The Social Responsibility of Business to Increase its Profits - Case Study Example

Running Header: The Social Responsibility of Business to Increase its Profits Student’s Name: Instructor’s Name: Course Name & Code: Date of Submission: The Social Responsibility of Business to Increase its Profits Introduction Long ago, social responsibility was an exercise that was only carried out by philanthropic businesses and therefore it was seen as a separate business goal. This practice is now fundamental in many businesses as various company goals have changed. The increased economic instability and the global market competition has enabled organisations come up with various techniques of increasing profits. Business as an economic activity is aimed at earning profits. However, some businessmen have been spending million of shillings in developing structures such as streets and parks (Bulkeley 2001, pp. 430-447). Other people engage in research and development management in order to improve the quality of their products. Brand (2007, p. 47) shows provision of housing, health care and education as other activities that most businessmen engage in for the need of the society. Firms in the global market have also devoted available resources to the community for example, through the provision of social amenities in order to achieve long run interests for example through increase in profits. The strategy practiced by firms also helps to build a good reputation thus attracting desirable employees to the organization. Other worthwhile effects of using social responsibility are to reduce wage bill or sabotage (McBarnet et al. 2007). The above study shows a discussion on the importance of using social responsibility in business in increasing profits. The concepts of social responsibility of business are explained in this study as well as theory of social values and business ethics. Pride et al. (2008) describes that social responsibility is a theory applied in organisations in order to benefit the society through the provision of social amenities. A business that practice social responsibility is one that realises that it is important to have a better world and this can be achieved through supporting communities. Many organizations have also realized that competitive advantage is achieved through several considerations of the communities such as providing social and environmental support. According to Crowther (2000, p. 20), social responsibility can be practice in both profit making organisations and also in non profit organisations. Public sectors, interest groups and potential investors may also be involved in providing to the community. Some of the issues solved through the practice involve health safety, provision of educational institution and protection of animal and human rights through maintaining a clean environment. Businesses also benefit from social responsibilities as it becomes easier to respond to strategy issues. This is by dealing with the internal and external economic and social issues. According to Habischet al. (2005) social responsibility could also mean corporate giving, community involvement, community development or corporate social marketing. The above titles mean a commitment to improve the well being of a society through open business practices or by offering contributions that help a community as whole. The activities carried out are not mandatory but voluntary practices meant to describe a business as socially responsible. Social responsibility enables an organization be part of sustainable economic development. This is will be achieved by interrupting with community families, employees and the entire society and enabling these communities improve their standard of living. It also involves taking corporate initiatives to support societal issues. Crane et al. (2008) shows some of the initiatives involved in improving community health for example by advising a community on ways of preventing diseases such as AIDS, breast cancer early detection and immunizations. The other initiatives involve community safety for example the need to have a designated driver or how to avoid crime. Environmental initiatives carried out in a community involve sensitising the public on the importance of recycling and ways of reducing packaging. Benefits of social responsibility Economic development Businesses also involve themselves to the community through economic development for example a bank may offer to reduce interest on housing loans. This will enable more people to take up loans and buy better houses thus developing the community. Saether and Ruth (2008) describes that other initiatives carried out by firms include the provision of basic human needs such as food, housing and eliminating discrimination among community members. There are many forms of social involvement for example an organisation may contribute to a raising money for a project, giving grants and other kind contributions for example donation computers to a poor school. According to Freeman (1984) The New York Times Company Foundation is an example of a firm involved in social responsibility by supporting journalism and community journalists. Research indicates increase in charitable contributions by profit making businesses. In 1999 about 9.6 billion dollars was contributed and increase in 2002 where the estimate was 12.19 billion dollars. Most companies have reported that the move is meant to provide transparency in their activities and improve performance records. Businesses should also provide corporate activities in resource form for example by providing marketing expertise or employees as volunteers. Apart from the increased competition force, the other force facilitating the increase of social responsibility in businesses is the moral market factor. This is where a company would like the entire public to perceive it as morally corporate. The above factor enables a business maintain customer value, more investors are also drawn to the company and desirable employees apply to the company that is beneficial to the community (Wood 1999). According to Orlitzky et al. (2003, pp. 403) the traditional approach of social responsibility showed that contributions were made basing on emerging pressures. This is where a company would visit a certain community, establish a social issue affecting many and then would budget before the release of funds. Sponsorship decisions were made by senior management when there was need to support organizational goals and objectives. However the current approach is characterized with more people desiring to offer charitable initiatives. Gray et al. (1997) argues that issues chosen are those that support the main value of business and issues that will enable the organisation acquire