Corporate Social Responsibility - Essay Example

Writ 340-Section Corporate Social Responsibility On a continual basis, heads of corporations must determine whether they should be responsible to their shareholders or to their stakeholders, which would include the community. These two entities, the shareholders and the community, are often at odds with each other as one is interested in maximizing profits while the other is more concerned with the common good of all. In making these decisions regarding the corporation’s level of social responsibility, leaders must consider the ethics of the situation. While most people believe they have a good idea of what is meant by the term ‘ethics’, it is not an easy term to define. Ethics are not related to feelings of right and wrong nor are they related to a particular religion. They are not defined by law and they are not based upon the norms of a given culture group. Finally, ethics are not based upon scientific evidence of what constitutes ‘right’ or ‘wrong’. In order to try to determine what constitutes the concept of ‘ethics’, there are five general ethical standards by which one can compare personal and group ethics in prioritizing responsibilities. While corporation leaders have a responsibility to the shareholders who have entrusted them with their company, they also have a responsibility to their stakeholders, the common good of the people within the communities in which they work. From the viewpoint of three ethical standards, it is clear that the corporation must maintain a level of responsibility toward both their shareholders and their stakeholders if they wish to conduct business ethically. In general, most people understand corporate social responsibility as referring to the practice of corporate investment in community related projects, often projects that will bring no direct, quantifiable benefit to the corporation itself. In respect to these types of practices, it is often argued that the corporation is acting irresponsibly toward its shareholders when it elects to invest corporate funds into charities that do not directly benefit the shareholders themselves. “The company’s owners – its shareholders – can certainly donate their own assets to charities that promote causes they believe in … But it would be irresponsible for the management and directors of a company, whose stock these investors purchased, to deploy corporate assets for social causes” (Atkins, 2006). Because shareholders don’t have direct control over how these funds are spent, which charities they contribute to or how much they wish to invest, Atkins argues that directors are not acting in their shareholders’ best interests unless they are investing funds in “growth, profitability, product innovation, and anything else that drives the shareholders’ return on investment as measured by the stock price” (Atkins, 2006). However, these arguments completely remove from the equation the unquantifiable outcomes and potential benefits of community involvement, as a better community provides stronger workers, greater involvement and more loyal consumers feeding back into the assets of the company. “Consumers are becoming increasingly ethically aware about the companies they buy products and services from … They can and will vote with their hard-earned cash, diverting profits from companies whose ethics they despise to those they admire” (Creffield, 2005). Thus, a business that works to meet the needs of its community in an ethical manner is also serving to meet the needs of its shareholders in their continued requirement for profitability as this approach encourages consumer loyalty and brand enhancement. In determining whether it is more ethical to rigidly adhere to the direct quantifiable benefits produced by investing only in those activities that directly enhance the company’s bottom line or if it is better instead to focus upon benefiting the entire community, there are three ethical standards that leave little to no doubt. The utilitarian approach focuses on bringing about the best good for the greatest number of people, or the most optimum balance between the good produced by the company as compared to the bad introduced by it. “The utilitarian approach deals with consequences; it tries both to increase the good done and to reduce the harm done” (Velasquez et al, 1988). This ethical standard suggests that the ethical business can not possibly ignore the needs of the community in favor of the shareholders. To offset any damage caused to the community, it is necessary for the corporation to invest in projects designed to increase the standard of life for those individuals found within the community. This feeds into the Common Group Approach, in which it is felt that the privilege of living in a community of people is beneficial in and of itself and thus demand some investment on the part of the individuals residing in it. “This approach suggests that the interlocking relationships of society are the basis of ethical reasoning and that respect and compassion for all others – especially the vulnerable – are requirements of such reasoning” (Velasquez et al, 1988). Finally, the Virtue Approach holds that a corporation should act according to the same virtues that are felt to contribute to the highest development of humanity. This includes acting in consideration of “honesty, courage, compassion, generosity, tolerance, love, fidelity, integrity, fairness, self-control and prudence” (Velasquez et al, 1988). Actions undertaken by the corporation will be weighed in comparison with these values and a resulting public opinion will be developed by consumers in conjunction with these demonstrated values. If corporations wish to attract and retain their customers and workers, increasing their shareholders bottom line, they must appear concerned about their consumer base and continue to act in ethical ways by remaining responsible to the community as well. Arguments in favor of corporate social responsibility from an economics viewpoint include