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Corporate Social Responsibility: What’s the Big Deal?
One of the most contentious debates among scholars has centered on the proper role of a corporation in the pursuit of its business. In large measure, the debate has crystallized around two points of view. On the one hand, some believe that a corporation’s chief responsibility role is to make and maximize profit. This belief has often been referred to as the Friedman Approach in homage to the economist, Milton Friedman. Friedman espoused the view that as long as a corporation stayed within the rules, its only responsibility was to return the maximum profit to its shareholders. On the other hand, other scholars have asserted that the social responsibility for a corporation extends beyond just making a profit and includes a responsibility to act in a manner that promotes and supports the welfare of society at large.
What do you think about this so called “Shareholder vs. Stakeholder” debate? Do you have any personal experiences where you have observed the effects of this debate regarding corporate actions? On which side of the argument do you come down on and why?
Expert Answer
A corporation is established to generate profits and it is directly correlated with the shareholders who have established it. Though, the corporation operates where the people and communities are and these entities are affected by the activities of the corporation. It led to the concept of stakeholders. Here, one of the stakeholder is shareholders apart from society, government, employees, customers and vendors as other stakeholders. Hence, stakeholder is a broader concept and shareholder theory is a narrow concept. In modern business environment, stakeholder theory is more prominent because of corporation’s direct and indirect impact upon the other stakeholders.
Stakeholder theory also emphasizes that shareholders should earn profits, but it should happen while considering the best of the interests of the society, customers and regulations.
I have a personal experience of a company manufacturing FMCG goods. The company released huge amounts of effluents and it caused a bad smell in the environment on a persistent basis. As a result, community got negatively affected. To compensate it, the company started CSR initiatives such as setting up training centers, employing local people and setting up primary health care centers while imporving the effluent treatment process.
Thus, the company’ process led to the negative externality and to cure that, company took CSR initiatives. Here, the focus was upon the stakeholders as they were getting affected. In other cases, water borne pollution, air pollution and other hazardous effects take place upon the environment. It is ultimately the loss of people and upcoming generations. As a result, the company has to come up with a plan to look after the well being of the society. Hence, the corporations should follow the stakeholder approach to sustainability.
