The Social Responsibility of Businesses - Report Example

Ethics Ethics The Social Responsibility of Businesses Ethics is a major concept in a business environment. Social responsibility defines the adoption of an ethical theory in any business that seeks to achieve its mandate of operating in a manner that derives overall benefit to the entire society (Kennedy, 2013). As such, many businesses assume the obligation of social responsibility by maximizing the positive effects and minimizing the negative effects on the entire society (Nicolae & Sabina, 2010). In a business environment, the society relates to shareholders, community, government, employees, customers, and suppliers. Social responsibility defines how businesses influence the economy through its operations, competition, environment, staff, customers, and community (Nicolae & Sabina, 2010). The global business environment requires all businesses to embrace its social responsibilities instead of focusing on maximizing profits alone. In a business environment, social responsibility involves operating, producing, and marketing products with a positive relationship to the society. The International Organization for Standardization (ISO) establishes that having a positive relationship with the society and environment allows a business to operate effectively in a competitive business environment (Investopedia, 2014). Indeed, social responsibility is a measurement to the overall performance of a business in the market (Investopedia, 2014). As such, many businesses adopt social responsibility in their strategic business models to enhance their competitive advantage. Moreover, more than 90 percent of shoppers across the globe disregard price and quality and opt for brands that guarantee overall benefits to the society (Brooks, 2013). The different kinds of social responsibility that relate to businesses include legal, ethical, economic, environment, and philanthropic (Nicolae & Sabina, 2010). The social responsibility of businesses is the businesses’ compliance with laws and regulations established by the authorities, which set standards for responsible behavior for responsible businesses activities (Nicolae & Sabina, 2010). Moreover, the social responsibility of businesses is the businesses’ practice of behaviors and activities permitted by organization members, community, and society (Nicolae & Sabina, 2010). This involves a continued commitment by business to adopt ethical behaviors and improve the welfare of its employees, their families, and the society. Indeed, the economic dimension of social responsibility in businesses refers to the manner of distributing resources for the production of goods and services in a social setting (Nicolae & Sabina, 2010). More so, businesses have a social responsibility to increase its profits, provide good employment, conserve the environment, and enhance economic development, guard human rights, and address social problems (Brooks, 2013). How Much They Should Give Away and For What There have been numerous debates in the business environment on how much businesses should give away and for what. Businesses have an obligation to contribute its corporate profits to the government, community, shareholders, and employees. Indeed, governments establish tax regulations that define how much businesses should give away as corporate tax. This is always in percentage of the net profit and varies from one country to another. Moreover, businesses can define what they should give away to shareholders through the board of directors in annual general meetings. There are no rules governing what businesses should give away to shareholders in terms of shares or dividends. Businesses can also give away part of its corporate profits to the community in form of corporate social responsibility (International Chamber of Commerce, 2010). However, there are no rules governing how and what businesses should give away to the society. All businesses have a mandate of creating wealth in terms of property, profits, or shares for the shareholders, staff, consumers, and the society (International Chamber of Commerce, 2010). As such, businesses seek to maximize the available capital and labor force to provide employment and produce goods and services at maximal profitability (International Chamber of Commerce, 2010). After generating corporate profits, businesses gamble with the concern over how much equity to give away to shareholders, employees, and society. However, businesses should give away a significant amount that will increase the share price to the benefit of the shareholders because share price is very fundamental to investors. Moreover, businesses should give away to the society significant amounts that will help in addressing environmental and social issues as defined in the businesses’ corporate social responsibility. In fact, since businesses contribute to social problems, they should give away amounts that are relative to the social problems they cause. Such amounts will help in resolving social problems. However, in giving up, businesses must ensure that such amounts will derive better public perception and long-term benefits. Moreover, businesses should give away the stipulated amounts to the government to avoid conflicts, restrictions, and legal liabilities. This may include corporate tax, insurance premiums, social security, health insurance, and other employee remittances. Indeed, businesses should give away amounts to take care of the employees’ welfare. The given away should provide business opportunities to the business and meet the specific needs and business objectives (International Chamber of Commerce, 2010). Assuredly, businesses should give away amounts that will enhance their competitiveness, reduce costs, and increase shareholders’ profits. Share Profits to Shareholders A profit making business can do many things with its profits (Big Blue Marble LLC, 2014). One of the options that such businesses have is sharing all profits to the shareholders in terms of dividends. However, businesses can invest the returns in new opportunities or expand their operations to new locations (Big Blue Marble LLC, 2014). Up and coming company may opt to invest all of its profits back into the business to increase its financial strength. Corporate profits can also help businesses to acquire