shaping public trust while improving the social environment thus a form of long-term investment, making up for social problems caused by corporations, having greater resources and reach to address social issues otherwise difficult to accumulate and fulfilling shareholders’ expectations that their investments will be working to help secure socially desirable ends as well as monetary value (Carroll, 1989). Participation in charity projects helps to build better managers as they begin to understand the needs and desires of their workers and consumers even as they continue to develop leadership skills within and without the workplace. Involvement in the community also enables managers to bring in their specialized skills to adequately address issues that have not been effectively addressed by other entities, such as governments or informal community groups and fosters a tendency for corporations to take more proactive approaches to social issues (Lozano, 2000). From a purely ethical point of view, corporate social responsibility is a “form of enlightened selfishness since it promotes the company’s long-term interests in a broader, more viable, more open, contextualized way” (Lozano, 2000: 58) and this is a practical means of recognizing the greater inherent value of virtue over monetary gain. Thus, as companies participate in corporate social responsibility, they stand to gain numerous economic and managerial benefits while advancing the community, acknowledging the importance of virtue over material and developing a closer connection with its supportive base of employees, consumers, community and shareholders. Economic reasons to desist from accepting corporate social responsibility are numerous. To begin with, investing in the community reduces the efficiency of funds as there are no direct returns on the money, someone ultimately has to pay for these services and these can be anyone from the shareholders to the employees to the stakeholders and the shareholders have little to no say in how these funds are distributed (Carroll, 1989). From a management perspective, participation in corporate social responsibility divides the objectives and goals of the department, confusing issues and frequently forcing mutually exclusive situations. In addition, management is not trained to adequately address social issues (Lozano, 2000). Finally, there remain several ethical arguments presented against participating in corporate social responsibility, including the argument cited above in which it is claimed that managers and directors’ first and only responsibility is to maximize monetarily the returns on shareholders’ investments. These include the argument that participating in corporate social responsibility removes these responsibilities from the individual to the corporation, there is no focused, single concept within the organization and its shareholders regarding what is socially desirable and this type of activity encroaches on individual rights and freedoms as employees are told which charity projects to participate in and shareholders’ money is invested in them without representation (Lozano, 2000). From this analysis, it can be determined that those against corporate social responsibility are primarily concerned with what can be seen on paper while those in favor of it are concerned with a more humanistic world view. Those who stand against corporate social responsibility do have some valid points when they discuss the negative aspects of the practice and the risks involved. It is true that investing in community projects without the express discussion of shareholders both forces investment in activities that shareholders might not agree with and decreases the efficiency of their investment dollars. However, it is also true that the large corporation has access to knowledge and resources that would be difficult to attain through other means and thus can affect much greater positive change for a community on less dollars invested than those same shareholders could bring about on their own through individual donation. Corporate participation in community projects can be perceived as limiting employee interests as workers feel pressured into participating in these activities, but corporate participation in numerous types of charity projects would provide employees with a selection of charities to conform with their individual interests, would encourage employees to suggest charitable organizations to the corporation and would thus further increase interest among the general population to take an active role in social issues and reform. Finally, one of the greatest assets of a corporation is a manager who is an effective leader in a variety of situations and who is capable of thinking outside the box. A manager who has struggled to find creative solutions to a too-tight budget and a pressing community need working with a wide variety of community members of all classes and professions is training unobtainable from any other source. By allowing the corporation to become involved in community projects, the corporate director is fulfilling not only his responsibility to the community in which his corporation operates, but also to his shareholders who depend upon him to maximize the value of their dollar by maintaining a loyal and happy consumer base. Works Cited Atkins, Betsy. “Is Corporate Social Responsibility Responsible?” Forbes. (November 28, 2006). November 6, 2007 Carroll, Archie B. Business and Society: Ethics and Stakeholder Management. Cincinnati: Southwestern Publishing, 1989. Creffield, Lisa. “Corporate Social Responsibility.” Nakheel. May 30, 2005. United Arab Emirates. November 6, 2007 Lozano, Josep M. Ethics and Organizations: Understanding Business Ethics as a Learning Process. New York: Springer, 2000. Velasquez, Manuel; Moberg, Dennis; Meyer, Michael J.; Shanks, Thomas; McLean, Margaret R.; DeCosse, David; Andre, Claire & Hanson, Kirk O. “A Framework for Thinking Ethically.” Issues in Ethics. Vol. 1, N. 2, (Winter 1988). November 6, 2007 Read More