Corporate social responsibility

Definition of corporate social responsibility

 It is a self regulating business model that helps a company be socially accountable to

itself, its stakeholders and the public.
 It is a theory that asserts that business, in addition to maximizing shareholders value,
have an obligation to act in a manner that benefits the society.
 It an ethical framework that suggest that an entity, be it an organization or individual
has an obligation to act towards the benefit of the society at large.

Social responsibility is a duty every individual has to perform so as to maintain a balance

between the economy and the ecosystem.

This is a broad concept that can take many forms depending on the company and industry ,
through CSR programs, philanthropy and volunteer efforts, business can benefit society while
boosting their own brands.

Stakeholders approach to corporate social responsibility

Organizations must recognize the responsibilities, rights or interest of various stakeholders not
only stakeholders but also various outsiders affecting the actions of the organizations.

Areas of social responsibility

Responsibilities towards consumer and the community

 Organizations should provide regular employment to the locals.

 Organizations should place a productive and healthful environment in the society.
 Organizations should support cultural and charitable projects.
 Organizations should support the local government within a community.
 Production of cheap and better quality goods and services .
 Locating the factories and markets at proper places and rationalizing the use of capital
and labor. Leveling out seasonal variations in employment and production through
accurate forecast.
 Achieving better public relations through education and other means.
 Ensuring that products sold to consumer and the society are safe and well designed.
 Avoiding ostentation i.e ostentatious goods are Veblen goods where they are highly
demanded but their price is very high.
 Organizations should make a reasonable portion of purchase of items made in the local
community.
 Honoring contracts and following honesty trade practices.
 Provide a strong client and community relationships, this can be done through doing
charitable work within the society.

Responsibilities towards the shareholders , competitors and other business.

 Arousing interest in the shareholders to abjure high dividends so that enough profits
may be ploughed back for innovation and expansion.
 Fairness in relation with competitors – competition with the rival business should be fair
and based on rules of ethics.
 Maintaining balance between heavy industry, small industry and the cottage industries.
 Help in the growth of professional practices .
 Maintaining impartiality.

Towards the political affairs.

 Observing all the laws of the land which may have the following impacts and objectives.
 Shareholders who are ethical should provide direction to the economy and the business
of a country.
 To bring about harmony between the limited enterprise interest and the wider social
interest of the country.
 To provide safeguard against errant business practices.
 To compel business to play fair to all participants in the economy in terms of employee,
shareholders, consumers and the creditors.
 To prevent oppression or exploitation of weaker partners in business.
 To enforce maximum production according to priorities of sectors and production lines
laid down by the government.
 To allocate limited resources according to social priorities and preferences.

Responsibility towards the employees.

 Socially responsible firms should ensure the following towards their employees and
workers.
 Paying a fair wage to workers
 Ensuring a just selection, training and promotion
 Ensuring satisfying conditions of work and social security measures .
 Ensuring good human relation in terms of maintaining industrial peace.
 Provision of freedom, self -respect and self -realization and in general empowering the
employees.
 Increase in productivity and efficiency by recognition of merits by providing
opportunities for creative talents and incentives.
Roles of CSR
The present-day CSR (also called corporate responsibility, corporate citizenship, responsible
business and corporate social opportunity) is a concept whereby business organizations
consider the interest of society by taking responsibility for the impact of their activities on
customers, suppliers, employees, ...
Arguments for Social Responsibility
There are several core ideas about social responsibility of business.
Over the period of time, the things have changed too much giving new thoughts and replacing
the classical economic view of profit maximization in the business. Based on this feature in the
present context, arguments for social responsibility are as follows
1. Business is a part of society.
Society is a system and business is one of its subsystems. Every subsystem of a system
functions for the betterment of the whole system and not for its own betterment only. This
version applies to business too. Therefore, business is responsible for the society as a
whole and profit motive of the business cannot have precedence over other motives of the
society.
2. Long-term Self-interest of BusinessSocial
responsibility is in the long-term self-interest of the business. Existence of any business
is because of existence of various social organs like financiers, employees, customers,
society as a whole, etc., and not otherwise. Therefore, business should provide
satisfaction to all these organs on continuous basis for its continued existence. By
discharging social responsibility, the business may provide this satisfaction.
3. Moral Justification
Social responsibility has moral justification. This moral justification emerges from the fact
that if any one takes something from others, he must give something to them in return.
On moral ground, this equation must be based on equity so that it continues. A business
takes various inputs (money, materials, people, information, etc.) from the society and
gives outputs (goods and services) to the society by using various inputs. System of
taking inputs and giving outputs works well only if it fulfills social requirements.
4. Creating Better Public Image
Any business which involves in fulfilling the aspirations of the society creates better
image in the public. Creation of this type of image is a source of satisfaction itself for
 those who operate business. This also helps in increasing the business volume, both in
terms of taking inputs and giving outputs.

