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Introduction
Businesses, especially large multinational enterprises, affect the lives of communities where they operate, having the power to bring either a positive or a negative change. The idea of corporate social responsibility (CSR) implies that these companies integrate strategies that affect societies and the environment, making these elements an important part of operations. However, some express the opinion that businesses should only focus on profits as their primary responsibility. This paper will examine the two opposing perspectives of CSR, one arguing that it implies improving the society and environment, and the other, which suggests that profits are the main focus.
CSR Definition
There are several approaches to defining the concept of CSR. According to Birch et al. (2016), there are two main perspectives on CSR, using the viewpoint of society and that of shareholders. Therefore, CSR may refer to the fiduciary obligations, meaning that the well-being of the shareholders must guide the organizational decisions. Alternatively, CSR can mean obedience and adherence to the laws that the society where this business operates has (Birch et al., 2016).
In most cases, this refers to economic activity and the ability to generate profits, which will benefit the stakeholders. In this context, the main question that businesses have to answer is what is the purpose of CSR. Some scholars, for instance, Gunningham et al., suggest that corporations have to obtain a social license from society, suggesting that their operations must contribute to the well-being of this community (as cited in Birch et al., 2016, p. 85).
If businesses fail to act following CSR principles, their bottom line will be affected negatively. The example of Volkswagen and their misdemeanor that aimed to overcome regulatory restrictions in the United States is one example illustrating this idea. According to Birch et al. (2016), once the truth about the actual emission levels was discovered, the shares of the company lost their value, and the chief executive officer (CEO) had to resign.
This is mainly the result of shareholders expecting the car manufacturer to be fined by the United States officials, which would be reflected on the bottom line. Using the example of Volkswagen, one can suggest that CSR allows businesses to avoid legal and regulatory issues. Companies integrate strategies that help address environmental and social problems into their strategic vision and align their operations. Therefore, CSR is an essential element of a strategy for a contemporary business.
The discussed example of Volkswagen also demonstrates the relationship between profits and CSR. One can argue that a common misconception regarding CSR is that the company should focus on its social and environmental missions, making these two elements the core aspects of its operations. However, it is evident that businesses have to focus on profits, increasing their efficiency, and ensuring competitive advantage to operate successfully.
The main idea guiding the concepts of CSR is the fact that organizations, especially large multinational companies, control substantial financial assets, affect the economy and the communities. In the video Robert Reich: How to hold corporations accountable, the author states that companies well-being is inseparable from the shareholders, communities, employers, and customers (Reich, 2018). This approach was the core of General Motors strategy in the nineteenth century, voiced by its CEO Charles E. Wilson. Wilson viewed the well-being of the country and the success of General Motors as two inseparable elements.
Arguably, this is true since the economy of the United States and factors such as the purchasing power of the citizens affect the sales of General Motors. From this perspective, the society in which a business operates is linked to the organization, and both affect each other. Therefore, it is in the businesss best interest to design its strategy that would consider the benefit of the public, society, and employees.
While this is one way of viewing CSR, the example of Volkswagen suggests that corporations are willing to risk their reputation and be fined if they can receive substantial profit. In the case of Volkswagen, it is unclear whether the CEO decided to install software that would allow the cars to pass the regulatory tests because redesigning the engine would cost more when compared to a potential fine or if the case is a misjudgment of management. However, it is clear that in real life, corporations overlook the best interests of society and violate environmental regulations for profit, despite the possible consequences and benefits of CSR. According to Birch et al. (2016), similarly to many other businesses, Volkswagen has a statement regarding its CSR, declaring its social and environmental mission.
This suggests that societies may want to have stricter regulations and more control over CSR, to ensure that businesses do not harm the environment or carry out practices that do not align with the values of the community. Reich (2018) also points out a recent proposal by Elizabeth Warren, which targets corporations with profits of over $1 billion and makes it obligatory for them to focus on the interests of all stakeholders. This proposal highlights the idea that while CSR is a valuable concept, societies need to hold companies accountable for their actions and work on policies that would mitigate the possibility of harmful practices.
CSR and Profits
Alternative views of businesses nature and their social mission exist since companies provide jobs and economic welfare for the communities where they operate. Milton Friedman states that the primary objective of a business is to generate profit, which aligns with the shareholder perspective (as cited in Birch et al., 2016). As such, a company and its management cannot be concerned with ensuring the well-being of society as the main objective is to ensure that the organization functions appropriately.
The issues highlighted in the previous chapter suggest several problems are witing the contemporary CSR theory. According to Birch et al. (2016), it ends up being mostly backward-looking, and does not deal with problems pre-emptively; and, second, there is a contradiction between the benefits CSR activities provide to other social actors (p. 88). Therefore, the theory of CSR does not always align with the practical application since businesses actually have to focus on earning money for their shareholders.
Some scholars question the validity of CSR claims, suggesting that it is merely a way of improving the reputation of a business. Reich (2007) points out that a lot of attention has been dedicated to CSR, as many educational programs include an obligatory CSR course, recruiters look for candidates who are aware of CSR practices. The topic is often discussed at international conferences. The author points out that despite a lot of attention dedicated to CSR, not much has changed in the way companies operate.
This problem may be connected to the fact that corporations were often engaged in activities that obstructed political actions on specific social or environmental issues, making it unnecessary to address these problems as part of CSR (Reich, 2007). Moreover, the author suggests that concepts of capitalism and democracy are currently wrongfully applied by corporations, who use CSR to protect their interests.
