Though profit maximization is the most fundamental goal for any business undertaking, the concept of corporate social responsibility has become quite essential to any organization. Thus business managers cannot afford to turn a blind eye on this subject as it is becoming part of their daily commitments. Most corporate managers are thus implementing strategies aimed at making corporate social responsibility to be part of their management tool in order to have good profits in the long run. The debate aims at looking at the benefits of adopting these practices and the underlying limitations that would reduce the earnings of the company.
Profit maximization and corporate social Responsibility.
Any business does not operate or exist in a vacuum but rather it undertakes its activities in an environment that is usually surrounded by human beings who form the larger component of the social factor. While it operates within human vicinity, a business is formed or commenced majorly to earn profits and thus its operators will always strive to maximize them. Because of the existing conflict between the business and the society, a debate has been set to look into them by focusing on the importance of corporate social responsibility to the profits of a firm and also the arising implications of such practices.
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A firm or company could be termed as a transforming organ, which involves social agents basically comprising of people and technical and technological means, working together in a global and competitive environment. Hence underlying its objectives and goals, a firm also assumes rights and obligations due to economic, political and social activities it performs. This is to create and develop values such as protection, sustainability, compromise and acting responsibly and economically as far as the environment is concerned. This is also applicable to people and society in general, both in short and long term. Thus the final goal of a firm is to increase the humanity welfare. (Gill, 2007).
Thus based on the above, there are numerous reasons as to why modern managers should pursue corporate social responsibility besides striving to maximize the firm's profits. These are; creating good reputation and legitimacy , gaining competitive advantage, reducing risks and costs of production, promoting the continuity of life and other development projects, sustaining the environmental welfare, maintaining customer loyalty to the products and gaining good government trusts and approval among others.
The benefit of corporate social responsibility to a firm.
The governments of many states are passing laws and regulations that will limit the registration of companies therefore barring them from carrying out their operations. In order to get licenses to commence business operation, it is required that a business state clearly its corporate social responsibility activities. These governments are cautious of the environmental degradation and other social related problems thus moving with speed to ensure that there is a fair play from the concerned parties. Therefore business will not focus on pursuing profit maximization as their main objective but also will also have to ensure that the social welfare of the society is improved. This is what will grant entry into the market and access to other licenses.
When a business managers are socially responsible, their companies and businesses create good image with the external environment. Since most companies are involved in creating products that can be consumed by the society, when it has maintain good social responsibility, the social agents mostly people will feel good to associate themselves with the company because its good image. This association is what will help maintain a constant number of customers and other stakeholders. The good image that a business creates results into the business securing quick credit advancement from its creditors. Also most companies that are operating globally will get a good cover from the governments of such nations because of the good image, especially when the company helps in aiding its development projects such as building hospitals and other social facilities. The good image will thus result into level of sales volume because of having a good number of customers.
Corporate social responsibility has resulted into major companies gaining competitive advantages over others especially if such competitors are new entrants into the market. A company that has been operating for along time in the market while simultaneously maintaining good relationship with the society in which it operates will have almost all consumers on its side because of the existing rapport it has created. Thus when a new company is entering the market, offering the same commodities like the old operator, will have few customers and might even spent more money on advertising in order to penetrate the market. The excess expenditure will have to reduce the sales volume because of the advertisement expenditure incurred. This will make the old company that was originally in the market to have a good competitive edge over the competitor.
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When a business has largely been involved in extending its support to the state of any country, then its security is guaranteed. For example a business that has funded government activities despite having paid its taxes, will be protected in case other competitors poses to be a threat. A country may pass laws and regulation regarding the conduct of any company and in such scenarios only those business that have been working with the state will be given an upper hand. Also external competitors may not be allowed to enter the market by the set rules making it of enormous value and advantage to companies already in existence. Therefore it is of great importance that business managers are socially responsible with its stakeholders to ensure that its operation is not disturbed. This cooperation is likely to increase its profitability in the long run.
In a crowded market place, companies are looking for unique selling proposition that they can use to separate themselves from competition in the minds of consumers thus focusing extensively on profit maximization will not create strong brand loyalty. Loyalty can only be created when one ensures that the existence of others is not hindered. (Crane et al.2007).Thus a business will create brand loyalty only after ensuring that its consumers are largely involved in designing of those products. Also when a firm strives towards eliminating the common problems that face man in the society; like sponsoring students to undertake studies, alleviating poverty, and working towards the prosperity and progression of any given society, then it will have created a huge impact to the society, thus maintaining a good loyalty for its products. Hence in order to ensure that there is profit maximization in the long run, business should use part of the realized profits in short run to invest back in the society and in the long run enjoy greater profits as a result of the loyalty it will have created from such investment.
