Reflection four: Business between profit and moral obligation.

Is Corporate Social Responsibility (CSR) a way for companies to benefit themselves while also benefiting society? You probably know this old debate which is basically about how evil business is and all it wants is PROFIT!

I think there is nothing wrong with profit and currently the idea that CSR is a way for companies to benefit themselves while also benefiting society is unanimously accepted by most businesses. I also fully agree with this concept. There is no doubt that CSR brings multiple benefits to business, such as competitive advantage, economic value for shareholders, customer/employee loyalty, good reputation, product differentiation, and a positive social impact on the community in which the business operates. Good relations with the community can in turn provide a healthy and qualified work force, good infrastructure, customers, and cooperation with local decision makers. Obviously, CSR benefits both society and business.

From my perspective there are just some particularities in embracing CSR practices/strategy in different countries, industries, and businesses, as follows:

  1. CSR is a more common practice in developed countries versus developing. It’s not a coincidence that CSR truly started in the United States, where in 1971 the Committee for Economic Development introduced the concept of the “social contract” between businesses and society noting that companies function and exist because of public consent; therefore, there is an obligation to contribute to the needs of society (Carroll, A., Lipartito, K., Post, J., Werhane, P., & Goodpaster, K. (2012), page 259). Developed countries have more advanced legislation, bigger concerns regarding environmental impact, ethical consumerism is widely present, NGOs are more active, and mass media is free and aggressively serves as “watchdogs” over business and politics.
  2. Harmful industries with a negative impact on environment and public health (e.g. oil, mining, tobacco, etc.) are more likely to adopt CSR practices/strategies versus industries with low harm (e.g. entertainment, tourism) in order to prevent/repair harm and being under continuous monitoring and pressure from NGOs, society, and sometimes governments.
  3. A big, transnational business has CSR incorporated into the business more often than a small, local business. Big companies have more financial and human resources to spend on CSR (which is not cheap) and a bigger impact on local communities. If they operate in more than one market they have to deal with different legislation, cultures, and rules; therefore, it’s much smarter to develop consolidated internal procedures for the whole group.

Based on the above, there are different perceptions of the “benefits from CSR” among companies. The most important in my opinion are the following:

  1. Benefit of “compliance” and “no harm” used to please NGOs, activists, journalists.
  2. Benefit of public relations, which helps to raise public awareness about the company being a “good citizen.” A lot of companies excessively prioritize PR, so they practice CSR as part of their PR strategy.
  3. Benefit of marketing, including brand awareness and products differentiation. Sometimes it’s the only way to carve out a niche and advance in sales.
  4. Benefit of sustainable development, which is the most strategic and complex, but less common.

All the benefits lead to the most important – making profit, which doesn’t contradict what Milton Friedman underlines in his article “The social responsibility of business is to increase its profit.” Even practicing CSR based on moral obligation will have the same aim – profit, because it’s a core element of an enterprise. CSR standards and practices are changing over time, however, the main purpose of business does not. Also, business is not a human being, so we can’t expect genuine morality from it. Because if we equate business with people, we’ll go beyond the Citizens United ruling by the U.S. Supreme Court, which gave corporations outsized political rights.

In conclusion, business is profit-oriented and there is nothing wrong with that reality. Companies would implement anything which brings them profit and if that brings shared value, it’s a win-win situation.  As Michael Porter said during his Ted talk, the conventional wisdom is changing and “profit comes from solving social problems.”

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