The Social Impact of Business

The Social Impact of Business

 

Abstract

Social impacts depict the effects and implications organizations pose on the society. These impacts arise from the actions corporations engage in for the purposes of achieving profitability. Nevertheless, mitigating social impacts due to pressure from social groups allows organizations to realize exponential benefits from these activities. Therefore, the motives underlying activities involved in Corporate Social Responsibility do not reflect genuine interests.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name:

Tutor:

Course:

Date:

The Social Impact of Business

Introduction

Business organizations possess considerable social impacts especially on the members of the society. In order to understand the implications, it is important to understand what social impact is. Social impact comprises the manner in which an organization’s activities affect the encompassing community. The issue of social impact presents a variety of ethical concerns. These ethical concerns usually center on the relationship between a firm and the society. Enthusiasts of social impact argue that organizations are accountable to the society. This is because they produce commodities arising from resources within the society. Consequently, these organizations also sell their commodities to the community in order to gain financially. However, opposing parties allege that organizations do not possess any responsibility to the society. This is because concentrating on addressing such impacts only opposes a firm’s main objective of profit making. Nevertheless, it is undeniable that businesses possess considerable effects on the society. The view on social impact requires an inclusion of definite terms involved in assessing the association between the society and the firm. One of these terms comprises Corporate Social Responsibility (CSR). Corporate Social Responsibility comprises the involvement of an organization within the social needs of its society. Usually, CSR encourages organizations to become involved in meeting society needs. This is because organizations possess significant social impacts on the surrounding community. Nevertheless, the issue of Corporate Social Responsibility necessitates diverse and opposing views. Thus, is Corporate Social Responsibility viable in addressing the social impacts or is it just another business strategy?. This question offers a platform to consider the underlying motives for firms practicing CSR. Understanding this particular assertion will uncover whether CSR is effectual in mitigating social impacts.

Literature Review

The issue of social impact is an ethical concern characterizing the business environment. The activities that organizations perform constitute considerable implications on the surrounding society. The fraudulent actions of organizations such as Enron and World Com necessitated the need to assess social impacts especially in investors. After both organizations were declared bankrupt, many investors as well as consumers lost significant investments and shares from the company’s actions. By looking at this from the consumer’s point of view, one would demand accountability from the organizations’ part. Regardless of social impacts, there is controversy looming regarding firm answerability. These controversies mainly assert whether organizations possess responsibility to the society. Such issues bring into focus the aspect of Corporate Social Responsibility.

According to Sun (31), Corporate Social Responsibility comprises the procedure that accounts for the effects arising from an organization’s actions. Accordingly, CSR creates a positive influence on the surroundings, clients, workers, communities and stakeholders via its activities. Additionally, McWilliams and Siegel delineate CSR as “actions that appear to further some social good, beyond the interests of the firms and that which is required by law” (McWilliams & Siegel 117). Therefore, from this assertion, one can assume that CSR involves actions based on genuine interest regarding the welfare of the society. Nonetheless, the term ‘CSR’ has necessitated significant interest within the globe. For instance, in Europe, the issue of CSR led to the formation of Ethical Corporation. Ethical Corporation is a firm based in London that plans conferences that focus on CSR as well as other concerns regarding business and sustainability.

The thought of Corporate Social Responsibility, however, presents notable disputes especially in the business realm. Accordingly, some parties argue that this concept is ambiguous. This is because organizations gain influence from two categories of interests. One of these categories comprises the organization’s responsibility towards the shareholder (Brammer & Millington 1329). Accordingly, the organization possesses fiduciary interests towards its shareholders. This fiduciary responsibility involves the organization focusing on adhering to its shareholders’ interests. Thus, the organization will concentrate on prioritizing growth and apportioning resources in a greater efficiency. The other category comprises answerability to stakeholders. The stakeholders in this case comprise those defined by law. Thus, the organization does not possess authority in defining them. Therefore, the notion of Corporate Social Responsibility is a constraint, rather than an advantage due to the aspect of the business environment.

