Corporate social responsibility is a significant issue in the current business environment. There is now a significant shift in businesses to become recognized as being socially responsible whilst achieving the primary business objective of profit maximization. Business now strive particularly to reach the triple bottom line as a key objective as it incorporates; people planet and profit objectives.
Corporate social responsibility is often difficult to define, as there are many different definitions and understandings amongst academics and professionals. However corporate social responsibility can broadly be defined as a ‘‘concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis’’ (Falkenberg and Bruns? l 2012). The relationship between socially responsible business actions and profit maximization is generally mixed and controversial.
Generally the view is that in order for a business to undertake socially responsible practices there is often increased financial and non-financial costs in order to ensure this and thus leading to decreased profits in the short term. However it is also evident that socially responsible business actions and strong relationships with business stakeholders may lead to significant long-term profit maximization. Corporate social responsibility is now an essential factor within business management.
A firm’s corporate social responsibility must be evident throughout all its business functions, in which the ethics and values of the business must align to meet all stakeholder expectations. Including social, environmental and ethical factors of business. In the article “Is harm reduction profitable? An analytical framework for corporate social responsibility based on an epidemic model of addictive consumption” (Massin 2012) the corporate social responsibility of firms in the industry of addictive substances, most noteworthy, gambling, cigarettes, and alcohol.
There is a significant paradox in relation to producers within these industries and their socially responsible claims. “These firms claim to be socially responsible while marketing a product clearly identified and harmful” (Massin 2012). The paper generally focuses on the substances of alcohol, cigarettes and gambling, as it is these products “whose consumption shares the dual characteristic of being at risk of leading the users to gradually lose control over their consumption and of generating health and social damage.
” (Massin 2012) thus highlighting the contradiction of the producer’s claims of being socially responsible whilst selling these highly addictive products. Within the industries of addictive goods firms cannot be completely socially responsible, as this would involve the removal of these products from the market. Thus highlighting the inability for producers of addictive products to achieve corporate social responsibility. Therefore illustrating the inability of firms in these industries to be socially responsible whilst still achieving the primary business goal of profit maximization.
Corporate social responsibility involves business firms aligning their values with those of their stakeholders. There are many significant stakeholders of business, including shareholders, managers, employees and society. Another significant business stakeholder is that of the environment. A socially responsible business is viewed to have open and accountable business actions based on respect for the community, society and the broader environment, and not just legal regulations.
This therefore means a socially responsible business ensures it takes into account environmental stability and sustainability. In the article “Environmental corporate social responsibility and financial performance disentangling direct and indirect effects” (Loiui, Sharma 2012) the link between environmental social responsibility and financial performance has been established. The increasing environmental awareness has lead to increased firm research and development and hence has established new technologies and production processes (Loiui, Sharma 2012).
This increases research and development and implementation of new technologies and production processes generally leads to significant short-term business costs in the implementation and change within the business. However, the implementation of socially responsible business behavior leading to environmental sustainability creates significant long-term profit opportunities through increased waste reduction, lower business consumption and also increase brand image in the eyes of consumers.
This linkage between socially responsible business actions, involving environmentally friendly processes and the ability to maximize profit highlights the ability for firms to uphold socially responsible business actions whilst also being able to achieve financial objectives and profit maximization. Corporate social responsibility is viewed as an essential business function in today’s business environment. However, corporate social responsibility is widely viewed as a violation of a businesses financial performance and the opportunity for business profit maximization.
Corporate social responsibility is seen to have many disadvantages that hinder and impede the fundamental business goal of profitability. This concept is further explored in the paper “the casual effect of corporate governance on corporate social responsibility” (Maretno and Harjoto 2012). In which it is highlighted that there are three alternatives to the relationship between corporate social responsibility and a firm’s corporate financial performance.
These three theories identify the variable relationships between socially responsible business actions and financial performance. One of the alternatives illustrates the constraint corporate social responsibility imposes on the primary business goals of profitability. It is stated that socially responsible business actions are viewed as “costly activities and a waste of scarce resources, and therefore have an adverse impact on firm value” (Maretno and Harjoto 2012). Corporate social responsibility is often viewed as a costly procedure for businesses to undertake.
However, this cost of corporate social responsibility is not only financial but also involves costs associated with time, resources and labour, furthermore contributing to the overall financial inefficiency and disadvantages associated with corporate social responsibility. The impeding financial and non financial costs of the implementation of corporate social responsibility create significant hindrances to a businesses’ ability to maximize profits and thus, highlights the difficulty in relation to being socially responsible whilst also satisfying the primary business goal of profit maximization.
Although corporate social responsibility is seen to violate profits, it is also believed that firms that conduct socially responsible business actions may reap financial gain and profit maximization. A company’s business action in relation to corporate social responsibility generally has significant influence on the attitudes of non-investing stakeholders and the general society. In the article “the casual effect of corporate governance on
corporate social responsibility” (Maretno and Harjoto 2012) Maretno and Harjoto explain CSR as a “conflict resolution hypothesis”, in which corporate social responsibility is used as a conflict resolution tool between the firm and they’re non-investing stakeholders (Maretno and Harjoto 2012). Soana’s paper “the relationship between corporate social performance and corporate financial performance in the banking sector” (Soana 2011) further more identifies the positive link between both corporate social responsibility and financial performance and profitability.
Corporate social responsibility is seen to give firms “competitive advantage” and may also be seen as a “safeguard of corporate reputation”(Soana 2011). The use of corporate social responsibility as a conflict resolution tool and a safeguard for unpredictability creates significant opportunity for strong financial performance within the firm, due to its creation of several strategic advantages for business, such as the enhanced and harmonious business environments as well as enhanced public image and greater brand value.
These factors greatly contribute to the financial performance of the firm and thus if corporate social responsibility is achieved there are significant opportunities for profit maximization. Therefore illustrating the ability of firms to uphold socially responsible actions and corporate social responsibility, whilst still retaining the ability to achieve the primary business goal of profit maximization. Corporate social responsibility has a paramount influence on businesses in the current business environment.
Corporate social responsibility consists of open and accountable business actions in order to align the firm’s values with those of their stakeholders. Businesses are now becoming more concerned with the demands of corporate social responsibility, whilst still trying to achieve the fundamental business goal of profit maximization. There is many challenges associated whilst trying to achieve the business objectives of corporate social responsibility and profit maximization simultaneously.
Corporate social responsibility generally is associated with increased business costs, including those of time, misuse of resources and monetary costs. However, it has also become evident that socially responsible business actions may lead to long-term financial gains for business as well as greater stakeholder reputation, brand perception and efficiency, ultimately leading to the maximization of business profits. References Falkenberg, J. and Brunsael, P.
(2012) corporate social responsibility: a strategic advantage or a strategic necessity?. Journal of business ethics, 99 p. 9-16. [Accessed: 24th April 2013]. Lioui, A. and Sharma, Z. (2012) Environmental corporate social responsibility and financial performance: Disentangling direct and indirect effects. Ecological economics, 78 p. 100-111. [Accessed: 24th April 2013]. Maretno, H. and Harjoto, A. (2012) The casual effect of corporate governance con corporate social responsibility.
Journal of Business ethics, 106 p. 53-72. [Accessed: 20th April 2013]. Massin, S. (2012) Is harm reduction profitable? an analytical framework for corporate social responsibility based on an epidemic model of addictive consumption. Social Science and medicine, 74 p. 1856-1863. [Accessed: 24th april 2013]. Soana, M. (2011) The relationship between corporate social performance and corporate financial performance in the banking sector. Journal of business ethics, 104 p. 133-148. [Accessed: 24th April 2013].