Concept of Corporate Social Responsibility - Essay Example

?ITRODUCTION Business is as old as mankind itself in form of the other. History traces its known inception from the very old known traditional methodof barter to the various forms, to name few sole proprietor, partnership, company etc; with the latest forms developed as business in virtual world. Main aim of the business, in either form, has been to benefit mankind. Broadly, this thought was materially put forward by Milton Friedman in 1988 with stating sole purpose of business is to maximise profit within boundaries of law with underlying assumption that profit means and would led to increase employment in lawful boundaries, hence benefiting society. Since then, the debate has been on in favour and against of the thought and more particularly to find the right balance where profits really benefit the society. Counter extreme to the argument was the concept of Corporate Social Responsibility which stated that businesses are required to respond to societal needs in other forms as well than just earning profit to maximise employment. Businesses have to some extend accept this counter thought with further extension in idea regarding maximising shareholder and owner’s wealth and many other sub ideas. However, the finding of the real right balance between the corners is yet being debated as no measure has yet been developed to perfect solution. PRIMARY OBJECTIVE OF MANAGEMENT- THEORATICAL REFERENCES AND THEIR ANALYSIS To state in one sentence primary objective of the business is to benefit society, at the same time remember the fact that owners and shareholders are also part of society and hence, not at the cost of the shareholders’ benefit. The debate shall focus more on the fact that how and to what this benefit extends shall be translated. Exploring the basic idea of Friedman who stated that the aim of business is to achieve maximum profits within boundaries of law and this is how society is benefitted, one finds this idea satisfactory unless there comes any law that does not support societal interest or even more questioning does there exist any law that goes against the interest of society? All the laws are made in larger interest of society and with this it can stressed that Friedman’s thought had no flaw. However, most of the literature questioned the profit maximisation part with taking it to the point that contrast to the societal concern and scope of debate enlarged in direction of benefit of firm or society as whole and how it should be transferred. Considering this school of thought, more appropriate and concrete thought requires it be benefit or wealth of all stakeholders, where stakeholders include every person who is directly or indirectly connected with organisation. This stance has no flaw as the basic idea constrains to remain operational within. (Stakeholder Analysis) To support the argument, consider the example of Marks and Spencer. UK retail giant with global existence recent matter charging higher price to its women lingerie product stating the reason of higher cost and then higher tax was highly negated on social media website where more than 14000 people joined the cause for protest. The protest ultimately forced the giant to bow down accept the decision as their mistake while taking back decision, giving excess discounts to all customer of that product class as well as apologies to the society. To extract from this example is the fact that if it the said argument would have been true in place then M&S’s decision should have been appreciated as the giant only aimed to cover the excess cost incurred on the product, that would have added to its profitability , though in its respective share only. While, people who protested just joined the cause for bias attitude towards certain people and of course not all were affected by the decision. Hence, what needs be made the basis of maximisation is the stakeholders’ wealth that is always in position to affect the position of firm (Bejou, 2011). From the given image, it can also be concluded that stakeholders lie in levels. Firm first needs to benefit itself only with profit later to establish itself to the level that is able to benefit its internal customers followed by external customers and finally comes society which is again in congruence with Friedman concept. For instance, Starbuck, food industry retailer has less than one third of the turnover over than rest of retailers as they provide full package of benefits to its part time employees, hence cost incurred on benefits to employees save cost to be incurred on recruitment and training giving firm competitive benefit of one third of less turn around than competitors. For this reason, benefit of firm is so connected with benefit of shareholder. Smith (2003) drew attention to the Social contract theory of Thomas Donaldson who states simple formula for same and suggests there always lies contract between society and corporations and it is quite implicit. This contract has to answer what business needs from society and what society should be given in return. Conditions remain favourable when both go along and any attempt that takes both in distraction can turn situations bad. Moreover, the other way round also concludes the similar results and there is a need to realise the fact that benefit of society is a benefit of firm. Concept of corporate social responsibility under which companies’ devices program to give in turn something to society are all based on these theme. Most of these programs are business cases and ultimately benefits business (Smith, 2003). Husted and