5. Avoidance of government regulations.

Government aims at maintaining equilibrium in the society on long-term basis .For this
purpose, it tries to ensure that every organ of society meets social requirements. If any
organ fails to do so, government has power to take actions against it. Since business is an
organ of the society, government may take actions against those business organizations
which involve in activities not meeting social requirements. In order to avoid such actions
having long-term negative impact, it is preferable to adopt social responsibility.
6. Maintenance of Society.
For maintaining society, there are legal provisions but these provisions cannot be
comprehensive because of social changes on continuous basis. Therefore, the business
has to be socially responsible in order to avoid anti-social activities so that society is
maintained on continuous basis.
Arguments against Social Responsibility
There are various arguments against social responsibility though most of these are based on
classical economics.
These arguments are as follows:
1. Contrary to Basic Function of Business
The basic function of a business is to provide a product to its customers at a price which
is lower than the level of satisfaction provided by the use of the product or, at the most,
equal to that. If this relationship is reversed, the product becomes meaningless.
Generally, cost of production is a significant factor in determining the product price.
Discharge of social responsibility adds to cost, hence product price which may reverse
the above equation and business may not remain viable in the long term. Because of
this phenomenon, Milton Friedman, a noted economist, has observed, there is one and
only one responsibility of business —to use its resources and engage in activities
designed to increase its profit so long as it stays within the rules of the game.
2. Conflict with Profit Motive.
Social responsibility is in conflict with profit motive of business. Undertaking business
involves assuming risk. Earning profit is the reward for this risk. If social responsibility is
added as an objective of business, it reduces profitmargin which is against the concept
 of profit optimization even if not profit maximization. Thus, social responsibility and profit
motive do not proceed in the same direction.
3. Distortion in Resource Allocation.
Social responsibility leads to distortionof resource allocation. Resources in an economic
system are allocated on the principle that every resource finds its most optimum
utilization. This utilization is best possible without social responsibility and not with it.
Thus, social resources may go in waste if the concept of social responsibility is added to
business operations.
4. Imposition of Business Values.
Discharging social responsibility involves lot of influence of the business on the society.
Therefore, by undertaking social responsibility, a business is likely to impose its own
values on the society, thereby replacing the social values with business values. This
phenomenon has taken place in many cases. This is highly undesirable from social point
of view.
5. Inefficiency in the System.
Social responsibility brings inefficiency in the system. There is no substitute for the
power of self-interest to get people to act. Any replacement of self-interest will, therefore,
be fatal to the efficiency of the system. Social responsibility tends to replace self-interest
of business defined in terms of profit motive to a great extent, thus, making the business
as a system inefficient.
6. Operational Problems.
There are certain operational problems in implementing social responsibility.
Conceptually as well as operationally, social responsibility is a confusing term.
Therefore, managers involved in managing business affairs are not very clear about
what they are expected to do under social responsibility. As a result, actions ranging
from mere showing lip sympathy to undertaking multi-core concrete programmes are
included in social responsibility .
Realistic view of social responsibility
Usually, people misinterpret the concept of business objective and view the social
responsibility as a focus which detracts from or is counter to the profit making. This is not
the case at all. Economic concerns and social concerns need not be viewed as opposite
ends of a continuum as shown in the image mistaken view of Social Responsibility, The
correct position is according to Realistic view of business responsibility.
What this figure shows is that although there may be some clearly distinct economic
versus social concerns, there is a rather broad area in which economic and social
concerns are consistent with one another. It is corporate activities that fall into this
overlapped area that provide the more realistic view of social responsibility. Therefore,
