After reading this article you will learn about the arguments in favour and against Corporate Social Responsibility (CSR).
Arguments in favour of CSR:
The following arguments favour corporate social responsibility:
1. Protect the interests of stakeholders:
Labour force is united into unions which demand protection of their rights from business enterprises. To get the support of workers, it has become necessary for organisations to discharge responsibility towards their employees.
Caveat emptor (‘let the buyer beware’), no more holds true. Consumer today is the kingpin around whom all marketing activities revolve. Consumer does not buy what is offered to him. He buys what he wants. Firms that fail to satisfy consumer needs will close down sooner or later. Besides, there are consumer redressal cells to protect consumers against anti-consumer activities. Consumer sovereignty has, thus, forced firms to assume social responsiveness towards them.
Firms that assume social responsibilities may suffer losses in the short-run but fulfilling social obligations is beneficial for long-run survival of the firms. The short-term costs are, therefore, investments for long-run profitability.
2. Long-run survival:
Business organisations are powerful institutions of the society. Their acceptance by the society will be denied if they ignore social problems. To avoid self-destruction in the long-run, business enterprises assume social responsibility.
With increase in the level of education and understanding of businesses that they are the creations of society, they are motivated to work for the cause of social good. Managers create public expectations by voluntarily setting and following standards of moral and social responsibility.
They ensure paying taxes to the Government, dividends to shareholders, fair wages to workers, quality goods to consumers and so on. Rather than legislative interference being the cause of social responsibility, firms assume social responsibility on their own.
4. Avoids government regulation:
Non-conformance to social norms may attract legislative restrictions. Government directly influences the organisations through regulations that dictate what they should do and what not. Various agencies monitor business activities.
For example, Central Pollution Control Board takes care of issues related to environmental pollution, Securities and Exchange Board of India considers issues related to investor protection, Employees State Insurance Corporation promotes issues related to employees’ health etc. Organisations that violate these regulations are levied fines and penalties. To avoid such interventions, organisations have risen to the cause of social concerns.
Business organisations have enormous resources which can be partly used for solving social problems. Businesses are the creation of society and must work in the best interest of society, both economically and socially.
Management is moving towards professionalism which is contributing to social orientation of business. Increasing professionalism is causing managers to have formal management education and qualifications. Managers specialise in planning, organising, leading and controlling through their knowledge and subscribe to the code of ethics established by a recognised body.
The ethics of profession bind managers to social values and growing concern for society. Thus, there is increasing awareness of social responsibility. To grow in the environment of dynamism and challenge, business concern does not decide whether or not to discharge social responsibilities but decides how much social responsibility to discharge. A good business anticipates developments and acts in accordance with the currently conceived social responsibilities to achieve the future targets.
Arguments against CSR:
Corporate social responsibility is limited on the following grounds:
1. Business is an economic activity:
It is argued by the opponents of social responsibility that basic function of a business enterprise is to look into economic viability of its operations. It is for the Government to look after interests of the society. The prime responsibility of assuming social responsibility should, therefore, be of the Government and not of the business enterprises.
2. Quantification of social benefits:
What measures social responsibility and to what extent should a business enterprise be engaged in it, what amount of resources should be committed to the social values, whose interest should hold priority over others (shareholders should be preferred over suppliers or vice versa) and numerous other questions are open to subjective considerations, which make social responsibility a difficult task to be assumed.
3. Cost-benefit analysis:
Any social-benefit programme where initial costs exceed the benefits may not be taken up by enterprises even in the short-run.
4. Lack of skill and competence: Professionally qualified managers may not have the aptitude to solve the social problems.
5. Transfer of social costs:
Costs related to social programmes are adjusted by the business concerns in the following ways:
(a) High prices:
The costs are passed to consumers by increasing prices of goods and services.
(b) Low wages:
If managers maintain the level of prices, the social costs may be reflected in reduction of wages.
(c) Low profits:
If wages are stabilized, profits would be reduced, which will lower dividends to the shareholders. Low profits will reduce managers’ desire to further engage in corporate social responsibility
6. Sub-optimal utilisation of resources:
If scarce resources are utilised for social goals, this would violate the very purpose of existence of an organisation.
Debate over CSR:
After considering the arguments in favour and against the concept of CSR, some points are still left unanswered. These are:
1. Operational definition of CSR:
The traditional view on CSR provided no information on business concerns about social values. The modern approach also provides no clear guidelines to managers. Business executives follow their own values and interests about social expectations. Actual meaning of CSR is, however, difficult to determine.
2. No view of competitive corporate environment:
Every business operates in the larger business system. It cannot come out of that system and transformation of society within the existing parameters of business system seems to be illusory. Business power is not unified and, therefore, even if they wish, they cannot fully meet the needs of the society. Redirecting resources towards needs of the society can perhaps be possible if government rewrites rules under which business corporations will operate.
3. Limited ability:
The proponents of CSR assume that business units have unlimited ability to fulfill social desires. However, it is not so. Business firms have limited ability to respond to social changes. Social actions will increase the costs and prices, which will place these firms at a competitive disadvantage in relation to firms who are not socially responsive.
4. Lack of uniformity in business policies:
Solving social problems is not feasible in competitive business environment unless all firms follow the same policy. Government can intermediate and make all competitors pursue the same policy on social problems. Government is in fact, framing standards for businesses to follow with respect to physical environment, occupational safety and health, equal opportunity, consumer concerns etc.
5. Moral responsibility:
Business firms feel that they have economic responsibility to produce goods and services. Their economic responsibilities justify their reason for existence. Why should business organisations have moral responsibilities? What are the moral justifications for the same?