Salazar (2006) have developed an idea of exploring the conditions of firm that take two extremes in congruence than contrast. Their idea is based on finding conditions where social and firm performances both are supported by each other. Husted and Salazar (2006) suggest most of the firms undertake social investment and what make them successful are their strategic intentions that underlie decisions. Altruistic and coerced egoistic firms’ investment in social projects which benefits them to certain extend or in short run by increase in sales or people more willing to buy their product. Firms that invest just for the sake of investment in social projects are Altruistic and they receive fewer benefits with every marginal investment which turns their investments as costlier ones e.g. giving them home benefits etc. Firms which invest in social projects just because it is necessary to retain their license to operate e.g. environmental projects made mandatory by government, also faces less or minimal output (Ahlstrom, 2010). Whereas firm strategically investing in social projects benefits itself in both short and long run with more differentiated product (Porter and Krammer, 2002), increased reputation able to fetch higher premium and more highly qualified personnel available to them. This type in investment can increase benefits and reduce costs e.g. use of innovative ideas that further benefits the firm’s profit derived from social attention investments. (Husted and Salazar, 2006) Husted and Salazar (2006) concept of focused strategic investment is response to the limitation defined by Jensen (2002, p. 238) terming it logically impossible to be maximise in more than one dimension except the case where both are actually makeover of each other. Though Husted and Salazar (2006) idea of strategic investment answers many objections, however, it is not easy for the firm to always be able to meet the societal needs at the same time maximising shareholders value. There will always lie a conspiracy pertaining investment was aimed to benefit the society only whereas the other being made wholly for maximising the shareholders value, therefore, to separate themselves from this conspiracy firms are growingly moving to ideas where both can be achieved in line with each other. And most of the studies have found positive relationship between the corporate social responsibility and corporate financial performance. Smith (2003) mentioned a research concluding that out of 80 companies studied, 42 companies predicted positive corporate financial performance from corporate social investment while 19 founds no relationship, 15 mixed results and only four predicted negative results. These results can give a conclusion that companies which were not able to make due results might be among those categorised as Altruistic and coerced egoistic firms’. On way to achieve both objectives together, Ahlstrom (2010) has gone step ahead in providing better suggestion. He argues that good firms bring innovation to the market place. Ahlstrom (2010) develops relationship that innovation results in growing market which in turns brings economic development through new employment generation finally the standards of living are put on due positive track (Baumol and Strom, 2007 (6)). Ahlstrom (2010) has discussed that innovations result in providing new products to existing markets (Tellis, Prabhu, and Chandy 2009) and at the same time also create new markets. New product options provide them solution to problems that were left unattended earlier (Chiristensen and Raynor, 2003). It also caters to wider range of customer as well. This increases the level of economic activity and cycle of economy accelerates which brings profit to the firm. Hence, single way to achieve both objectives with sustainability in long term. Practical example to support Ahlstrom’s (2010) idea can be seen when Bank Boston which was part of Fleet Boston group established Fleet community bank (formerly First community bank) that made investment in low income group. This community based bank added to banking network large number of people while adding products, other technical innovation as well as opportunity for people to enter the banking sector with greater innovative ideas. This example has all fronts addressed; investment for the benefit of society, banking activity to generate profit for firm, innovation and technological advancement. It is also in alignment with idea of strategic decision making by Husted and Salazar (2006). PROFIT DRIVEN INVESTMENT ONLY It can also be argued that how long an investment that is driven by profit only can survive. Profit only is assumed to have a negative impact on society. Here is an example. Many giants like Unilever, Apple Inc, Coca Cola etc have moved to Asian countries for the reason of low cost product facility. Investments have been largely made in China and India for its low cost labour and other regulation facilities. Most of them are also accused of labour issues especially. To focus on Coca Cola’s investment in India, it has been accused of drying and polluting land and farmers have been constantly protesting against it. In year 2010, it has paid $ 47 million in compensation for same (Nair, 2010). Similarly, many corporations like Nike, Apple Inc etc have constantly been under criticism to get their profits jumped high over the cost of sweatshops. All these refer that any business concern that conducts business and results in negative impact on society has never been appreciated. It also endorses the Friedman’s basic idea of profit maximisation within boundaries of legal