But as big businesses look for more profit gaining measures, it raises the ever important question of corporate responsibility which is a current hot topic. With growing awareness, consumers now expect the businesses they deal with, to exercise this concept. But what exactly is it?
(Hopt, 2003). The dictionary defines corporate responsibility as: “…is a form of corporate self-regulation integrated into a business model... essentially, CSR is the deliberate inclusion of public interest into corporate decision-making, and the honoring of a triple bottom line: People, Planet, Profit. ” Put more simply, corporate social responsibility or often called just corporate responsibility (CR) is a concept which states that all businesses operate with a certain predetermined goal such as maximizing profits or shareholder wealth etc.
CR is the consideration businesses give to social, environmental impacts it creates when it operates to achieve a certain goal. CR takes sustainability into account. There are many reasons why the concept of CR has taken such increased importance in today’s world. The main reason is that businesses are now realizing that they do not have to win over only their shareholders and customers but also the general public (Vogel, 2006). Example your employees may be affected if you decide to close down certain operations. Effective human resource planning is therefore important.
The environment may be affected if companies dump untreated sewage into rivers (the Hema Chemicals Company and the subsequent pollution of the Gujarat river case 2001, India) which is why almost all companies in first world countries now treat their waste before dumping it. All these issues are actively being considered by businesses today as many of them take into consideration all their stakeholders such as employees, suppliers, the local community, the government and environment instead of solely working to satisfy their own shareholders(Parkinson , 1995).
There are many reasons why businesses should take CR into account. The principal reason is that today’s customer is more aware of his surroundings then the customers of bygone years (Ghillyer, 2006). Especially in the Western world, most of them prefer to be associated with businesses fulfilling their corporate social responsibility. An example over here is Anita Riddick’s Body Shop. The shop sells cosmetics with the promise that they are not tested on animals.
It has achieved tremendous success ever since it first opened in the 1980s because customers do not mind paying a higher price if the business supports similar ethics as their own. This way businesses get a two fold advantage: they create their own USP in the competitive business world and are able to woo even more potential customers. Another reason is for especially big businesses to practice Corporate Social Responsibility is that there can be damaging consequences of ignoring it.
Pressure groups, customers and even the government can request or even demand outright that a company change its practices. This point can be illustrated by the fact that consumers in the US began boycotting Shell petrol pumps in large numbers which ultimately led the petrol giant to reverse its stand on the disposal of an oil drilling platform. Also pressure was applied on Nestle Company when its practice of exploiting the market of processed milk in the developing countries of Africa came to light.
The modern marketing concept of selling what the customers wants (as opposed to the outdated concept of product development where companies marketed without taking customer needs into account) also goes hand in hand with the CR concept. In fact the market for organic food came into being when farmers realized that customers want to eat fruits and vegetables which were not grown using pesticides harmful to both their health and the environment. Yet another advantage of businesses taking the concept of CR seriously is that governments often give incentive to businesses that have a good corporate governance record.
Such businesses may not run into trouble with the law over regulations. Furthermore, with increasing awareness, job seekers often want to be associated with firms who have a good environmental and social record. A survey showed that new college graduates were often more keen to take jobs in companies which shared similar ethical values as their own. But like all issues, corporate responsibility also has its opponents. The major argument put forward by challengers of this concept is that it is the shareholder who invests money into the company and takes a risk (Leipziger, 2003).
By taking a risk, the shareholder demands certain returns in the form of profits by companies and practicing the CR concept reduces those returns. Milton Friedman supported this argument wholeheartedly. He believed that organizations had no responsibility beyond their legal ones and that social and environmental restrictions on corporations interfered with capitalism and free trade. He believed the tow to be incompatible. Another issue raised with organizations practicing this responsibility is the increased costs it creates.
It costs more to treat and dump waste instead of simply dumping it. Similarly, it costs more to use environment friendly equipment and technology then to keep using plain, old fossil fuels. Companies argue this especially in relation to third world countries. Over there, it is more important to help them economically then spend resources trying to take into consideration the social, ethical and environmental aspects of their decisions. Indeed this argument carries weight as people in the Third World are not really aware of the corporate responsibility concept.
Another argument against Corporate Responsibility is its questionable purposes. Opponents argue that it is not applied by businesses in it’s essence-instead it is only a marketing gimmick or a way to distract attention form their core operations (Wiggen, 2004). British Petroleum, McDonalds and tobacco companies have often been accused of such behavior. In fact McDonalds is famous worldwide for its good governance policies. But recently, a judge ruled that its food itself may lead to heart related diseases and other illnesses.
In conclusion, it is important to decide whether the corporate governance being practiced today by companies should continue or not. In my opinion, corporate governance is a very good practice adopted by the businesses of today. Businesses should not only be concerned with profiteering and gaining on others expense. But having said this, acceptance of corporate responsibility by businesses can only be effective when businesses embrace it in its essence and not as a PR or marketing exercise aimed at gaining more consumers.
Governments of the world should look into this matter and change the Corporate Responsibility code from a voluntary to mandatory one so all businesses are forced to adopt it. But businesses in third world countries should be given some space because it is true that if a mandatory code is made out of the concept of CR, such businesses may find it very hard to function at all. Such a code should be exercised more stringently with multi nationals so there is a lesser chance of them paying lower than the minimum wage, selling below standard items and polluting the environment.
As the current recession has shown, profiting by any means will always lead to chaos and a certain ethical aspect to all business dealings is not only required but desperately needed. References Book Ferrell, O. C. (2006). Ethical Decision Making and Cases. Hopt, K. (2003). Company Law. Vogel. (2006). The Market for Virtue. Parkinson, J. E. (1995). Corporate Power and Responsibility. Ghillyer, A. (2006). A Real World Approach. Leipziger, D. (2003). Corporate Responsibility Code Book. Wiggen, O. (2004). Effects Of Corporate Activity.