Most customers after using certain products tend to develop strong choices and preferences over other products. This has been witnessed largely in the communication sector especially mobile industries, because of the earlier relationship that they created with the consumers of such products. Large companies such as Nokia have been able to maintain good competitive advantages over others, not because of enormous campaigns in terms of advertising but in terms of creating good relationship with global economies and supporting even most of their development projects. Such heavy investments have resulted into most customers from such economies remaining loyal to Nokia products. It will be of great merit if modern managers pursued to maintain good relationship with their customers in terms of corporate social responsibility and in the long run enjoy good profits.
The environment in which businesses operate has created a lot of concern to companies. Especially the global environmental organizations have raised an alarm over the environmental degradation as a result of business operation and activities. Companies which produce poisonous emissions into the atmosphere and within the environment can not therefore afford to focus on profit maximization while neglecting the consequences of their activities. The survival of any firm will always be based on the environment, within which it operates, because of the emerging threats and opportunities. (Ascolli et al.2009).
Owing to these problems created by the business, there is need for the modern managers to ensure that the environment is clean to enable human survival and other living creatures. As such the only possible course of action will be to use part of its profits to clean up the environment. When a company is discharging chemicals in to running water bodies, then it should ensure that such discharge is seriously treated before being released into water bodies. Thus in terms of maintaining corporate social responsibility, a company may decide to construct water boreholes that can be used by people who use the surrounding water bodies. Doing these could help ensure that business operation is not threatened thus in proposal, business managers should always working towards ensuring that their activities are not hurting the society, and if they do so then even their level of returns will be high.
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There are various groups of people that contribute to the revenue earnings of the business. These include; employees, consumers, suppliers, creditors and the government. When business managers will largely focus on profit maximization while neglecting its employees preferences, then it will be headed towards head rocks. This because employees tirelessly to ensure that the set targets are realized and when profits have been earned, then even the salaries of employees should be considered. In terms of acting socially responsible a firm can avoid collision with labour institutions by ensuring that employees are compensated adequately. Compensating employees well like increasing their earnings whenever a business makes profits will result into an increased motivation among them hence making them to work even harder and this will increase the future returns of the business.(Porter et al,2002).
Some consumers might lack the means to transport their purchased goods from the company. There in ensuring that the business is socially responsible, the business may decide to offer after sales services like transporting the products to the consumers' premises. This act will create more loyalty and trustworthiness among the consumers hence whenever a similar company is set up to become a rival, then consumers may not have good preference to it as compared to old one. This what modern managers should work towards and thus they will have a larger market coverage that will enable it to even increase its sales volume in the long run. This can state clearly that corporate social responsibility is strongly becoming a management tool and thus business managers should take it seriously and with a lot of emphasis.
A business that is engaging in corporate social responsibility might also be working towards cost and risk reduction. This may be achieved through various activities such as having equal employment opportunities for all employees, working towards mitigating the risks of environmental pollution. A firm that is carrying out corporate social responsibility may result into a tax advantages being extended to it by the tax institutions. Certain licenses are requiring that a company include corporate social responsibility in its objectives and goals. Consequently tax institutions are granting tax exemptions and rebates to companies that are implementing corporate social responsibility. This is because of the good positive image that it establishes with its environment. When a firm is working towards reducing the harm caused to the environment by its actions, it may result into hedging against future risk that is likely to be imposed on it by the environmental bodies. This is a long term benefit of reducing the cost of operation by the firm and will thus result into increased profit maximization.
Having equal employment opportunities has a far reaching positive impact to the firm's future returns. Employees are the most assets that are highly valued in an organization hence need to be treated with a lot of care and observation. Most employees are not looking for jobs that have huge salary packages but want to work in an environment that is conducive and motivating. It is true that salary is a big motivator towards employees' inputs and satisfaction but cannot retain such employees. Thus when all other social needs are present in any given firm then the risk of staff turnover are highly reduced since cost of hiring and replacing other employees are reduced.
Because of the increasing social concern and awareness from the stakeholders, there are external threats that are likely to arise incase corporate social responsibility is not carried out. This is because the stakeholders are conscious of their rights and would want to protect them by ensuring that they not harmed. When a company causes harm to the community in which it is carrying out its operation, then its survival is at stake because those being the immediate market might decide not to consume further those products hence causing untold losses to the firm. So in order to avoid such risk of losses firms should strive to make stakeholders part of their investment.