acts. All these mentioned firms, in one way or the other have to pay legal penalties over their sweat shops especially being ill- legal. APPROPRIATE BUSINESS MODEL Business concerns have constantly been striving to get a model that maximises their wealth along with meeting their obligation to society, some may be for due diligence of meeting societal obligation while others may be for escaping from societal pressure that have impacts their reputation. Whatever, the case the surge for deriving the model is there. Business model with the addition of same shades of business ethics concerns, entered into business world when it was started as course in American university in late 1970’s and 1980’s (Shaw, 2008). It then called upon various thoughts that discussed different degrees on profit, only society, and profit and society along. It also incorporated Corporate Social Responsibility. Corporate Social Responsibility is stated to have added human touch to the business concerns and company which makes profit, obeys laws, is ethical and is good corporate citizen is considered to follow CSR (Carroll, 1991). Debate is continued on with various people giving their view upon the degree, importance and impact of CSR. Research suggests people prefer to work companies that have consideration for society. Employees when know about CSR activities speaks high for company. Edward Jones ranked top among Fortune 500 companies in 2002 and 97% employees praised management honesty (Smith, 2003). Apart from this the CSR activities also contributes toward the improvement of the overall financial performance (Van Beurden and Gossling, 2008). Appropriate business model, hence, has to include the final impact of its activity as business on society. Also considering all the definition discussed above that became part of business management are either referring three things to be included in business model: (Lankhorst, 2012) DISCUSSION Argument relating to prime objective of business has explored many possible avenues. The discussed objects include profit maximisation along with social concern. It was also explored that prime object has been to remain at a point where firms are meeting their due obligations and operating within law while as stated in earlier part of research that all laws are made in broader interest of society. Different researchers and analysts are of the idea that the concept of business presented by Friedman is not appropriate and that Friedman has not been able to justify his ideas (Wilcke, 2004). For instance, McAleer (2003, p. 437) is of the idea that Friedman promotes the concept that main objective of any business is only to maximise the wealth of the shareholders. Another researcher Colint Grant is of the idea that Friedman is of the idea that the managers should only focus on the maximisation of profits and there is no or marginal ethics (1991, p. 207). Cosans (2009) advocates that if all business starts following the design of Friedman then businesses manager would get more cautious than they are today provided if they follow the complete rule of abiding by law and not only profit maximisation. Cosans (2009) also presented the selection of Friedman’s assertion and provide evidence that the given rule has concerns of society as a whole, opposite than negative propagation of being harmful to society. Given below is the selection: (Cosans, 2009) In conformation to the above mentioned reference to Cosans (2009), the idea has been developed that if Friedman’s proposal is taken and understood completely it is true in guiding business to take world in a better position, as there is no expectation that any law can be devised in any part of the world that is against overall benefit of society. Hence, it is required to have the true understanding of Friedman’s complete rule proposed. No doubt, various concepts added with time such as Corporate Social Responsibility, Business Ethics are beneficial to add the business guiding principles so that every business remembers it throughout in their operations (Shaw, 2009) however, considering them to counter the thought of Friedman’s is injustice. They are all completing the idea. Therefore, the prime object of business is to maximise wealth of stake-holders in all and only the wealth of shareholders and owner and there are various options suggested in this regards as discussed in the main body. CONCLUSION Businesses were aimed to provide some benefit to mankind, be it parties involved directly or indirectly. The research was aimed to argue about the prime objective of business. In response to the question of prime objective of business to maximise shareholder and owners’ wealth, argument was developed to negate the same. With reference to context of perceived assertion of Friedman’s idea of prime objective of business it was explored that idea was misinterpreted. It further explored the counter ideas of Corporate Social Responsibility and others that refer to businesses responsibility towards the society. Detailed exploration of the idea provided insight that social responsibility is not simply investing in society without considering short and long term benefits. All investments are required to be strategically thought out so firms are able to reap the due benefits. Hence, the prime objective of business is to maximise stakeholders’ value with stakeholders including everyone who is directly and indirectly connected with firm. List of References Ahlstrom, D 2010, ‘Innovation and Growth: How Business Contributes to Society’, Academy of Management, August, pp 11-24. 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