Corporate Social Responsibility and Wealth Maximization

Table of Contents
Introduction .................................................................................................................................................. 3 Strengths of focusing on CSR ........................................................................................................................ 4 a) Publicity..................................................................................................................................................... 5 Limitations of CSR in regard to wealth maximization ................................................................................... 8 b) Unnecessary cost ...................................................................................................................................... 9 Conclusion ................................................................................................................................................... 11 References .................................................................................................................................................. 12

Introduction
Organizations should be more concerned with corporate social responsibility rather than focusing on wealth maximization only. The objectives of an organization are the leading justifications for its existence. Commercial objectives exist to make the maximum possible profits for the shareholders. Wealth accumulation can be termed as the leading motivation for business practice. However, business does not take place in a vacuum. There are concerns of the public who relate with the business that needs to be addressed by the organization. Jonathan and Guay (2006), notes that the existence of an organization should have positive impacts on its host society. Its negative effects should be minimal and mitigated. This reduction of the negative effects while ensuring positive impacts both directly and indirectly is described as the concept of social responsibility. Debate ranges on whether organizations should concentrate in wealth accumulation without social responsibility or whether they should give back a section of their profits to the host community. Prioritizing profit maximization and social responsibility is an issue that calls for attention. This paper explores the relationships between wealth creation for an organization and corporate social responsibility. Focus is on the effects of corporate social responsibility (CSR) to an organizations wealth maximization ability. The place of CSR in non-profit organizations is generally given prominence. This paper addresses the essence of prioritizing CSR rather than sticking to profit maximization. There is an analysis of the arguments that discredit prioritizing for CSR and a hybrid explanation that takes into consideration all the arguments for or against giving priority to CSR.
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Strengths of focusing on CSR

Corporate social responsibility (CSR) is viewed as a responsible corporate behavior that is practiced for the benefits of the multiple stakeholders who are affected by an organizations existence or its products. The practice of CSR is not under the influence of market dynamics or government agencies (Christian Aid, 2003). Traditionally CSR was viewed as a form of philanthropy to improve an individuals welfare or as an instrument to supplement the governments efforts in service delivery. The modern view of CSR is based on the effects of the social responsibility to organizations. It is for the best interests of an organization to practice CSR. It can be stated that CSR allows organizations to do well by doing good Jonathan and Guay (2006) highlight the difficulties faced by non-profit making organizations in CSR. The challenge is to separate their core activities with their corporate social responsibility. There is usually a thin line between non-profit objectives and an organizations CSR. There is a common assumption that what the non-profit organizations do is CSR and thus they should not be involved in other social responsibility activities. However, CSR goes beyond an organizations social objectives (Blackburn, Doran and Shrader, 1994). It is a link between the organization and the society where an organization behaves responsibly. Blackburn, Doran and Shrader (1994) notes that CSR is a broad concept that involves responsibility in various aspects, there are several types of CSR; the most common today is Environmental CSR. Organization, whether profit making or not, struggle to ensure their operation and products are friendly to the environment. The recent awareness on global warming and its effects has forced organizations to draft environmental policies that outline their responsibilities to the environment. The employee related CSR focuses on the welfare of the staff
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and their families. The community focused CSR involve the direct participation of an organization in improving the lives of the society. Open philanthropy is also an aspect of CSR. It involves an organizations direct donation to certain causes or to charity organizations. To the non-profit organizations, CSR enables them to save their operation costs. This is a direct benefit to a company. An organization that is involved in employees CSR will have high performance from it staff. This will enable it to avoid the cost of subcontracting or hiring additional staff (Jonathan and Guay, 2006). The Human Rights Watch is an international nonprofit making organization that operates in almost all parts of the world. The organizations CSR to its employees through insurance policies and risk benefit has helped it to attain high HR output. Its policy on environment has also reduced the operation cost greatly. The organizations insistence on low carbon emitting cars as part of its CSR has reduced its transport expenses too. Emails from Human Rights Watch have messages that warn against printing for the sake of the environment. This has saved the organization office expenditure. Now let us look at the major benefit that any organization derives for practicing CSR.