more business opportunities. These major opportunities achieved through social responsibility include meeting marketing goals and increasing market share through promoting a desired brand. Improve public image The major benefit acquired from social responsibility is creating a good reputation to investors, financial analysts and consumers. This makes employees, stockholders or consumers maintain better relationships and also are proud of the company’s achievements. According to Kaliski (2001) a growing evidence also shows that organisation with a good public image are able to be in business for a long period of time as the reputation creates customer trust therefore more support from the public. Companies have attained the key performance factors such as achieving increased market share and sale, having a strengthened market position and achieving an enhanced corporate image in business. Other benefits acquired from the practice of social responsibility include increased ability to attract new investors, motivate and retain employees. The operation costs of these firms also decrease with the increase in sales and employee motivation. Grace and Cohen (2005) states that a research carried out showed an increased market share and sales where they carried a market survey and 84 percent of people interviewed admitted having a positive image to companies that contribute to making the world a better place to live. Rossi (2001) also shows that 75 percent of the people also admitted that they are more likely to purchase a product from a company associated with social responsibility. Visser et al. (2007) described that 66 percent of the people interviewed said it was possible for them to switch brands and buy a brand from a company that cared for the needs of the society and the entire community. This shows that promotions through social responsibility yield a company much benefits and that the method has a major impact on highly educated individuals and high income earners. Pitts et al. (2009) shows that 75 percent of consumers are influenced to purchase by the reputation of a company and if their products are friendly to the environmental. In 1999, survey was carried out by The Prince of Wales Business Leaders Forum indicated that companies should aim at profit maximisation. Government regulation The other benefit achieved through social responsibility is being given less scrutiny and freedom by the local government. The local government supports those companies that perform beyond regal compliance through reduction of taxes or receiving incentives. Fry et al. (2002, pp. 94-100) describes that a social responsible company also receive security benefit from the public for example the riots that happened in South Central Los Angeles in 1992 protected McDonald Houses due to its good reputation. The effort put by the company in developing good relationship with the community and by offering more job opportunities to the community made the rioters save the company’s outlets from damage and vandalism. Employee satisfaction According to Thilmany (2007) social responsibility increases the ability to attract, motivate and to retain company employees. A positive attitude is created among prospective employees and the current ones who then spread the same impact to the executives and public. Studies showed that 80 percent of employees would refuse to take up a job offer from companies that are negative about corporate responsibility. Feltus et al. (2009) give examples of a survey where more than 2,000 MBA students would rather get a lower salary from a company that offers initiatives to the community as this company act as an agent for economic change. Reduced operation costs Operations cost in a company may also decrease due to an increase in revenue received from government incentives and grants as a token of social responsibility. Companies that mostly benefit from this are those that solve environmental issues for example by reducing waste products, introducing methods of saving water and electricity. An example of a company that has benefited saved in operation costs as a result of corporate initiatives is the Cisco Systems. The company introduced an initiative for conserving energy that saves about 4 million dollars annually (Fields 2002, pp. 142-145). In addition to this, the energy conserved by the company enables it to qualify for a refund of almost 6 million dollars from the local energy supplier. The company operation costs such as advertising costs reduce due increased publicity achieved through the initiative. Social responsibility increase the value of stock as potential investors are attracted to the company. This reduces risk exposures in case of crisis therefore imposing large pension and mutual funds. Challenges of social responsibility According to Sacconi (2004) the major challenges that managers face by being involved in social responsibility include; choosing a communal issue to sort out, developing and implementing initiatives and the evaluation process. In the first challenge, it is difficult to know the kind of issue to support as some issues are better than others. To avoid this, companies should be in apposition of determining the business goals before choosing an issue. The company should also determine the size of the problem or whether it affects a great number of people. The other question raised is whether the government or another business is involved in handling the situation if none then the company goes ahead. Shareholders and employees decisions are also necessary before taking up an issue (Baker 2001). After choosing an issue, management should then determine the kind of initiatives to take up in the process. Zerk (2006) describes that the challenges that managers face include how the initiative will be conducted without affecting the major business goals. Managers also contemplate on the visibility the company will receive after the initiative. It is therefore important for managers to consult financial advisers before taking the initiative and to maximize profits. The social initiatives include cause promotions where company products are promoted through social involvement. The other corporate initiatives include increased marketing, corporate philanthropy, volunteering to the community and being a social benefit. It is therefore true that to secure their businesses, managers need to make decisions that will be of benefit in the long run. May et al. (2007) argues that government agencies minimise their involvement in businesses that contribute maximally to the community for example proactive companies that follow guidelines from the Environmental Protective Agency (EPA) in US may not be investigated by the agency. This is because the company adheres to