Business

Social responsibility

What is social responsibility?

Social responsibility means that in addition to maximizing shareholder value, a business must act in a way that benefits society. Social responsibility is becoming increasingly important for investors and consumers seeking investments that are not only profitable but also contribute to social and environmental well-being. However, critics argue that the fundamental nature of business does not see society as a stakeholder.

key takeaways

  • Social responsibility means that in addition to maximizing shareholder value, companies should also act in ways that benefit society.
  • Socially responsible companies should adopt policies that promote social and environmental well-being while reducing negative impacts on them.
  • There are many ways companies can act responsibly, such as promoting volunteerism, making changes that benefit the environment, and participating in charitable giving.
  • Consumers are more actively seeking to purchase goods and services from socially responsible companies, affecting their profitability.
  • Critics assert that practicing social responsibility is the opposite of why businesses exist.

What is corporate social responsibility?

Learn about social responsibility

Social responsibility means that individuals and companies must act in the best interests of their environment and society as a whole. As it applies to businesses, social responsibility is known as corporate social responsibility (CSR) and has become a more prominent area of ​​concern within businesses due to changes in social norms.

The key to this theory is the development of policies that promote an ethical balance between the pursuit of profit and the dual mission of benefiting society as a whole. These policies can be delegated (charitable causes: donating money, time, or resources) or omissions (eg, “going green” initiatives such as reducing greenhouse gases or complying with EPA regulations to limit pollution).

Many companies, such as those with “green” policies, have made social responsibility an integral part of their business models, and they have done so without compromising profitability. In 2019, Forbes Named one of the 100 most socially responsible companies in the world. At the top of the list is the LEGO Group, followed by Natura (NTCO), then tech giants Microsoft (MSFT) and Google (GOOGL). At number 100 is Starbucks (SBUX).

In addition, more and more investors and consumers will consider a company’s commitment to socially responsible practices before making an investment or purchase. Therefore, being socially responsible can benefit the main mandate: maximizing shareholder value.

There are also ethical requirements. Action or lack of action will affect future generations. In short, social responsibility is simply good business practice and failure to do so can have detrimental effects on the balance sheet.

Generally speaking, it is more effective for companies to take the initiative to take social responsibility instead of waiting for the government to require them to take responsibility through regulation. Social responsibility can improve company morale, especially when companies can involve their employees in their social causes.

Social Responsibility in Practice

The International Organization for Standardization (ISO) emphasizes that a business’ ability to maintain a balance between the pursuit of economic performance and compliance with social and environmental issues is a key factor in efficient operations.

Social responsibility has different meanings in industries and companies. For example, Starbucks Corporation and Ben & Jerry’s Homemade Holdings Inc. have put social responsibility at the core of their operations.

Both companies purchase Fairtrade certified ingredients to produce their products and actively support sustainable agriculture in the regions where their ingredients come from. Big retailer Target Corp. (TGT), also known for its social responsibility programs, has made donations, including education grants, to the communities where its stores operate.

The main ways in which companies take social responsibility include philanthropy, promoting volunteerism and environmental change. Companies that manage their environmental impact may seek to reduce their carbon footprint and limit waste. There is also a social responsibility to employees’ ethical practices, which can mean providing fair wages, which can be the case when employee protection laws are limited.

Criticize corporate social responsibility

Not everyone believes that businesses should have a social conscience. Economist Milton Friedman said, “corporate social responsibility is known for its loose analysis and lack of rigor.” Friedman believes that only individuals can have a sense of social responsibility. Businesses, by their very nature, cannot. Some experts believe that social responsibility goes against the essence of business: profit above all else.

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