a) Publicity

CSR boosts an organizations image. It makes the public aware of the organizations existence and its activities (Frankental, 2001). Practicing CSR usually translates to less investment in advertising and publicity activities in the media. CSR can be viewed as passive publicity. The USAID support for Art and cultural festivals in Thailand, India and Nigeria has increased the society awareness of the aid agency through music and dance. CSR creates positive stories for

the media to report about an organization. This is an important PR aspect as the organization gets free and positive media coverage (Charkiewicz, 2005). Negative publicity harms an organizations performance. CSR provides a solution to the bad publicity that an organization receives. The responsible practices diverges attention from the negativities that an organization may be involved in (Jonathan and Guay, 2006). In this era of the social media, negative publicity is hard to control. In the traditional media, an organization could offer clarifications objectively. However, this is difficult in the social media where a story develops to a trending topic that even attracts more people. CSR offers an alternative that makes the public re-examine the conclusions they might have made due to the past negative publicity. Petroleum companies like BP have had their fair share of bad publicity in relation to global warming. These organizations have invested heavily in environmental CSR to offer an antidote to the claims. There are numerous wind mills in BP oil stations that show the organizations response to the likeable renewable environmental friendly energy debate. The UN transport sector is associated with high consuming range cars that pollute the environment. This depiction even in movies has been bad publicity and in response to this, the organization is adopting ecofriendly vehicles. The vehicles are clearly labeled Eco-friendly. This gives credibility to the organizations message on environmental conservation and global warming mitigation activities that are championed by the organization (Charkiewicz, 2005). The satisfaction of an organizations clients is of paramount importance. CSR endears an organization to its target market (Blackburn, Doran and Shrader, 1994). The Canadian cancer society has been involved in educating people on the health issues related with smoking. The organization supports various youth activities like sports. Its core business is not to promote

sports in Canada but this CSR activity endears the society to the people who are targeted by its anti-smoking messages in both the print and electronic media. Similarly, commercial organizations that are involved in CSR activities find it easy to market their products to potential customers. Some even state their CSR activities as a marketing tag. For example, advertisements by Barclays Bank usually have the official sponsors of the European premier league tag attached to showcase their CSR activities. An organizations relationship with its suppliers is greatly enhanced through corporate social responsibilities. The suppliers feel morally obliged to honor all aspects of the contract in times of quality and time. This is beneficial to the organization due to the high quality services and goods that will be delivered. It makes it easier to achieve an organizations objectives. CSR is a long term investment to organizations. From the surface, CSR can be viewed plainly as taking resources from the business to another activity. This view makes CSR appear like an expense. However, the effects of CSR in both short term and long term are instrumental in achieving an organizations objectives (Blackburn, Doran and Shrader, 1994). CSR creates a ground that enables an organization to achieve its objectives and sustain them for a long time. For non-profit organizations, CSR is an indirect way to attain their objectives. The Human Rights Watch (HRW) environmental and human resource CSR will enable the organization to attract funding that sustains its operations. The organization will also attract the best talents that will contribute to the sustainability of its objectives. Non-profit organizations have CSR activities as a risk management venture. Business ethics reduces the chances of a disastrous occurrence or revelation that may affect an organization. Most non-profit organizations are civil societies that have high integrity standards. Responsible

operation structures reduce the risk factors that may affect the organizations strategies. Nonprofit organizations have investments that fund their operations. However, the need to establish resource mobilization structures and gain investments should not override responsible practices.

Limitations of CSR in regard to wealth maximization

The practice of CSR is not a universally accepted principle in business organizations. Although the media and current business systems have rationalized it to make it appear legitimate and close to mandatory. Some organizations practice it not out of principle but to conform to the hype and avoid being viewed as irresponsible (Friedman, 1970). The classical thoughts on business practice did not give much concern to CSR. Wealth maximization was the premise that all business organization should subscribe to. The rise of capitalism also gave credence to wealth accumulation. In the Wealth of Nations, Adam Smith presents a production model that emphasize on specialization. Production for wealth accumulation is presented as the core business of organizations while other agencies should specialize in other activities. The classical economic thoughts present CSR as a diversion from the core business of an organization. It is against the principles of specialization since an organization involved in CSR is venturing into the activities of other people. CSR makes business organizations act like the state and its agencies (Friedman, 1970). There are state departments that should be involved with environmental conservation. It is their duty to ensure that the environment is conserved. Organizations should not bear this burden. This deprives the unit of organization wealth.

b) Unnecessary cost

In modern government systems, organizations pay taxes to the state to facilitate its activities. An organization should be classified as responsible after it pays taxes. It is upon the taxing authorities to offer services like sport sponsorships, finance different campaigns that benefit the society and provide the necessary services like water and health care (Frankental, 2001). CSR appears like an indirect double taxation activity. This expense strains organizations profitability. The human resource in an organization offers services in exchange of money. Jonathan and Guay (2006), highlights that this is a major section of the costs of production. An organization should reward this factor of production in accordance to the services offered. Employee CSR activities are a strain to an organizations income. There is no guarantee that the CSR activity will increase the employees productivity or loyalty. CSR places business in awkward positions in the market. The media and the public are on the look out for an organization's CSR. Organizations spend money on CSR to gain publicity rather than to positively impact the society. The ever present fear of public backlash forces organizations to be responsible. This creates unfair competitive advantages for some organizations, as those involved in CSR are erroneously presented to be friendlier to the society than the others (Porter and Kramer, 2006). Organizations are indirectly forced to use their wealth on CSR. There are cases of businesses that fold up while still being involved in CSR. AIG insurance was threatened by the year 2010 economic crises but the company still had several ongoing CSR activities.