Therefore, a different perspective on CSR suggests that a businesss primary mission is to generate profits for the benefit of its stakeholders. According to Reich (2018), this approach became popular in the 1980s, when big corporations decided to overlook the interests of communities and employees and instead focusing on shareholders. This meant that corporate profits became the defining factor of success and the main element of an organizations strategy.
As Reich (2018) notes, this allowed to increase the corporate profits share in the economy, while the workers share has been decreasing continuously. This viewpoint suggests that despite the benefits that CSR has in theory, the practical application of it appears to fail the expectations. Alternatively, countries such as the United States have the power to enact regulations, which would make it obligatory for corporations to adhere to environmental and social values and standards.
Possible Issues
In order to evaluate this opinion, it is necessary to examine some examples of companies failing to account for CSR. While viewing the CSR of business as solely the ability to generate profit, several issues have arisen as a result of such an approach in the modern context. Businesses can face problems with their customers if their unfair practices are disclosed. One example is the fast-fashion clothing manufacturers that use cheap labor and poor work conditions to increase their margins (Westervelt, 2015).
These businesses hire contractors from developing countries, such as Bangladesh, where work conditions and legal regulations are less restrictive when compared to the United States. However, the factory collapse in 2013 displayed the existing social issues within the fast fashion industry, shifting the consumer demand (Westervelt, 2015). Currently, more buyers aim to purchase sustainably manufactured clothes from companies with a focus on ethical values and adequate work conditions, which also prompts fast fashion organizations to change their approach to manufacturing.
This suggests that consumers are more aware of CSR practices, and in some cases, their purchasing decisions are affected. From this perspective, CSR is a necessity, regardless of whether the management adheres to the stakeholder or societys perspective on CSR. With inadequate CSR practices, businesses will lose money and fail to establish a competitive advantage since consumers are becoming more socially aware. In the contemporary environment where customers can easily access information about the company, its mission, and practices, one can make a better decision by gathering information and purchasing from a company that upholds a high CSR standard. Based on this approach CSR and adherence to it become a necessity for modern businesses.
It is evident that CSR is an essential concept that businesses should incorporate into their operations, while it is also unclear how to balance the profit and CSR. According to 3BL Media (2012), businesses should be concerned about what they can do to improve society and create economic value. The two factors should be connected as the social impact of operations arises simultaneously with economic activity.
Additionally, the example of the New Belgium beer company suggests that organizations can integrate social responsibility into their work, which praises sustainability and successfully uses CSR practices suggest that businesses can operate and be successful when they display care for the society and the community (PBS News Hour, 2017). In general, it can be concluded that both societies and businesses should work on enhancing the accountability of businesses.
The Conflict Between the Two Approaches
The two perspectives on CSR described above suggest an apparent conflict between the viewpoint expressed by Milton Friedman and that of other scholars. On the one hand, businesses cannot operate without focusing on generating profits, which enables them to pay the employees, invest in new facilities, and advance their industries through innovation. However, it is unclear if a business can be successful without practices of CSR that account for the well-being of employees and communities.
On the other hand, a danger of exploitative practices arises, similarly to the fast fashion industry example, which was discussed above. In this case, companies overlook work conditions and ethical standards because they are able to make more profits, which would be impossible without poor wages and unsafe work conditions. The fact that as Westervelt (2015) suggest, large clothing businesses such as H&M, Mango, and others began paying attention to these ethical issues only after a factory collapse in Bangladesh, which caused thousands of deaths and brought public attention to the problem, suggests that for many organizations, CSR remains to be the focus on shareholders and not stakeholders.
While it is crucial for organizations to ensure that their employees and other stakeholders are satisfied with the ethical practices of an organization and its CSR strategy, the examples of Volkswagen and fast fashion companies suggest several conclusions. While Birch e al. (2016) point out that the company lost money since the share prices went down in anticipation of a fine, it is probable that Volkswagen will be able to recover soon.
The fast-fashion companies continued to operate, using factories in Bangladesh and other developing countries, although they invested in the support fund for the victims and in dedicating more attention to the process of choosing contractors. This suggests that some changes in the corporate view of CRS are developing. However, the profit and well-being of shareholders appear to be more valuable when compared to the benefit of society.
Conclusion
Overall, this paper examined the two opposing views of CSR one arguing that it is the requirement and a part of the social license and the other suggesting that CSR implies only generating profits. The first view of CSR points out the link between the businesss profits and the well-being of the community where it operates. From this perspective, it is in the best interest of an organization to care for society and the environment because this will help the business grow and develop.
However, since the 1980s, corporations have focused primarily on the well-being of their shareholders, focusing only on profits, which allowed them to increase their share of the economy. Despite management and CEOs declaring their CSR strategies, the example of the Volkswagen scandal in the United States suggests that profits remain to be the main focus of businesses. Therefore, despite much attention dedicated to CSR, many corporations use it as a way of improving their reputation.
References
Birch, K., Peacock, M., Wellen, R., Hossein, C., Scott, S., & Salazar, A. (2016). Business and society: A critical introduction. London, Zed Books Ltd.
PBS News Hour. (2017) Can some corporations become forces for good? [Video file]. Web.
Reich, R. (2007). Supercapitalism: The transformation of business, democracy, and everyday life. New York: Alfred A. Knopf.
Reich, R. (2018). Robert Reich: How to hold corporations accountable [Video file]. Web.
BL Media. (2012). Creating shared value Harvard Business Reviews top article of 2011. Web.
Wastervelt, A. (2015). Two years after Rana Plaza, have conditions improved in Bangladeshs factories? The Guardian. Web.
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