The proponents of Corporate Social Responsibility, however, argue for Corporate Social Responsibility. For them, CSR is necessary for mitigating the impacts organizations have on the encompassing society. The argument for CSR originated from the notion that organizations require being socially responsible (Carroll & Shabana 88). This perspective asserts that for organizations to possess a healthy environment, it requires engaging in long-term actions. These activities will assist in ensuring the long-term viability for the organization. Additionally, proponents also assert that being socially responsible lessens government regulation. According to Du, Bhattacharya & Sen (10), a firm that is socially responsible negates government regulation due to the government expressing interests. Thus, this leads to a stall in passing government policies that may harm the profitability of its financial interests.

There are also other arguments that support CSR. One argument involves the notion that businesses possess considerable resources. According to Carroll and Buchholtz (61), organizations possess reservoirs of resources that will allow it to maintain social responsibility effectively. Accordingly, the other argument involves allowing organizations to become social responsible. This argument correlates with the preceding one. This is because this argument asserts that organizations possess reservoirs of resources and thus, need the opportunity to exercise social responsibility (Montiel 247; Carroll and Buchholtz 62). Another argument in support of CSR involves proacting. According to Carroll and Buchholtz (77), proacting involves the processes of expecting, strategizing and initiating. This is more pragmatic than reacting since it is less costly. Lastly, the final argument regarding CSR stems from the public’s point of view. Accordingly, the public asserts that organizations need to be responsible to the society. This is due to the social impact they possess on the community.

The arguments for and against CSR indicate the role social impact play on businesses. The dynamic environment influences organizations to adopt new forms of doing business which involve being answerable to the society. Interestingly, traditional organizations never pay any focus to CSR duties. This is because such organizations admit that organizations are only answerable to their stakeholders. However, the adoption of CSR in modern organizations bears further questioning regarding the motives behind it. Numerous organizations have engaged in CSR for the wrong purpose. The intended objective of CSR, which involves lessening social impacts, has eroded as new business strategies materialize from CSR. Most corporations focus on CSR in order to gain benefits that allow them to maximize profits on a new level.

Overview of Argument

The research question, is Corporate Social Responsibility viable in addressing the social impacts or is it just another business strategy?, disregards CSR as a strategy for addressing social impacts. In the modern business environment, corporations engage in socially responsible activities for the purposes of fulfilling financial interests. Therefore, the social impacts arising from businesses become unresolved. This is because corporations perform the same business activities and receive even greater profitability. This statement echoes an argument by Milton Friedman regarding a corporation. According to Friedman, the main objective prevalent in organizations involves making profit. Thus, even though Friedman would disagree with organizations engaging in social responsibility, he will certainly agree with the profit making within such firms. Additionally, to Friedman, a corporation is the possession of the shareholders. Thus, the decisions that a firm makes usually rely on the benefit that it will create for the owners (Gossling 56).

Since companies base their decisions on the shareholders, it is evident that CSR is insincere. Simply put, organizations will only select an alternative that favors the broader social good as long as it is the most profitable. Therefore, the larger social good is secondary to the objective of creating profit. This goes against traditional principles of responsibility. These principles focused on addressing social interests over personal interests. Furthermore, the aspect of CSR in view of the organization is disparate from what the public views. Typically, corporations take up CSR in order to present the image of an altruistic and considerate firm to the society. Therefore, CSR in this case only functions with the acceptance of the public. If the public acknowledges that firms can make moral decisions, then CSR will certainly function ethically. However, if the public believed that organizations address social impacts for personal interests, would they reward them for their actions?

Furthermore, since profits characterize the main incentive to perform CSR for firms, then it is rather difficult for them to mitigate social impacts. Usually, corporations engaging in environmental responsibility focus on profit maximization in the least harmful way possible. Thus, CSR is an effective platform to carry out a firm’s objective. Thus, if social impacts such as pollution and environmental degradation do not pose considerable financial gain, then it would be impossible for organizations to perform social responsibility. Therefore, it is evident that CSR is ineffective in stopping destructive impacts if they are unprofitable. Furthermore, corporations possess significantly destructive influences on the community. These impacts will continue to thrive as long as firms attach financial gain to CSR activities.

