READING P.57 Corporate Social Responsibility and Profitability CSR and the Botto
ID: 383836 • Letter: R
Question
READING
P.57
Corporate Social Responsibility and Profitability
CSR and the Bottom Line
The goal of every firm is to maintain viability through long-run profitability. Until all costs and benefits are accounted for, however, profits may not be claimed. In the case of corporate social responsibility (CSR), costs and benefits are both economic and social. While economic costs and benefits are easily quantifiable, social costs and benefits are not. Managers therefore risk subordinating social consequences to other performance results that can be more straightforwardly measured.
corporate social responsibility (CSR)
The idea that business has a duty to serve society in general as well as the financial interest of stockholders.
The dynamic between CSR and success (profit) is complex. While one concept is clearly not mutually exclusive of the other, it is also clear that neither is a prerequisite for the other. Rather than viewing these two concepts as competing, it may be better to view CSR as a component in the decision-making process of business that must determine, among other objectives, how to maximize profits.
Attempts to undertake a cost-benefit analysis of CSR have not been very successful. The process is complicated by several factors. First, some CSR activities incur no dollar costs at all. For example, Second Harvest, the largest nongovernment, charitable food distributor in the nation, accepts donations from food manufacturers and food retailers of surplus food that would otherwise be thrown out due to overruns, warehouse damage, or labeling errors. In 10 years, Second Harvest has distributed more than 2 billion pounds of food. Gifts in Kind America is an organization that enables companies to reduce unsold or obsolete inventory by matching a corporation’s donated products with a charity’s or other nonprofit organization’s needs. In addition, a tax break is realized by the company. In the past, corporate donations have included 130,000 pairs of shoes from Nike, 10,000 pairs of gloves from Aris Isotoner, and 480 computer systems from Apple Computer.
In addition, philanthropic activities of a corporation, which have been a traditional mainstay of CSR, are undertaken at a discounted cost to the firm since they are often tax deductible. The benefits of corporate philanthropy can be enormous as is shown by the many national social welfare causes that have been spurred by corporate giving. While such acts of benevolence often help establish a general perception of the involved companies within society, some philanthropic acts bring specific credit to the firm.
Second, socially responsible behavior does not come at a prohibitive cost. One needs only to look at the problems of A. H. Robbins Company (Dalkon Shield), Beech-Nut Corporation (apple juice), Drexel Burnham (insider trading), and Exxon (Valdez) for stark answers on the “cost” of social responsibility (or its absence) in the business environment.
Third, socially responsible practices may create savings and, as a result, increase profits. SET Laboratories uses popcorn to ship software rather than polystyrene peanuts. It is environmentally safer and costs 60 percent less to use. Corporations that offer part-time and adjustable work schedules have realized that this can lead to reduced absenteeism, greater productivity and increased morale. DuPont opted for more flexible schedules for its employees after a survey revealed 50 percent of women and 25 percent of men considered working for another employer with more flexibility for family concerns.
Proponents argue that CSR costs are more than offset in the long run by an improved company image and increased community goodwill. These intangible assets can prove valuable in a crisis, as Johnson & Johnson discovered with the Tylenol cyanide scare in 1982. Because it had established a solid reputation as a socially responsible company before the incident, the public readily accepted the company’s assurances of public safety. Consequently, financial damage to Johnson & Johnson was minimized, despite the company’s $100 million voluntary recall of potentially tainted capsules. CSR may also head off new regulation, preventing increased compliance costs. It may even attract investors who are themselves socially responsible. Proponents believe that for these reasons, socially responsible behavior increases the financial value of the firm in the long run. The mission statement of Johnson & Johnson is provided as
Exhibit 3.5: Strategy in Action: Mission Statement: Johnson & Johnson
“We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality. We must constantly strive to reduce our costs in order to maintain reasonable prices. Customers’ orders must be serviced promptly and accurately. Our suppliers and distributors must have an opportunity to make a fair profit.
We are responsible to our employees, the men and women who work with us throughout the world. Every one must be considered as an individual. We must respect their dignity and recognize their merit. They must have a sense of security in their jobs. Compensation must be fair and adequate, and working conditions clean, orderly and safe. Employees must feel free to make suggestions and complaints. There must be equal opportunity for employment, development and advancement for those qualified. We must provide competent management, and their actions must be just and ethical.
We are responsible to the communities in which we live and work and to the world community as well. We must be good citizens—support good works and charities and bear our fair share of taxes. We must encourage civic improvements and better health and education. We must maintain in good order the property we are privileged to use, protecting the environment and natural resources.
Our final responsibility is to our stockholders. Business must make a sound profit. We must experiment with new ideas. Research must be carried on, innovative programs developed and mistakes paid for. New equipment must be purchased, new facilities provided and new products launched. Reserves must be created to provide for adverse times. When we operate according to these principles, the stockholders should realize a fair return.”
Many discussion opportunities come up where you need to respond to other people's opinions and comments. Then respond to your Discussion topic after you have completed your Reading. Discussion Topic: Corporate Social Responsibility and the Future Corporate social responsibility (CSR) is an “idea that business has [as] a duty to serve in general as well as the financial interest of stockholders” (Pearce & Robinson, 2013, p. 57). Do you believe society’s expectations for CSR will change in the next decade (p. 85)? Please explain.
Explanation / Answer
CSR involves both social and economic costs and benefits where economic costs and benefits are quantifiable and social costs and benefits are not. Corporate social responsibility involves serving the society as well as the financial interest of the stakeholders. Hence CSR also contribute in taking decisions on maximizing profits. As CSR contributes to society it supports all environment friendly activities and tries to include the practices that would help the poor people in need. It helps the company to improve its image and reputation among the public. The employee attitude towards organizations also has changed to a great extent and more and more people are getting attracted to companies that adopt better CSR strategies. As some of the CSR activities do not involve much cost and helps the companies to make profit by increasing reputation among competitors most of the companies develop CSR strategies in their own way. The stakeholder financial interests are also getting protected through increase in profit and sales because of the high image achieved through better CSR. Society give much attention to ethical issues than before and try to avoid the companies who act unethically as there are many choices available in the market. Hence I think going forward companies may give more attention to society than financial interests of stakeholders as society is the key element which helps to make profit and sustain in market. The society has started to evaluate companies based on their contributions towards CSR and the expectations are increasing with time. There are lot of changes in the expectations and needs of people with different generations. Hence the expectations from society on CSR would face much change in the next decade.
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