Corporate social responsibility

by The Times 100 on Tuesday 26th April, 2011

Many firms now take a socially responsible approach to their business activities. They not only consider the responsibilities they have to their shareholders, but to other stakeholders and the environment too. As such, corporate social responsibility (CSR) and environmental reporting often accompanies financial reporting and is used as a measure of success. In line with this, the London 2012 Olympic organisers have published an environmental report for next year's Games. The report shows that it is on target to cut 100,000 tonnes of carbon emissions in the construction of the venue. The report highlights five themes of the Games' environmental strategy. These are climate change, biodiversity, waste, inclusion and healthy living. Other items in the report include the goal of developing a 45 hectare urban parkland, which will be 'ecologically managed' to encourage biodiversity; and the re-profiling of river banks to reduce the risk of flooding of 4,000 local properties. Organisers report that they are on track to deliver the first 'truly sustainable' Olympic Games. (BBC News 22nd April 2011)

For Reed Elsevier, a leading provider of professional research information, corporate responsibility forms an integral part of the business. It believes that matching the financial and non-financial performance of the organisation provides benefits for both the business and its stakeholders. Although it is essential Reed Elsevier provides a good return on shareholders' investments, the needs of other stakeholders are considered. For example, employees can take advantage of flexible or home working opportunities to support work-life balance and reduce stress. Reed Elsevier believes that it must be accountable to the communities in which it operates, and must give something back. Although socially responsible decisions may not generate an immediate return on investment, longer term benefits include the ability to attract ethical investors, lower staff turnover and better quality service.

Questions

  1. Define the term 'stakeholder' and give examples
  2. Explain what is meant by Corporate Social Responsibility
  3. To what extent are socially responsible objectives more important than financial objectives?

Answers to questions

  1. Define the term 'stakeholder' and give examplesA stakeholder is an individual or group that affects, or is affected by, an organisation. Examples include owners/shareholders, employees, suppliers, customers, society and government.
  2. Explain what is meant by Corporate Social Responsibility.Corporate social responsibility refers to the responsibilities firms have to all stakeholders and the environment. This can be compared to the shareholder view, whereby the most important objective is to make profit for the owners of the business. CSR generally refers to activities that go beyond those required by law.
  3. To what extent are socially responsible objectives more important than financial objectives?

On one hand:

  • CSR can help to attract customers, investors and employees
  • Firms rely on society for survival and should therefore take society's needs into account
  • If firms are to continue into the future, a sustainable approach is necessary
  • CSR can provide a Unique Selling Proposition
  • As more firms are becoming increasingly socially aware, those not considering CSR are likely to be at a disadvantage.

However:

  • Without shareholders/owners investing in businesses they would not exist. So, financial objectives and the needs of shareholders are paramount.
  • Unless the financial performance of firms is sound, they will not be able to survive, leading to job losses etc.
  • Profit is an incentive for entrepreneurialism and enterprise. These are good for the economy and therefore economic wellbeing of society.

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