Companies participate in corporate social responsibility because such actions – which are neither mandated by law or part of the companies’ principal, profit-oriented transactions – bestow benefits on the communities in which the said companies operate. For instance, a manufacturing company that decides to construct a road between its facilities and the neighboring community to enhance local commerce is not engaging in CSR if a statute exists that requires the company to make certain that the local community benefits from its operations. While some people enthusiastically praise the admirable excellence of CSR, others are extremely cynical of the practice. This raises the important question regarding whether CSR is ethical. This question is challenging because the response is contingent on the circumstances under consideration and the dimension of ethics being applied.
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Skeptics frequently argue that the goal of corporations is to increase profits, and that environmental and social issues should be the concern of government agencies and nongovernmental, not-for-profit organizations.
Milton Friedman espouses the stockholder theory, which holds that the corporation exists for the sole purpose of profit maximization. He argues that free markets, and not corporations, ought to decide what is good for the world. Put differently, Friedman takes the view that rather than handling welfare issues, corporations exist to provide services and create products that they then sell for a profit. The point is that corporations lack the knowledge or expertise needed to deal effectively with social problems. Moreover, by focusing on social responsibilities, managers would be failing in their main responsibility to ensure that the company operates at optimal capacity.
Some of the above arguments seem credible because engaging in CSR can potentially damage the competitiveness and sustainability of a company in the marketplace. Indeed, ensuring product safety, engaging in environmental clean-up activities, and donating time and money for welfare causes all increase company costs. Ultimately, the cost is translated in the prices that consumers must pay for the goods and services that the company produces. Although some customers might be ready to pay more for the services and products from companies that are socially responsible, other may not and this can put the company at a disadvantage in the marketplace. Overall, the gist of Friedman’s argument is that the corporation is a morally neutral entity whose sole goal should b to maximize stockholder returns.
A scrutiny of Friedman’s position – which suggests that the only moral responsibility of business entities is to meet the prospects of shareholders by maximizing their RoI (return on investment) – reveals some flaws in his arguments. First, most of the society’s problems – such as poverty due to wages and the problem of rampant pollution – are the creation of corporate behemoths. Therefore, corporations have an ethical responsibility to remediate these wrongs. Second, businesses have the resources to assist in solving the society’s problems and, therefore, it is wrong and unacceptable to watch when they can do something. Lastly, while Friedman holds that engaging in CSR increases company costs, the truth is that such activities contribute positively to organizational bottom line.
Companies that are socially responsible and invest in the communities in which they operate not only attract a huge pool of competent talent, but are also likely to experience less employee turnover, more loyalty, and higher level of enthusiasm from the workers, which leads to higher levels of customer satisfaction. In fact, in the contemporary marketplace, customers are increasingly expecting companies to be socially responsible. Companies such as Nike, Home Depot, and FedEx have taken the lead in corporate social responsibility practices and this has made them more competitive, ultimately setting them apart from their competitors. CSR also translates into self-regulation, leading to reduced regulatory oversight on various compliances. All these benefit the organization in the long-term, which illustrates that tremendous benefits can be derived from engaging in CSR.
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