Social responsibility in business: customer interests versus investor profits

Customer vs. Investors.

To begin, customers are the central component of any successful business. A relentless approach to customer satisfaction is what has created some of the world's greatest companies. To be successful, corporations must address a specific need by a customer, and satisfy that need better than the competition. As such, investors prosper as the companies they own perform well for the customer. This is the only manner in which investors can prosper. If customer needs are not being adequately addressed, the investor suffers as consumers leave to a competing firm. Therefore, it is my belief that John McKay is correct in his assertion that companies must put customers ahead of investors (Pride, 2008).

Investors exist only because there is a viable market for the goods and services their companies provide. If no demand for these services existed, investors would subsequently not exist. By providing these services investors deserve to obtain an adequate rate of return on their investment. However, they must continually focus on satisfying customer needs in order to maintain their rate of return. By providing a compelling value proposition to consumers, investors can continue to reap the profit rewards that are obtained through correctly satisfying consumer needs. However, if investor greed begins to creep into business operations, both the consumer and the business overall suffers. Numerous examples of this behavior occur in business. The recent financial crisis was driven in part by investor greed. Doing what is best for the investor, as the financial crisis in 2008 indicated, is not necessarily what is best for the customer. By pursuing profit motives only, many companies such as Bear Sterns, Lehman Brothers, Washington Mutual, and Long-Term Capital Management all went bankrupt. In these instances, investor and corporate greed ultimately left the investor with nothing. By being conservative and putting the consumer first however, many companies have prospered. Innovative companies such as Apple continue to provide strong returns for investors while address consumer needs first. American Express is rated very highly for their customer service and therefore has 24% of all credit cards spend in the United States with on 9% credit card penetration. In both instances, by putting the customer first, these companies have prospered handsomely (Carpenter, 2010).

Furthermore, as the article illustrates, being loyal to customer also have financial incentives to investors as well. Statistics have proven that loyal, satisfied customers are often more profitable. They tend to purchase more products, while requiring less advertising dollars to attract. Customers are also very credible sources of information for other consumers. Word of mouth marketing, when positive, is a huge advantage for companies that service client and consumers well. Consumers are 4 times more likely to purchase a product when it is recommended by a friend as oppose to a third party. All of these benefits are derived through putting the customer first as oppose to the investor. The customer relationship is often long-term in nature. By building a quality relationship, competitors can not take it away. No amount of advertising or price reductions can erode a great experience from a consumers mind. As such, quality care for customers has implications for patient investors for years to come.

What is the social responsibility of business

Ethics and social responsibility are very important irrespective of the community in which you conduct business in. All stakeholder groups are benefited from the use of ethical behavior. For one, stock holders benefit as the financial numbers used to evaluate and engage in business activities are legitimate. These numbers will therefore provide a solid foundation in which to evaluate the merits of a particular activity such as a merger, acquisition, dividend, stock buy back and so forth. Consumers benefit as they are not mislead in regards to purchasing decisions. These builds trust as the brand will become synonymous with ethics further expanding the market share of the company. This will then benefit the shareholders even further as more consumers purchase products from this trusted company. The community benefits as the company contributes to the community through the profits garnered from sales (Armstrong, 1977). As such, all stakeholder groups benefit and flourish. Social responsibility is no different in this regard. Companies, especially during tough economic circumstances want to demonstrate their commitment to the communities in which they operate. Usually, these commitments translate into high sales figures and better customer loyalty. Social responsibility also engages associates on a personal level as they can volunteer and contribute to causes pertinent to their beliefs. These increases employee satisfaction which ultimately helps improve productivity.

In regards to benefits, a company has many incentives to be socially responsible. For one, active participation in causes such as employee diversification and environmental sustainability are pertinent to ALL stakeholder groups involved. This also indicates that the corporation cares about its socially responsible behavior and has an extreme desire to make this responsibility a priority. For one, the company must express the importance of sound ethical practices and social responsibility to all stakeholders involved. This can be done in numerous ways such as the annual report, 10-k report, 10-Q report, marketing campaigns, advertisements and more. The role of ethics in regards to social responsibility is that of trust. Companies must develop trust with each stakeholder group in order to be successful. By having a strong ethical grounding, companies are in better position to establish this trust. This trust manifests itself through customer loyalty which ultimately increases sales for the business enterprise (Francis, 2011).

There is however an opposing views in regards to the social requirements of corporations. If shareholders deem a particular social cause merit worthy, than they should allocate capital themselves rather than having the business engage in such activities. In addition, many companies have hundreds of thousands of shareholders. Each will often have disparate opinion on social responsibility. In addition, even if all shareholders agree that social responsibility is important, they often disagree on what the money should be allocated to. This presents problems for the company as it is unable to give to every cause that the shareholders desire. By engaging in only a handful of socially responsible causes, the company is alienating those shareholders who do not necessarily agree with the company's social responsibility mandate. Therefore, according to economists, it is better to simply allow the shareholders, on an individual basis, allocate funds to causes they deem important (Kali-ski, 2001).