Corporate social responsibility is often used synonymously and interchangeably with either corporate philanthropy or some other concept closer to the latter view of corporate activity than to the former.
While corporate philanthropy has to do with a business’s societal contribution that may or may not bring it direct returns, corporate social responsibility is all about fulfilling the basic responsibility of good business without which the business and society would not be able to enter into a mutually beneficial virtuous cycle.
While corporate philanthropy is a stage that can be reached even by skipping the immediate business responsibilities, corporate social responsibility is first about the fulfilment of business obligations to immediate stakeholders following which alone can a business serve the social needs of the community and/or the society in a credible manner. This would mean that a philanthropic business may not necessarily be socially responsible as philanthropy is not all there is to the social responsibility of businesses.
Setting up charity schools and health centres does not necessarily mean that the responsibility to all the stakeholders including the customers, employees, shareholders, suppliers, creditors, competitors, government, community, society, and the planet earth is also being discharged in earnest. While community and society may be an all- encompassing stakeholder, these two are but a couple of stakes in the above array of stakeholders that a business is obligated towards directly. Charity schools and hospitals would be a part of direct responsibility to these two stakes but only partly so if the other stakeholders who too are a member of the society and/or even the community are not served well enough directly by business organizations.
While the remaining stakes are not only that of the primary input providers to businesses for which reason they should be satisfied first and foremost, lack of fulfilment of responsibility towards them would actually add to the demand for charities which can be reduced if businesses’ returns to these stakeholders are in proportion to the primary inputs they provide. Not only would the demand for charities go down proportionately, the businesses would then not have to worry so much about philanthropy often at the expense of direct responsibility to immediate stakeholders in our country which feeds back into a growing demand for charity places. Let us see how!
First, responsibility towards employees would include fair compensation, recognition for good performance, healthy working conditions, safety and security considerations, involvement in the organization to enable each to realize his/her potential, equal employment opportunities, and absence of discrimination, prejudices, and biases. In short, the corporation is to provide that medium through which the individuals are connected to the society and are thereby actively engaged in the accomplishment of a part of the societal mission through the satisfaction of some specific needs and wants that feature in the corporation’s reason for being or in the corporate mission.
Only then can the minds be engaged and the souls be charged towards a passionate pursuit of corporate goals. If a corporation/organization succeeds in this endeavour, it has not only fulfilled its responsibility towards the employees, who are a key component of the society, but it has also mobilized human potential towards the discharge of its responsibility directly to the society by providing quality, affordable, and safe goods and services which is why businesses exist and which is their raison d’etre.
A common notion is that businesses exist for “making profits.” If that be the case, the reason for being is common to all. How then would you distinguish one business from another? What then is the self-image of the business and what is the image they wish to project as distinct from another entity’s if all stand for making profits only? Also, is profit-making an end in itself? If yes, will we then not just be operating at the lower end of the human needs’ continuum? How then can one charge the souls of hundreds and thousands of employees towards the attainment of corporate goals if these are only about filling the coffers of the shareholders?
Will it not then spread widespread resentment eventually leading to the vindication of the Marxian prediction about capitalism? And, if profit is the end of all business activity, how can the means towards making these profits then be all the various areas elevated to functional level specialization in business schools some of which are rooted in social science disciplines with philosophical underpinnings? Is all of this theorizing and knowledge building a big facade to merely make money? And, if all corporate activity can only be organized around money-making, why is it that some of the most effective activity in the military, political, and social setting is organized around non-material goals? It may, however, be said that even the latter type of non-business activity requires financial resources for which surpluses need to be generated.
Similarly, profitability is an essential business result as well as a requirement without which the loftier goals of needs and wants satisfaction by businesses cannot be achieved or even contemplated. In turbulent times, corporations are even more hard-pressed for profitability which then gets factored into and emphasized in their short-term and annual goals. For, without financial resource generation, the corporate mission cannot be accomplished. Here, we seem to be entering into a circular means-ends relationship. To achieve a certain end, means are required. Then means become the end at the next lower level of operation and so on.
Similarly, as business mission cascades down the organization, it gets translated into clearly identifiable and measurable objectives and means which keep getting reversed in the cascading process as we move down the hierarchy in operationalizing the corporate goals. All that one gets to see at the end is the bottom-line profitability and one tends to think that this is what a business is all about. It is almost akin to saying that since without food we would perish, food is all there is to life. So, since corporations would perish without profits, they exist only to make money. But, we do not live to eat. We eat to live. Similarly, corporations, like living organisms as described in organizational theory, cannot continue to discharge their reason for being without profitability. So, profits, like other resources—-human, physical capital, enterprise—-are required for sustainable operations. But, to say that organizations exist for profits is like saying man is created to eat and exists to do just that!
The profit emphasis emanates from the “maximization of shareholders’ wealth” concept in finance and is also rooted in elementary theory of the firm in microeconomics. It is said that maximization of shareholders’ wealth embodies the interests of all other contributors to the firm. This is a simplistic view with internal contradictions. For, a lot of times short-term gains may need to be traded-off with a firm’s long-term gain that may require re-investment in the areas of marketing or production or information technology or human resource or all of them and more to ensure continued growth of the organization. Corporate long life is enabled only if there is simultaneous progress made in promoting the interests of all the stakeholders. Otherwise, the best in other stakeholders cannot be brought out if the relationship is zero-sum and not win-win.
Even the conservative view of social responsibility that emphasizes only the shareholders’ gain advises that this should be aimed at within the “rules of the game.” The rules of the game says it all even in the conservative school. That is, fair business practices with all the stakeholders alike. In a way then, the conservative school of social responsibility embodies the contemporary view too which is about a direct focus on the interest of all stakeholders alike. Even the physical environment gains salience as it is a cost of business or an investment that brings returns to the society and businesses by making natural environment fit for human health and habitation.
And, no business can continue to remain in business unless the customers keep beating the path to its door which will be possible only if good quality, affordable, and safe products and services are provided with full information. Unfortunately, even quality improvement exercises are viewed as “costly” by some when these are investments made in the interest of the competitive edge of the business. Successful businesses strive for brand loyalty and brand equity and aim not just at customer satisfaction but at customer ecstasy.
As benefits trickle back up through a happy customer base which is a societal segment, firms grow both in size and competitiveness. None of this is, however, possible unless this important requirement of doing business is internalized by business organizations and becomes a part of corporate mindset and philosophy. No other way of doing business would then be known and the corporation would enter into satisfaction-contribution equilibrium with yet another key segment of the society.
Similarly, responsibility towards the suppliers, creditors, and government would need to be fulfilled by honouring contracts, returning loans, and paying taxes. There will then be a tractive effort on other segments of the society which will be pulled up along with corporate sector’s growth. Demand for some of these other segments and sectors is derived from business growth in a particular sector. As for the government, it needs its due returns too so that it may fulfil its various obligations some of which the corporate sector has assumed as in the area of charities which demand would decline with an increasing concern for corporate social responsibility which is distinct from philanthropy as outlined herein.
Corporate social responsibility is named thus as the concept aims at the well-being of various segments of the society who are also the immediate stakeholders of business organizations. To that extent it is social otherwise it is an essential requirement of doing business. Business social responsibility, therefore, begins with the discharge of the basic principles of business administration taught in business schools. Having done this much, business organizations may then graduate to influencing life in the community and the society in other more direct ways that would indeed be very welcome. However, reaching straight out to the community/society after bypassing some of the initial but essential steps of doing business would qualify one for a corporate philanthropist who may not have been very responsible socially in the strictest sense of the term. It is paradoxical but true in our society. And, addressing this paradox remains a frontier for country’s business schools.