the issue is not whether business has social
responsibility; it has. The fundamental issue is to identify this responsibility in general and
for individual companies in particular, observed, there is one and only one responsibility
of business —to use its resources and engage in activities designed to increase its profit
so long as it stays within the rules of the game.
1.Conflict with Profit Motive
Social responsibility is in conflict with profit motive of business. Undertaking business
involves assuming risk. Earning profit is the reward for this risk. If social responsibility is
added as an objective of business, it reduces profit margin which is against the concept
of profit optimization even if not profit maximization. Thus, social responsibility and profit
motive do not proceed in the same direction.
2. Distortion in Resource Allocation
Social responsibility leads to distortion of resource allocation. Resources in an economic
system are allocated on the principle that every resource finds its most optimum
utilization. This utilization is best possible without social responsibility and not with it.
Thus, social resources may go in waste if the concept of social responsibility is added to
business operations*.
3. Imposition of Business Value
Discharging social responsibility involves lot of influence of the business on the society.*
Therefore, by undertaking social responsibility, a business is likely to impose its own
values on the society, thereby replacing the social values with business values. This
phenomenon has taken place in many cases. This is highly undesirable from social point
of view*
4. Inefficiency in the System
Social responsibility brings inefficiency in the system. There is no substitute for the power
of self-interest to get people to act. Any replacement of self-interest will, therefore, be
fatal to the efficiency of the system. Social responsibility tends to replace self-interest of
business defined in terms of profit motive to a great extent, thus, making the business as
a system inefficient.
5. Operational Problems
There are certain operational problems in implementing social responsibility.
Conceptually as well as operationally, social responsibility is a confusing term. Therefore,
managers involved in managing business affairs are not very clear about what they are
expected to do under social responsibility. As a result, actions ranging from mere
showing lip sympathy to undertaking multi-crore concrete programmes are included in
social responsibility.
Mistaken view of business responsibility
Usually, people misinterpret the concept of business objective and view the social
responsibility as a focus which detracts from or is counter to the profit making. This is not
the case at all. Economic concerns and social concerns need not be viewed as opposite
ends of a continuum as shown in the image mistaken view of Social Responsibility. The
correct position is according to Realistic view of business responsibility
.What this figure shows is that although there may be some clearly distinct economic
versus social concerns, there is a rather broad area in which economic and social
concerns are consistent with one another. It is corporate activities that fall into this
overlapped area that provide the more realistic view of social responsibility. Therefore,
the issue is not whether business has social responsibility; it has. The fundamental issue
is to identify this responsibility in general and for individual companies in particular.

Conclusions
The arguments of those who argue that business organizations have nothing to do with
social responsibility except the maximization of shareholders’ wealth are weak on two
points.
1.First, they overstate the trend and ultimate magnitude of business’s voluntary
assumption of social responsibility
2.Second, they want business organizations to do something they cannot do and that is
to ignore societal demands on them
In fact, no business can survive for long in total disregard to its social concern. Many
forces will come in its way to destroy it. Therefore, even if business is involved in making
profit, it is done through the creation of utility to the social needs. Better these social
needs served, better will be the prospect of its survival and progress. Even in Western
countries, where economic activities are comparatively free from controls, it has been
accepted that profit is not the sole criterion for measuring the success of a business
organization.

REFERENCES

I)Kibera Francis N., (1996); Introduction to Business A Kenyan

Perspective; Nairobi; Kenya Literature Bureau

ii) William Allen Wood (2009); Modern Business Corporations, Including The
Organization And Management; Bibliolife

iii) Graffin R. W and Ronald (2002); Business Studies; Prentince hall