Corporate Social Responsibility Versus Profit Maximization Essay
Nowadays, many large multinational corporations which occupy increasing shares in the market and high statues in the society are usually powerful in having both positive and negative effects on the public to a great extent. As a consequence, today, the concept of Corporate Social Responsibilities (CSR) draws much more public attention. Social responsibility goes beyond profit making and social obligation. CSR is a business intention focusing on minimizing the harmful effects and maximizing the benefit for the society (Mohr, Webb and Harris, 2001, p. 7). According to the Triple Bottom Line Concept of Elkington (1997), a company should be responsible for its social, environmental as well as financial performances, which is also known as the“profit, people and planet” approach. This concept encourages a company to take both the contributions and impacts they make to the social and environmental into account when measuring their corporate performance (Mellahi, Frynas, Finlay, 2005, p. 109). To follow this concept, some corporations have started to look for a strategy which seeks to maximize both financial return and social good.
However, some others state that corporate social responsibility contract the economic performance of one company. In this paper, the relationship between corporate social responsibility and the goal of profit maximization of one company will be critically appraised, and analyses will be given to the issue on whether there is a divergence or a positive interaction between them. Relationship between Corporate Social Responsibility and Profit Maximization Before looking at the different views towards the relationship between CSR and profit maximization, it is necessary to emphasize the concept of “stakeholder”.
It is claimed by Branco and Rodrigues (2007) that in managerial decision making which is related to socially responsible activities, stakeholder is the inclusion of all the constituents or groups, rather than just shareholders. The introduction to the identification of stakeholders which will be used in the further analyses repeatedly makes it easier to look into the relationship between CSR and the economic performance of one company. In terms of the further analyses of this issue, the opinions held by different people are presented as follows. (1)
Conflicts between CSR and Economic Performance In a famous article of the Nobel laureate Milton Friedman (1970), it is stated that a corporation actually spends someone else’s money when performing the social interest. That is to say, when the managers spend the money of the firm on social responsible activities, they probably have reduced the shareholders profit, the employees’ salaries, or the money which can originally be used in other profit making activities. Therefore, the benefit for the society and for the shareholders cannot be realized by any managerial strategies at the same time.
It is true that problems and conflicts will arise when the managers of one company attempted to achieve the benefit of all the above stakeholders. The following business example can better interpret the conflicts. As a large multinational corporation, Nike has built up its factories in many of the developing regions, such as Mexico, Bangladesh and Mainland China, to get access to cheaper resources and labors for their production, whilst the host country can only gain very little percentage of the profit from the product.
As most of the revenue flows to the home country of Nike, the goal of profit maximization has been achieved by reducing the costs. The approach for Nike to realize their owners’ benefit is to make use of the unregulated labor markets in other countries, and to “ride roughshod” over the environmental standards of these countries (Hindle, 2009), which is contrast to the benefit of the stakeholders in the host country, including employees, suppliers as well as the residents. It can be seen that the conflicts do exist between CSR and profit maximization.
Friedman also claimed that the “cloak” of social responsibility does obvious harm to the fundamentals of the free society. The reason is that the only way for managers to be social responsible is to use the company’s resources in doing the right things which should be the activities intended to rise profits as long as it remains within the rules of competition. However, social responsible activities are regarded as deception or fraud, which may, by contrast, destroy the commercial order of the society. 2) Views supporting that CSR Makes Profit. Mellahi, Frynas and Finlay (2005, p. 107) state that a company should not only regard maximizing profit for shareholders as their single goal, but also satisfies all its stakeholders’ aspirations. Michael E. , from Harvard Business School, presented his point of view against Friedman’s principle. Porter promotes his “shared value” concept, which involves “creating economic value also creates value for society by learning its needs and challenges” (M.
E. Porter, M. R. Kramer, 2011). The same as the “triple bottom line principle” mentioned above, shared value is not a new idea addressing the opinion that “companies can do well by doing good”. However, the strategy needs the ability to discourse and solve the societal issues which includes natural-resource exhaustion, pollution, needs of the poor and public health. Today, more and more companies follow the business strategies fitting the shared-value model. (Lohr. 011) Based on the shared value principles, some companies have successfully taken their social responsible strategy into practice. (2. 1) Goodyear Tire & Rubber Company Goodyear Tire & Rubber Company is one of the large multinational corporations which do well in both corporate social responsibility and earning their own benefit. Based on its principle of “protect our good name”, Goodyear performs both the external and internal corporate responsibility and developed from a small company with just 13 employees to a market leading company today.