laws on emissions of dangerous substances that pollute the environment. The above case shows that a corporate executive serves as an agent to his principal in providing to the community. This shows at that time, the executive serves as a public employee though he is employed by a private company and in this case political process should be involved in choosing an employee who is to impose taxes and foster community objectives. This explanation shows the reason why social responsibility is a political practice and not a marketing technique to be used by businesses to earn profits. It also shows that the allocation of resources to the public should be left on the hands of the political system. According to Paluszek (2005) social responsibility in business is not for profits because it has been argued that most businesses involved in the practice fail to concentrate on the fundamental economic role of business. Once a business involves its executives in promoting the community, the exercise should not only be conducted once but should be a continuous process. This therefore makes a business budget for the corporate involvement every year and in the process some fundamental roles of the business are distracted. Social responsibility is also said to be a technique used by businessmen in order to avoid interruption from the government. The role of the government as a watchdog in controlling multinational companies is said to be invisible to companies that are well knows for contributing to the society (Carpenter, M., Bauer, T. & Erdogan, B. 2009). Criticisms of social responsibility The practice of social responsibility is therefore seen as a social good due to the benefits it offers to the community and the return it gets in the long run. However, the exercise of social commitment is difficult as it shows the virtue of a competitive firm. Friedman (1970) shows that social responsibility forces people to be socially responsible and exploiting others for selfish reasons. Social responsibility generates goodwill which acts as a by product of spending on upon self interest. Bansa and Roth (2000, pp. 717-736) describes that social responsibility is a window-dressing act which tends to distract the foundation setup in a free society. It has also been criticised that social responsibility is all about insincerity and hypocrisy where businesses only concern is to improve its corporate image and not to help the community. Milton Friedman in his argument state that the fundamental role of businesses is to maximise their profits and to increase return on their shareholders. He also shows that only people can be socially responsible and not businesses by this he means that businesses can only be responsible to providing good returns to shareholders but can not do the same to the entire community. Milton shows that the only obligation that businesses have to the community is to abide to the laws of the government for example by paying taxes and protecting the environment. Haynes (2010) argues that other duties concerning the community should be left for the government to provide. Most businesses however feel that practicing social responsibility enables a company achieve long term profits due to reduced risks, brand reputation and retaining desirable employees. The other reason why certain firms practice social commitment is to evade ethical questions from the public about the major operations of the company. Companies whose solely purpose is to increase profits find it difficult to provide to the community therefore such companies practice of social responsibility does increase their profits. To ensure that companies are socially responsible, government should ensure that it provided better regulation and enforcement to a community as whole as this will limit more companies from providing voluntary measures meant to overshadow the needs of the community. According to Sun (2010) the increase of global population has contributed to limited resources necessary to meet the needs of every consumer. This is known as ethical consumerism that has contributed to the rise of more businesses being involved in social giving. As a result of improved technology, industrialization has improved in many developing countries. This has therefore created awareness to consumers on the need to consider various ethical, environmental and social effects caused by the products they consume daily. It is true that people engage in businesses in order to make profits (Bhattacharya et al. 2008, pp. 37-44). However, this profit making process is not the only function of the business but others have to be linked to it for example the social function. The social function is necessary to every business since it is the sole determinant of whether the business will survive or exist in the near future. According to Kytle (2005) investors, consumers, employees, government and the community as whole are the main determinant of business survival. This makes it necessary for every business to be involved in an initiative that benefits all the above determinants. To satisfy every individual a business has to consider for example increased return on investment for the investors, increased wages to the employees, reduced prices and provision of quality products to the consumers and maintaining a clean environment to the entire community. Conclusion In conclusion, before fulfilling any social responsibility, a business has to consider two aspects. One is that every business should be aware that any of the above activity is not charity. The other aspect is that business should be careful not to do well on one side while doing badly to the other. Businesses should therefore be involved in activities that benefit every individual influencing the smooth running of business. This can be demonstrated where a business may be making more profits by cheating customers and at the same time the business is involved in providing health services to the poor. Such acts are not socially justified since this harms the consumers who are also part of the society. Social responsibility is therefore important to the society as is discourages businesses from engaging in harmful practices in order to increase its profits. References Baker, M 2001, Companies in crisis, what to do when it all goes wrong, New York, Prentice Hall. Bansal, P & Roth, R 2000, ‘Why companies go green, A model of ecological responsiveness’, The academy of management Journal, vol. 43, no. 4, pp. 717–736. Bhattacharya, C Sankar, S & Daniel, K 2008, ‘Using corporate social responsibility to win the war for talent’, MIT Sloan Management Review, vol. 49, no. 2, pp. 37-44.  Brand, S 2007, 10 key things to know about CSR, London, p. 47. 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