Global environmental organs are posing a big threat to the activities of the organization especially if it is involved in production of harm products. Companies like those producing cigarettes have attracted external monitoring due to the health concerns. There is risk of having low profit due to stiff working environment and thus the only way to hedge against this problem is by ensuring that those affected are taken care of. Such commitments towards reducing community deterioration would reduce the future external pressure being exerted on these companies and this has a far positive impact of increasing wealth of shareholder due to increased profit maximization.
A firm that has aligned its objectives and aims with corporate social responsibilities will have an ability to win its stakeholders through synergistic value creation. This can be done by exploiting opportunities that reconcile the interests of stakeholders' demands. When companies focus on philanthropic activities, their competitive advantage is equally reinforced thereby creating a virtuous circle. Corporate philanthropic may be used to influence competitive context of an organization which will allow an organization to improve its competitiveness and at the same time fulfill the needs of some its stakeholders. For example charitable giving to educational studies would result into an organization improving the quality of human resources available for the firm. Similarly extending charitable contribution to community development projects would result into creation and preservation of high local quality life, which may sustain sophisticated and demanding local customers.
This approach is aimed at satisfying stakeholders demands while at the time allowing the organization to pursue its operations with ease. By engaging its stakeholders and satisfying their demands, the firm finds opportunities and solutions which enable it pursue its profitability interests with the consent and support of its stakeholder environment. Thus the value creation perspective to corporate social responsibility practices provides a view in which corporate social responsibility is perceived as a vehicle that allows both the firm to pursue its interest and the stakeholders to satisfy their demands.
While we believe that strategically adopting and implementing corporate social responsibility would help improve the performance of any company, it is worth noting that a number of weaknesses and challenges do exist. It can be argued out that consumers may not have the ability to support activities of corporate social responsibility due to their limited power in the market place. To support corporate social responsibility initiatives is quite costly and sometimes may not be rewarded, thus it will only be good if policy makers provide more information to consumers that can help to empower them. This can be done through mandatory reporting about social and environmental performance and the development of comprehensive corporate social responsibility label. This is majorly because the cost of corporate social responsibility is passed on to consumers and is likely to result into low profit turnover to the company.
Another limitation facing the pursuant of corporate social responsibility is the implied assumption that the positive correlation between corporate social responsibility practices and the company's financial performance are perpetual. This assumption may not be true since a company may be rewarded in economic and financial terms for initiating its corporate responsibility practices up to a certain level, beyond which the market ceases to reward it. For example a stock market is seeking to reward social responsibility only to a point it pays to be good but not too good.
It has also been found out that corporate social responsibility are driven mainly by regulatory structures and the pursuit of direct cost reduction in small and medium firms. The environment in which these firms operate fail to recognize the broader business cases, as they only carry out these practices the law has forced them to do so. Some firms also associate social responsibility with financial success, hence in pursuit of the above activities; the law should aim towards reducing the profits of any company.
Most companies are taking advantage of corporate social responsibility to critically assess and analyze the needs of stakeholders then come up the activities based these needs. This therefore would mean that such companies are not implementing social responsibility as part of their plan but because of the pressure from stakeholder. Some companies would carry out social corporate responsibility only to associate the stakeholders, making them not to strictly implement their activities.
Some companies that are implementing social responsibility based on philanthropic approaches are to be condemned for such acts. This is because it is not quite easy to always extend charity contribution whenever there are problems facing the society since such problems keep reoccurring. In order to solve those problems such companies should help empower the society by supporting income projects that are long lasting so members of such projects are dependent and not relying on regular hand outs. Thus it is of enormous value to teach people how to become self independent not making such people to dependant.
In summarizing the above debate, we can note that any firm engaging in a genuine corporate responsibility will have a tremendous financial success which will increase the profit and wealth maximization motives of the firm. Since there are mediating variables and situational contingencies that affect the financial performance in terms of corporate social responsibility, firms should therefore understand the circumstances of the various activities and pursue only those activities that demonstrates a convergence between the firms' economic objectives and the social objectives of the society. Only when firms are able to pursue corporate social activities with their stakeholders, can there be a market for virtue and financial success to the firms. Thus in this modern world, business managers should not only focus on profit maximization motive but also focus on the well being of the society the business is operating in.