Reasons for Mitigating Social Impact

As mentioned, corporations engage in social responsibility activities for the objective of making a profit. Thus, the reasons for mitigating social impacts by organizations concentrate specifically on achieving financial benefits. Such reasons constitute activities that allow the organization to convince the public that they are socially responsible and thus capable of mitigating social impacts. Furthermore, these reasons reflect the organizations’ stance towards maintaining high profit margins.

Reputation Management

Gradually, businesses are conducting transactions on their reputations, support, brand worth and rational capital. These comprise intangibles and they are usually evident in the balance sheet. For instance, 96 percent of the sum value of Coca Cola comprises intangibles. Additionally, an approximated 53 percent of the sum value of Fortune 500 organizations, which is US$ 24.27 trillion, constitutes intangibles. Since 85 percent of clients assert that they gain a positive image of an organization that engages in such activities, CSR thus becomes an essential strategy for ascertaining the firm’s reputation.

Risk Management

Making investments in firms is usually risky. CSR, in this case, means that organizations should be conscious of the concerns that may make them a target for campaigners. This does not assert that firms be ethical in their actions. It also means that companies can attempt to fill the ideological gap encompassing a concern. Additionally, this will allow firms to influence decision makers in agreeing with their standpoint with a small amount of strategic contributions. Organizations develop intellectual leadership concerning problems that may provide Non-Governmental Organizations (NGOs) with opportunities for decisive campaigns. For instance, firms do this by creating corporate orations and positions for CEOs. Additionally, they present the concerns in innovative and attractive manners and even commission research from credible institutions.

Employee Satisfaction

Organizations viewed as responsible by employees tend to draw and retain exceptional faculty members. Three in every five persons report that they would love to receive employment in companies with consistent values. However, this situation applies in organizations that consider the staff’s quality. Organizations will put considerable effort in trying to seem socially responsible to skilled or unskilled employees within their offices. Nonetheless, unskilled laborers and casual employees in developing countries hardly gain similar labor rights.

Investor Associations and Capital Accessibility

Numerous investors will invest in socially responsible organizations. This is because they consider such organizations as safe investments. Over 80 percent of organizational investors admit that CSR possesses a positive impact on business. Additionally, an increasing amount of portfolio investors possesses a portfolio for social responsibility. Thus, such investors favor organizations deemed as socially responsible.

Market Positioning and Competitive Edge

Being socially responsible is another strategy employed by firms in attaining a competitive edge. A firm that invests in CSR increases its chances of positioning itself as a leader in its respective market. Furthermore, social responsibility allows organizations to exceed in competition especially when new changes affect the market. For instance, new government regulations are likely to affect firms that do not take up CSR than firms embracing the concept. One way that firms can bolster their market position involves purchasing ethical alternative organizations. For instance, the move by Cadbury’s to purchase Green & Blacks strengthened its market position. Furthermore, this move will enable firms to control gains arising from niche markets.

Operational Competence

Social responsibility can also assist organizations in saving finances. Environmental techniques such as lessening waste and energy saving can also assist firms in reducing operational expenses. These methods usually comprise the measures taken up by firms in attempting to mitigate social impacts. Nonetheless, if such measures cease becoming profitable to organizations, then the social impact especially on environments will only increase.

Sustaining Operating Licenses

There is widespread mistrust of organizations. This is because few persons typically profit from the degree of power firms possess within the society. Increasingly, individuals assert heightened stress, complicated work duties and superior insecurity as organizations track elusive profits. Organizations assert that the tacit operating license granted to them by the society is at risk. Thus, organizations are responding by convincing the society that they have a positive effect.