The practice of CSR is grounded in responsible business practices. This is the greatest pillar of business ethics. CSR acts as a voluntary activity by organizations to be responsible in their operation. The UN voluntarily adopts the eco-friendly transport policies as part of the organizations environmental CSR (Charkiewicz, 2005). Profit motivated organizations should not be left to voluntarily practice business ethics by being responsible. CSR is a weak alternative to state regulations. Multi nationals use their CSR activities to influence policy frameworks (Frankental, 2001). This institutional influence of CSR affects governance. Tobacco and alcohol companies have large CSR activities in the developing world. They use this involvement to insulate their operations against laws that may decrease their productivity (Christian Aid, 2003). CSR for some non-profit organizations has involved advocacy campaigns that influence the governance aspects of subject states. The Human Rights Watch support for women empowerment in the Arab world has been used to change the governance systems in such countries (Charkiewicz, 2005). Several democracy promoting non-profit organizations have used their CSR activities as avenues to force legislations on dual citizenship, press freedom and gay rights. Corporate social responsibility objectives assume that the business environment is static. The benefits to an organization are usually in future. However, the dynamic nature of an organizations operating environment does not guarantee any fruits from CSR activities. The sustainability of organizations clients cannot be tied to the organizations CSR practices (Porter and Kramer, 2006). The effect is almost negligible since people are interested with their interests at the present and not on how an organization has served their interests in the past. In this information systems age, the old monopolistic organizations are dying as competition in the business sector increases. It is therefore an organizations product cost, quality, proximity and
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the customers need that will endear an organization to the public and not its CSR activities. (Porter and Kramer, 2006)

Conclusion

The Corporate Social Responsibility (CSR) is an important element of any organization. The core business may be profit maximization but business ethics requires responsibility for making such profits. This responsibility cannot be viewed in the form of taxes levied on profits. This is because taxation is a payment for the costs that the authorities incurred in creating an enabling environment for the business to make profits. Taxation should therefore be separated from CSR since it is a supporting factor to wealth accumulation (Blackburn, Doran and Shrader, 1994). CSR is about "giving back to the community that has hosted an organization. It is an acceptance of the societys role in the success of an organization. This appreciation of the societys role is achieved by ensuring minimal negative effects of the organizations existence while increasing the positive impacts. Non-profit organizations success in achieving their objectives is tied to the relationship with the society that it targets. The nature of non-profit organizations activities should not be interpreted to be a CSR activity (Jonathan and Guay, 2006). Business ethics requires an organization to have positive impacts on a society. The positive impacts can also be facilitated by the authorities but this does not take away the organizations duty to also impact the society. An organization benefits from the society unlike the government which is a creation of the society. An organization's CSR is usually limited to practices that directly benefit the community. Authorities have regulations that limit activities that threaten the stability of a community. CSR

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activities with such potentials are usually monitored by the authorities under special guidelines for the benefit of the whole community. Organizations should voluntarily adopt responsible business practices rather than waiting for enforcement. However, the authorities should not leave it to organizations to self regulate themselves on responsible practices like environmental conservation or employee welfare (Christian Aid 2003). Claims that some CSR activities support corrupt systems or negatively influence governance exist among non-profit organization. However, such organizations risk their existence since change of governance discredits them to the levels of folding up. This cannot be used to discredit CSR since this has moved from CSR to a criminal activity. Wealth maximization at the expense of CSR will make organizations inhuman entities that exist to exploit humanity rather than enriching their lives.

References
Blackburn, V. Doran, M., & Shrader, C. (1994). Investigating the dimensions of social responsibility and the consequences for corporate financial performance. Journal of Managerial Issues, 6 p. 184. Frankental, P. (2001). Corporate social responsibility - a PR invention?. Corporate Communications: An International Journal.V6: 16-25. Charkiewicz, E. (2005). Corporations, the UN and Neo-liberal Biopolitics. Journal of Development. V 48 p. 79-86. Christian Aid (2003). Behind the Mask: The Real Face of Corporate Social Responsibility. London: Christian Aid. Jonathan, P. & Guay, T. (2006). Corporate Social Responsibility, Public Policy, and NGO
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Activism in Europe and the United States: An Institutional-Stakeholder Perspective. Journal of Management Studies. V.43 P.48-59. Porter, M., Kramer, M. (2006). Strategy and Society. The Link Between Competitive Advantage and Corporate Social Responsibility. Harvard Business Review, V 84 p. 69-77. Friedman, M. (1970). The Social Responsibility of Business Is to Increase Its Profits. New York Times Magazine, p. 122-126.

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