Corporate social responsibility is defined as a method of running a business that not only seeks to maximize profitability, but also tries to employ solutions to address social and environmental consequences of the business. Its concept has become widely popular to a point that it has earned its own acronym in the corporate world, which is CSR. Generally, this business model entails that a company should be accountable to a society or community and shareholders that are affected by its actions and operations. When such a policy is adopted by a company, it aims to demonstrate an objective to uphold ethical values and the practice of respecting communities, people and the environment, where the organization is required to monitor its compliance with the stated policies in CSR and to report this with the same frequency as to how often it accounts its financial reports.
While most concerns regarding corporate social responsibility are directed at corporations of very large sizes, it is known that even small and medium-sized businesses participating in environmentally problematic industries and employing a huge number of local residents can still face the pressure to adopt the policy. To know the significance of CSR, let us take a look at its pros and cons:
List of Pros of Corporate Social Responsibility
1. It boosts value and profitability.
A CSR policy introduces energy-efficiency strategies, such as waste recycling, which cut operational costs, while benefiting the environment. With that said, it will increase a company’s accountability and transparency with the media, investment analysts, shareholders and local communities. As a result, it enhances the business’s reputation among investors, like investors integrating the same policy into their stock selection strategies. This would become a virtuous circle where the business’s stock value would increase, with access to investment capital being eased.
2. It improves company reputation.
Paired with genuine action, a CSR policy can serve to build or improve your business reputation. If it happened that your brand has had a negative backlash that led to losses, especially due to environmental issues, this policy would be a great solution to repair reputation damage and eventually restore profitability. In many cases, adopting CSR works as part of a business model, where consumers are often seen demonstrating more loyalty to a brand that is able to demonstrate commitment to environmental issues.
3. It helps create motivated employees.
As we all know, one of the most valued assets of a company is its employees, which is a premise of the organization’s obligation with regards to CSR compliance. This would mean that treating your employees with respect, offering good working conditions, establishing fair hiring practices and creating a non-discriminatory workplace is a must. As you can see, this improves teamwork and morale within your office environment.
4. It enhances customer relations.
As research found out, most consumers think that businesses should be socially responsible and are drawn to those commercial entities that have a reputation of being a good member of the corporate world. It is also observed that consumers are prepared to pay more for products that they deem to be socially beneficial and environmentally friendly.
List of Cons of Corporate Social Responsibility
1. It requires higher costs.
One known disadvantage of CSR policy is that its costs generally fall disproportionally, especially on small companies. While big corporations are able to afford allocating a budget to CSR reporting, smaller businesses that employ between 10 and 200 employees usually face difficulties with such investment. Though they would be able to utilize social media to communicate such a policy to the local community and their customers, it would take time to monitor exchanges, which could require hiring extra personnel that they might not be able to afford. There is even the common belief that the costs of CSR would lead to the downfall of small businesses, as most of them do not have the budget needed to be socially responsible. According to critics, these organizations cannot afford the social media solutions, training and equipment needed to pull off being socially responsible.
2. It can create shareholder resistance.
While some investors do seek to acquire stocks in companies that are socially responsible, most of them would make such an investment with the expectations of turning a profit. Also, while some companies have generated substantial profit from corporate social responsibility, others that adopted such a policy often prove as likely to lose money. With the spotty track record of CSR in demonstrating increases in profit, investors tend to resist attempts by company leaders to move their organizations in that direction.
3. It promotes greenwashing.
According to some critics, corporate social responsibility can be a practice that will result in futility, arguing that it can lead to greenwashing. They explain that a company’s management team has a fiduciary duty to its shareholders, which is directly opposed by CSR policy. They add that the responsibility of executives to their shareholders is to maximize profit, and managers who forsake generating revenue in favor of some benefits to society can expect to lose their jobs and be replaced by other individuals who prioritize profit. This is the main reason why some businesses talk about such a policy but would not do anything about it.
All in all, branding is the key to a business’s longevity and success, and authentic and environmentally and socially responsible companies have become the choice of consumers, which is a trend believed to be going forward as the demand for things, such as refugee aid and climate change, arises. This means that the reputation of these brands will also improve. In fact, research shows that more than half the number of consumers around the world is now more loyal to socially responsible brands, and the number is growing fast. But while this and other benefits come with corporate social responsibility, there are still drawbacks that cannot be ignored. Based on the pros and cons listed above, do you think such a policy is generally good for society, or not?
Crystal Lombardo is a contributing editor for Vision Launch. Crystal is a seasoned writer and researcher with over 10 years of experience. She has been an editor of three popular blogs that each have had over 500,000 monthly readers.