Argument against Social Responsibility

Mitigating social impacts of businesses through social responsibility is clearly another strategy. Organizations engaging in socially responsible activities focus on amplifying corporate dominance rather than assisting the society in ridding the effects of the business operations. Social responsibility should be advantageous to both sides. However, this is not the case. The society rarely benefits from these CSR activities performed by firms. Additionally, organizations engaging in mitigating social impacts usually possess ulterior motives. For instance, firms participating in corporate philanthropy initiate donations by offering their money of their shareholders. However, organizations are only able to do this if there is latent profit in such an activity. Thus, their motive for doing this may comprise boosting their public image, exploiting a cheap way of advertising or opposing allegations from pressure factions (Du, Bhattacharya & Sen 11)

Organizations engaging in social responsibility only focus on diverting attention from real concerns. CSR assists firms in circumventing regulations and achieving legitimacy in the business environment. Additionally, CSR also allows organizations to gain accessibility to markets as well as decision makers. Furthermore, organizations also benefit from socially responsible activities by changing towards privatization of public operations. CSR also enables organizations to masquerade futile solutions concerning social and environmental predicaments. They do this by deflecting problems or culpability initiated by organizational activities to the customer. By doing this, corporations safeguard their interests and restrict genuine efforts to discover honest and sustainable resolutions. Organizations masquerade in several ways in efforts to gain views as socially responsible. Thus, social responsibility allows firms to gain in various ways:

Public Relations

Engaging in social responsibility allows firms to sell their brand image. This is because such activities appeal to the conscience and passions of clients. Social responsibility also assists corporations to create brand loyalty as well as an individual relationship with consumers. Several organizational charities provide organizations with accessibility to target markets. The participation provides greater authority to the message delivered by the company. Furthermore, organizations also hunt for innovative methods of delivering their message via the media. CSR activities also create numerous latent avenues for reaching clients such as guerilla marketing. Social responsibility also assists in greenwashing an organization’s image. Greenwashing allows firms to hide negative social impacts through saturation of positive images within the media. As a fact, CSR allows organizations to claim growth regardless of insufficient evidence of verifiable change (Montiel 261).

Much of social responsibility’s business case relies on organizations viewed as socially responsible. For instance, the case of Marc Kasky against Nike illustrates this assertion. In 2002, the Supreme Court of California decreed that Nike did not possess the privilege to lie especially in protecting itself against condemnation. This is because Kasky tried to sue the organization for deluding a public relations operation. As a result, Nike attempted to defend itself by utilizing the Right to Free Speech provided by the First Amendment. The court asserted that the company did not receive protection from the First Amendment since the respective publications were actually commercial speech. This case only demonstrates social responsibility is just a Public Relations Exercise.

Avoidance of Regulation

Social responsibility is also another strategy for circumventing regulation and avoiding public mistrust. Most organizations vehemently resist binding regulations. Organizations argue that establishing minimum standards impedes improvement. Organizations further assert that it is impossible to create regulations for ethics based on competitive advantage. Thus, if organizations are unable to get a competitive advantage from social responsibility, then they are unable to rationalize the cost. Organizations essentially hold the government ransom regarding regulation issues. They assert that regulation threatens the positive obligations they are assuming. Nonetheless, this stance against certain regulations by organizations only conceals the real motive. Organizations usually refute policies that will work against their favor. However, the only way to avoid social impacts arising from firms’ activities is through regulation. This is because regulation dictates the structure of organizations including the impacts their activities pose on the society.

Corporate Citizenship

Organizations are artificial legal bodies. Thus, they do not possess citizenship. However, the term ‘corporate citizen’ describes organizations trying to engage in social responsibility. This term allows organizations to gain a positive and novel image. This image asserts that firms also possess rights, sentiments and a justifiable input in democracy. This change in language builds a tangible deviation in attitudes. Corporate citizenship purchases public finance accessibility for organizations with regard to precarious international projects. For instance, organizations that register to OECD policies and finish Environmental Impact Assessments receive export credits and finance via public entities, which comprise the International Finance Corporation. Additionally, corporate citizenship also legalizes the presence of organizations within international forums and usually, their lobbying tasks. Corporations possess authority at most vital global summits. Their involvement arises from their commitment to social responsibility and sustainability. It provides them with the opportunity to dictate the agenda and articulate their standpoint regarding global governance (Yandle 2013). Furthermore, the authority and resources of these corporations are considerably sufficient to make actual human issues undergo marginalization.