Goodyear was founded in 1898 in the USA, and began to produce in November with a single product range. Today, Goodyear has expanded to 28 countries with over 90 production facilities in the world (Goodyear, 2008). To look into the specific social responsible strategy of Goodyear, Firstly, from the external perspective, Goodyear shows its environmental responsibility. As various environmentally hazardous materials are required in rubber manufacturing, producing sustainably becomes one of Goodyear’s major tasks on the corporate responsibility.
In the manufacturing process, Goodyear is always seeking to reduce the quantity of perilous substances used, such as organic solvents which are needed in tyre production and lead to serious damages to the environment. By the year 2007 Goodyear managed to reduce solvent usage by 41%. Goodyear also applies the 3R Principle representing for reduction, reuse, recycling to its production process where all potential waste is dealt with by firstly reduction, then reusing, and ultimately recycling.
By the year 2007, the majority of 58 plants of Goodyear had already achieved zero waste-to-landfill (Goodyear, 2007). In addition, the unique and various auditing processes of Goodyear also ensure that their plants’ environmental efforts are assessed independently. Secondly, in terms of the internal responsibility, Goodyear attaches great importance to human rights. The company not only strictly rejects all forms of child labor and involuntary employment, but also gives its employees the freedom from association and the right to join in other organizations.
Goodyear also makes a great effort to drastically avoid the injuries and unhealthy environments in the workplace. (2. 2) General Electric General Electric is another example showing the positive relationship between the profit maximization and the social responsibility. The “ecomagination” program of is derived from the executives’ idea of reducing energy consumption by applying new technology, pushed by the government’s limitation on carbon emissions and prompted by customers’ concerns on increasing cost of electricity and fuel.
In recent years, General Electric has invested a great deal in relative technology lowering its energy consumption of the production, as well as the use of other resources in manufacturing, such as water. To carry on this program, G. E. found an external environmental consulting firm, GreenOrder, to measure their performance, in order to make sure that the products have a significant advantage in energy saving and environmental protecting over the original designs. According to the report, from light bulbs to water filtration equipment to jet engines, over 100 G.
E. products have qualified. In 2010, such products created up to $18 billion sales, compared with the $10 billion when the program began in 2005. (2. 3) Intuit The American software company, Intuit Inc, offers free online software and services to families with low incomes. For Intuit, the cost of these services is relatively cheap, which only costs $20 to $50 for paying customers. Since 1999, around 13 million people have been benefit from this programme, and these people are very likely to become their paying consumers when their income increases.
Intuit also offers an information service to farmers In India for free. This service system works though mobile phones, in which part-time workers can easily update the crop prices on the local markets to the company. The company then sends the latest, local price information by sending short messages to help farmers make better decisions about the time and place to sell their produce. Over only one years’ time, 300,000 farmers have become its users, and according to the follow-up surveys, their earnings have increased by 25%.
It seems that now it is quite likely for intuit to make money from the service. “We look for places we can use our strengths as a company to help solve big problems. ” Mr. Cook, the founder of Intuit, says. Conclusion The relationships between corporation social responsibility and profit maximization can be different because of the various situations. On one hand, the business models of some company make it impossible to avoid the unethical or irresponsible actions to the environment and socity.
That is to say, sometimes, social irresponsibility does create financial profit to some companies, and without the irresponsibility, these companies even cannot survive in the business world. On the other hand, social responsible activities spend the money belonging to one group of stakeholders on doing goods to another group of shareholders, then who to be responsible to become a problem for the managers, which is also a major conflict between CSR and profit maximization.
However, supporters of CSR can also list cases where social good and shareholder’s value are both achieved, which proves that there can be a positive interaction between them. Though those cases, it can be seen that the only challenge for a company in making profit though social responsible activities is to set a proper strategy to take a full advantage of their own strengths and characteristic. Maybe some companies increase the revenues because CSR enhances its reputation and expands its influence, whilst others may gain more profit by reducing the cost of the raw materials for production as well as save the natural resource.
Every company may have its own ways to seek for benefit from CSR as long as they have the sense of being socially responsible, and it is quite possible that good performances of business and benefits for the whole society can be achieved at the same time.