Any business can not work in isolation, with sole objective of earning profit. The employees, customers, suppliers and the community is effected by the activities of the business. Previously, it was viewed that the sole responsibility of the businesses is to earn profits and to ultimately maximize shareholder value i.e. stock prices. But in today’s environment, there is a shift from profit motive to the social motives. In this essay, the statement i.e. a business’s only responsbility is to produce profits, is critically evalauted

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The given statement could not be accepted,  because the business also need to create value along with profit making and enhancing shareholder value. For creating value, it needs to indulge itself in to Corporate social responsibility innitiatives in the society. The products of the business have an impact on environment at large. The CSR activities help businesses maintain effective relationships with its stakeholders. Various studies have highlighted that it is not the sole responsibility of business corporations to earn profits, but to achieve the social goals as well.The companies are now paying more attention towards their image, their culture and above all the value they ultimately earn in the society. Businesses need to create wealth before its distribution. Both the profit earning and social responsiveness go side by side. The companies in today’s environment are more sensistive towards their social role as compared to their traditional role of generating profits (Palomino, et al., 2015).

Vast literature in favor of social goals i.e. the social responsibility of the organization can be found. Abrams (1951) also argues that the companies need to think about the society in which they are operating. Donaldson (1983) mentioned the social obligations businesses have towards society. Furthermore, a company needs to perform its role of effeciently and effectively use its natural and human resources not only to enhance its productive capabilities but also to attain competitive advantage. Wood (1991) has expanded these ideas and identified three principles of Corporate Social Responsibility. Firstly, business organizations being social institutions need to enforce their powers in a very responsible mannger. Secondly, they are responsible for the ways they are opting to interact with the environment. And thirdly, managers being moral agents need to take decisions in a responsible manner.

Various arguments favoring the concept of CSR says that it is in the long term interest of business to be socially responsible. So the organizations need to take necessary actions today, if they want to have a healthy climate and to ensure long-term viability in future (Davis 1973). Another argument favoring the concept says that organizations need to be proactive than reactive. It means that organizations need to take necessary steps to anticipate, plan and initiate instead of reacting to social problems once they have surfaced (Carroll and Buchholtz 2009). Moreover, the organizations need to engage in CSR initiatives to get the public supports. Apart from organizational pursuits of earning profits they should be responsible towards their employees, community and other stakeholders. By doing so, if they even compromise some profit today, it will ultimately lead to have a long term impact over company (Bernstein 2000). All the CSR activities that aim at managing positive community relations may lead to reductions in cost and risk (Berman et al. 1999), attaining tax advantages and reduction in regulations imposed. Along with the other benefits CSR initiatives will lead to enhanced brand loyalty (Pivato et al., 2008) and competitive advantage (Bruch and Walter, 2005).

Favoring the CSR approach, Deutsche Lufthansa AG, operated a community involvement program to enhance its relationship with the community (Bruch and Walter 2005). McDonald’s Corporation is the largest donor of Ronald McDonald House Charities (Ronald McDonald House Charities 2009). Companies aligning its philanthropic activities with its competencies and capabilities may avoid distractions and ensures efficient charitable activities and value creation for its beneficiaries (Bruch and Walter 2005). Similarly, McKinsey & Co. is offering free consultation to public art galleries, colleges and other nonprofit charitable institutions (Bruch and Walter 2005). Whereas, Home Depot Inc. has been sharing the reconstruction information to all the victim communities of Hurricane Katrina (Home Depot, 2009). There are some other companies like General Mills Inc. that started supporting the breast cancer cause. They not only donated $1.5 million (Yoplait 2009a) but also started to donate 10 cents for every pink lid customer purchase (Yoplait 2009b). The value these organizations earns is of far more worth than the amount of money they donate. Another practical example of corporate social responsibility initiative is buy (RED) initiative. This initiative helps consumer to develop a collective power to help the ones in need (RED 2009). Participatory organizations donated 50% of their profits for medicine distribution in Africa to battle AIDS (RED 2009). All these organizations prove that their financial gains are consistent with their social goals. All these organizations compromised their profit in short term, while created value and attained a long term impact. The organizations need to simultaneously pursue both these goals and their financial goal must not be pursued in cost of social goal (Korschun, Bhattacharya, and Swain, 2014).

By looking at the trends of CSR, the organizations now need to consider the social values while taking decisions. At the businesses that only focus on their profit earning responsibility, while ignoring their social responsibility, will face the public disfavor. The CSR concept is not only focusing the profitability and growth of business, but is also focusing the societal and environmental interests (Cheng, Ioannou and Serafeim, 2014). Aligning the corporate goals and social values by successfully implementing the CSR strategy will ultimately enhance the reputation of business. The CSR initiatives seem to effect the purchasing decisions of the customers. Ultimately the employees come from the community and if the employee is aware of the indirect benefits he will have. Than these CSR initiatives will positively affect the motivation and performance of the employee (Korschun, Bhattacharya, and Swain, 2014).

Conclusion

Hence considering all the arguments favoring the current social role, we may conclude the organizations don’t have the sole responsibility of earning profits. They are responsible to community in which they are operation. In order to enhance and ensure its reputation in long term the organizations need to fulfill their social responsibilities. Therefore, it is concluded that this is not only responsibility of business to earn profit and it has to take a broader perspective where it needs to fulfill needs of all stakeholders.

References

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