Private-Public Partnerships

Most activities carried out within CSR comprise Private-Public Partnerships (PPP). PPPs comprise a range of arrangements where organizations group their resources with governmental organizations. Instances relevant to these activities constitute managing community development initiatives or offering free healthcare to the public. These initiatives distort the frontier between the responsibility of organizations and that of the governments. CSR constitutes privatized public function. This is because deciding on behavior that is proper for organizations and regulating them is a role that requires governance from governments. Nonetheless, CSR moves towards privatization. It does this by making government and private sector associations acceptable, produces contracts and creates trust and status in order to support privatization.

Access to Budding Markets

Developing countries view this term on an economical basis. Corporate liaisons between developed and developing governments illustrate an opportunity for an influence in policy as well as market penetration. Organizations engaging in social responsibility gain preferential accessibility to markets within developing countries. Additionally, the creation of the term ‘Corporate Social Innovation’ further eliminates genuine interests that the public assumes regarding socially responsible firms (Rowley & Berman 411). The term delineates business procedures that aim at maintaining sustainable progression.

Conclusion

The social impact of business correlates exceptionally with social responsibility. As defined, social impact comprises the effects arising from an organization’s activity in the society. Lobby groups and environmentalists attack corporations based on the effects of their activities on the society. Even though organizations disregard such claims, the realization that social responsibility actually illustrates superfluous benefits encourages firms to engage in CSR activities. Nowadays, numerous organizations engage in CSR activities for the purposes of gaining exponentially. In relation to this, the motives behind these socially responsible activities do not reflect a genuine interest by organizations in mitigating social impacts. Instead, it reflects the underlying incentives that organizations are likely to gain from engaging in a particular activity.

 

 

 

 

 

 

 

 

 

Works Cited

Brammer, Stephen and Andrew Millington. “Does It Pay To Be Different? An Analysis of the Relationship between Corporate Social and Financial Performance.” Strategic Management Journal. 29 (2008): 1325-1343. Print.

Carroll, Archie and Ann Buchholtz. Business and Society: Ethics and Stakeholder Management. Mason: Thomson/South-Western. 2006. Print

Carroll, Archie and Kareem Shabana. “The Business Case for Corporate Social Responsibility: A Review of Concepts, Research and Practice.” International Journal of Management Reviews. 12.1 (2010): 85-105. Print.

Du, Shuili, Bhattacharya, and Sankar Sen. “Maximizing Business Returns to Corporate Social Responsibility (CSR): the Role of CSR Communication.” International Journal of Management Reviews. 12.1 (2010): 8-19. Print.

Gossling, Tobias. Corporate Social Responsibility and Business Performance: Theories and Evidence about Organizational Responsibility. Cheltenham: Edward Elgar Pub, 2011. Print.

McWilliams, Abigail and Donald Siegel. “Corporate Social Responsibility: A Theory of the Firm’s Perspective. Academy of Management Review. 25.1 (2001): 117-127. Print.

Montiel, Ivan. “Corporate Social Responsibility and Corporate Sustainability.” Organization & Environment. 21.3 (2008): 245-269. Print.

Rowley, Tim, and Shawn Berman. “A Brand New Brand of Corporate Social Performance.” Business & Society. 39.4 (2000): 397-418. Print.

Sun, William. How to Govern Corporations so They Serve the Public Good: A Theory of Corporate Governance Emergence. Lewiston: Edwin Mellen Press, 2009. Print.

Yandle, Bruce. “Bootleggers and Baptists in Retrospect.” Property and Environment Research Center. n.d. Web. 9 Jul. 2013. <http://perc.org/articles/bootleggers-and-baptists-retrospect/>