other companies. Indeed, businesses can use the profits to lease business spaces or establish new business ventures or branches in different locations. Corporate profits can finance expansion and business research for long-term growth (Krantz, 2011). As such, retaining earnings is fundamental for the companys long-term success, growth, and survival (Krantz, 2011). In doing so, businesses analyze the effectiveness, financial capacity, opportunity costs, and long term benefits of such investments. Businesses can also use the profits to buy other businesses that would increase its market presence and profitability (Big Blue Marble LLC, 2014). Indeed, businesses can use corporate profits to participate in mergers, partnerships, or acquisitions. Again, the business must establish the derived benefits of such an investment and the opportunity costs involved. Moreover, businesses can invest corporate profits in other financial instruments, such as corporate bonds or other stocks (Eley, 2009). Notably, businesses must establish the viability of such investments due to the high financial risks involved (Big Blue Marble LLC, 2014). As such, offering dividends is not the only way of investing corporate profits. In fact, no law compels businesses to pay profits back to investors and hence the board of directors has a leeway to reinvest the profits in other profitable ventures (Krantz, 2011). Shareholders expect the board of directors to reinvest the profits in the most profitable ventures that will increase their investments. In any case, all investments should derive profits to the shareholders. In some cases, the directors might decide to share all profits between the shareholders for various reasons (Big Blue Marble LLC, 2014). Where offering dividends is less risky and economically viable than buying other financial instruments, directors can opt to share all profits between the shareholders. Moreover, where there are no good acquisition targets and expansions seem expensive, returning all profits to shareholders could be a better option (Big Blue Marble LLC, 2014). Ideally, dividends can also help the business to attract new investors especially those relying on quarterly dividend checks (Big Blue Marble LLC, 2014). Paying dividends manifest the strength of a business and hence increases its good will. It is thus clear that although returning all profits to shareholders improves the businesses’ perception in the public, there are other viable ways of reinvesting the profits. Therefore, not all profits (except for nonprofits) should go to shareholders. Responsibility of Any Business to Society Problems In most cases, businesses feel that they have a responsibility on society problems that they caused. However, businesses do not cause certain society problems. Certain problems like poverty, diseases, lack of water, and poor education have nothing to do with businesses. This raise questions whether business have responsibilities over such problems. Ideally, social responsibility is not a response to societal problems caused by the reference business but a mandate to derive overall benefit to the entire society by establishing a balance between the business operations and society welfare. Indeed, social responsibility is part of daily decision-making process in a business. As such, businesses have a responsibility to solve society problems even if they never caused them since businesses can longer operate in isolation from the society (International Institute for Sustainable Development , 2013). Businesses must address society problems they never caused to enhance the businesses’ reputation, entice consumers, attract and retain investors, satisfy government regulations, reduce operating costs, and motivate employees. Moreover, addressing such problems creates a huge market for the businesses as various companies, nonprofit organizations, businesses, and government agencies collaborate to solve these problems (Eggers & Macmillan, 2013). However, businesses are now under increasing unrealistic pressure to solve society problems they never caused (Janus, 2013). Businesses lack the ability to address all society problems. Indeed, it is the duty of the government and the society to address society problems with voluntary assistance from the businesses. As such, the businesses’ responsibility to solve society problems they never caused extends to the point where such responsibility is within the capacity of businesses and helps in achieving businesses’ objectives. References Big Blue Marble LLC. (2014). Why Do Companies Pay Dividends? Retrieved from: http://trendshare.org/how-to-invest/why-do-companies-pay-dividends Brooks, C. (2013). Social Responsibility No Longer Optional For Businesses. Retrieved from: http://smallbusiness.foxbusiness.com/marketing-sales/2013/05/24/social-responsibility-no-longer-optional-for-businesses/ Eggers, W., & Macmillan, P. (2013). Government Alone Can’t Solve Society’s Biggest Problems. Retrieved from: http://blogs.hbr.org/2013/09/government-alone-cant-solve-societys-biggest-problems/ Eley, J. (2009). How to invest in corporate bonds. Investors Chronicle. International Chamber of Commerce. (2010). Business in society: making a positive and responsible contribution. Retrieved from: http://www.iccwbo.org/products-and-services/trade-facilitation/9-steps-to-responsible-business-conduct/ International Institute for Sustainable Development. (2013). Corporate social responsibility (CSR). Retrieved from: http://www.iisd.org/business/issues/sr.aspx Investopedia. (2014). Social Responsibility. Retrieved from: http://www.investopedia.com/terms/s/socialresponsibility.asp Janus, K. (2013). Not All Social Problems Can Be Solved by Business. Retrieved from: http://www.huffingtonpost.com/kathleen-kelly-janus/social-problems_b_4171598.html Kennedy, R. (2013). The Social Responsibility of Business. Retrieved from: http://www.acton.org/pub/commentary/2013/09/18/social-responsibility-business Krantz, M. (2011). Shareholders are demanding more from corporate profits. Retrieved from: http://usatoday30.usatoday.com/money/perfi/columnist/krantz/story/2011-10-18/shareholders-corporate-profits/50818678/1 Nicolae, J. C., & Sabina, J. M. (2010). Dimensions and Challenges Of Social Responsibility. Annales Universitatis Apulensis : Series Oeconomica, 12(1), 238-247. Read More