Companies as Civil Servants

¶ … Companies Do Enough for Society by Simply Adding to the Economy or Should Businesses Also Attempt to be Socially Responsible

This work in writing will consider the pros and cons of businesses being socially responsible in society. Towards this end, this study will examine the literature in this area of inquiry.

Defining Socially Responsible Behavior

Socially responsible behavior on the part of a business is defined as the business's "obligation to maximize its potential impact and minimize its negative impact on society." (McGraw-Hill, nd, p.39) Kokemuller (2008) states that one of the "foundational elements of CSR [corporate social responsibility] is that it cause companies to reason beyond basic ethics to consider the benefits of active involvement in communities." (p.1)

Pros and Cons of Corporate Social Responsibility

One stated pro-of corporate social responsibility is that it motivates employees. The premise of the company obligation to this group of stakeholders in relation to compliance with corporate social responsibility is stated as being that the most valuable asset of the company are its employees. This is stated to mean "treating employees with respect and offering fair working conditions." (Kokemuller, 2008, p.1) In addition, it means "establishing fair hiring practices and promoting a non-discriminatory workplace." (Kokemuller, 2008, p.1)

Stated as a con to corporate social responsibility are the expenses the company incurs towards this goal. For example, it is reported that with CSR the company incurs expenses related to "environmental programs, more employee training, and efficient waste management programs. Proponents of CSR agree that any expenses to businesses are ultimately covered by stronger relationships with key customers. However, David Vogel indicates in his Forbes article "CSR Doesn't Pay" that investment in CSR programs may not necessary result in measurable financial results." Kokemuller, 2008, p.1) Another con to corporate social responsibility is reported to be related to the expectations of shareholders. Stated specifically is that publicly owned companies have traditionally had their focus on maximization of shareholder value however, they now are required to "balance the financial expectations of company owners with the social and environment requirements of other stakeholder groups." (Kokemuller, 2008, p.1) While some stakeholders are very much interested in the investment required for high integrity in the company there are other stakeholders that do not have this interest and are not willing to invest the needed funds for corporate social responsibility. Kokemuller, 2008, paraphrased)

A study conducted by Stanwick and Stanwick (2001) reports having conducted research on the impacts of social corporate responsibility on executive compensation and states findings that CSR has a negative impact on the compensation of executives. However, in a study conducted by McGuire, Dow and Argheyd (2003) findings show that CSR positively affected executive compensation and bonuses. King and Lenox examined the impact of CSR on executive pay in a 2004 study that reports positive impact of CSR on executive pay but however, that the findings were marginally positive only. Finally, Coombs and Gilley (2005) report a study examining the impact of CSR on executive compensation and state findings that CSR had a neutral or negative result on compensation of executives. The work of Berrone (2008) entitled "Pros and Cons of Rewarding Social Responsibility at the Top" states the following advice to companies to ensure that executive compensation is positively impacted by CSR:

(1) Be aware of the link between social and economic performances;

(2) Define how social initiatives will be measured;

(3) Have proper information systems and monitoring mechanisms in place;

(4) Understand how social initiatives affect the different stakeholders of the firm and account for potential trade-offs;

(5) balance between intrinsic motivation and extrinsic incentives; and (6) comprehend the context in which the firm operates and identify those aspects that are highly valued within it. (Berrone, 2008, p.7)

Summary and Conclusion