agents. Only individuals can be moral agents. In contrast, the public responsibility perspective argues that businesses should act in a way that is consistent with society’s view of responsible behavior, as well as with established laws and policy. Finally, the proponents of the social responsiveness perspective argue that businesses should proactively seek to contribute to society in a positive way. According to this view, organizations should develop an internal environment that encourages and supports ethical behavior at an individual level.
Different Approaches of CSR
The stockholder view is much narrower, and only views the stockholders (i.e., owners) of a firm. The stockholder view of the organization would tend to be aligned closer to the economic responsibility view of social responsibility. The stakeholder view of the organization argues that anyone who is affected by or can affect the activities of a firm has a legitimate “stake” in the firm. This could include a broad range of population. The stakeholder view can easily include actions that might be labeled public responsibility and social responsiveness.
Stakeholders are all those who are affected by or can affect the activities of an organization.
- Primary Stakeholders: The primary stakeholders of a firm are those who have a formal, official, or contractual relationship with the organization. They include owners (stockholders), employees, customers, and suppliers.
- Secondary Stakeholders: The secondary stakeholders of a firm are other societal groups that are affected by the activities of the firm. They include consumer groups, special interest groups, environmental groups, and society at large.
The globalization of the business environment has had a remarkable impact on issues of social responsibility. As organizations become involved in the international field, they often find that their stakeholder base becomes wider and more diverse. As a result, they must cope with social responsibility related issues across a broad range of cultural and geographic orientations.
The four strategies for social responsibility represent a range, with the reaction strategy on one end (i.e., do nothing) and the proaction strategy on the other end (do much). The defense and accommodation strategies are in the middle. Examples of firms that have pursued these strategies are as follows:
- Reaction: Over 40 years ago, the medical department of the Manville Corporation discovered evidence to suggest that asbestos inhalation causes a debilitating and often fatal lung disease. Rather than looking for ways to provide safer working conditions for company employees, the firm chose to conceal the evidence. It appears that tobacco companies have done the same thing.
- Defense: Over the years, rather than demonstrating social responsiveness in terms of air pollution reductions, vehicle safety, and gas shortages, the automobile companies did little to confront the problems head on. Currently, the high demand for pickup trucks and SUVs encourages the problem to continue.
- Accommodation: Many financial service companies, along with meeting the minimum requirements of disclosure regulations, maintain a more proactive code for voluntary, on-demand disclosure of bank information requested by customers or by any other member of the public.
- Proaction: Becton Dickinson & Company is a medical-supply firm that has targeted its charitable contributions to projects it believes “will help eliminate unnecessary suffering and death from disease around the world.” Similarly, Starbucks makes contributions to literacy programs and was one of the first companies to give health benefits to partners.
Corporate Social Responsibility and Strategy Formulation
The tensions between corporate and societal interests is a hot topic of debate in them business literature under the heading of corporate social responsibility. The essential question is, do corporations have broader social responsibilities beyond their economic mandates? If they do, then how can these responsibilities be acknowledged and fulfilled through firm strategies? There are many opinions on these questions.
One dominant opinion holds that corporations are primarily economic entities whose sole purpose is to increase shareholder wealth by producing and selling goods needed by customers. This conception harbors a narrow economic view of a corporation’s responsibility to society. In contrast is the view that corporations have grown to such large size and complexity that they affect many non-economic aspects of society. These areas include health, politics, culture, and social relations. Therefore, corporations should be held responsible for these non-economic influences on society.
There is no unambiguous resolution of this debate. On the balance, however, it seems reasonable to expect businesses to be sensitive to the new demands placed on it by society and be responsive to them. It is also clear that the resolution of this debate depends largely on individual personal values.
In general, power and responsibility have a reciprocal relationship. The scope and power of corporations to influence all aspects of social life, and their symbiotic relationship to society, impose on corporations broad social responsibilities.
- Making the most of corporate social responsibility (McKinsey Insights)