Corporate Strategy
There are differing schools of thought with respect to businesses’ contribution towards social responsibility and corporate citizenship. Thomas, Strickland and Gamble (2008, p. 312)define the essence of corporate social responsibility as a balance of strategic actions by business to benefit shareholders against the duty to be a good corporate citizen and go beyond just complying with laws and regulations to benefit society .They go on to explain that business managers have a responsibility to display a social conscience in operating a business and need to take into account how commercial actions affect the well being of all stakeholders involved and the environment (Thomas, Strickland & Gamble, 2008).
Milton Friedman (1970), the 1976 Nobel Prize winner in economics, argued in an essay published in the New York Times (1970) that business cannot have responsibilities, only business executives can and those are to provide shareholders with the best possible return for their investment within the rules of law and ethical standards. If a corporation had a responsibility it would be to its shareholders and not society. Friedman’s outdated views go on to argue that any form of corporate social responsibility would negatively affect shareholders by decreasing profits, employees by jeopardizing wage increases and customers by raising sales pricing to account for spending. “Friedman’s conclusion is based on a model of rational choice grounded in the assumption that human beings act primarily from interests of the self, that is, in their own self interests, broadly conceive.”(Werhane & Freeman, 1999)
Almost 40 years have passed since this essay and society’s mindset towards profits and the effects on the environment and society have evolved. More progressive schools of thought believe that there is both a moral and business case for including corporate social responsibility in a company’s strategy. Society dictates that businesses should not only operate within the rules and regulations of the land, but that they have a moral obligation to be good corporate citizens by doing the right thing. Thomas, Strickland and Gamble (2008, p. 318-319) explain that businesses operate on the basis of an implied social contract with society, which allows them to conduct business in a reasonably unrestrained environment to pursue fair economic returns in exchange for promoting general welfare and ensuring responsible actions.
Corporate executives can easily justify including socially responsible practices in their strategy to shareholders, by explaining the business benefits these practices can have on shareholder investment. Environmentally and socially sustainable practices can often improve the reputation of a company, which can increase customer support, contribute to improved staff productivity through loyalty, create a competitive advantage through differentiation and lower shareholder’s legal risk due to otherwise possible regulatory infringements. Other benefits include preferential government contracts. The South African Government through its Broad Based Black Economic Empowerment policy, of which corporate social responsibility is one of the seven pillars, offers preferential contracts to companies that score well in these areas. Finally shareholders are increasingly attracted to invest in companies that meet socially responsible criteria.
According to Thomas, Strickland and Gamble (2008, p. 312-314) companies can include one or more of the following five generic components of socially responsible business behaviour in their strategy:
- 1. Promote workforce diversity
- 2. Improve working environment and employee welfare ;
- 3. Support charitable causes, participate in community services activities, and better the quality of life;
- 4. Promote or enhance the environment ; and,
- 5. Ensure a company operates honourably and ethically.
In conclusion, the ultimate strategy for business is to customize these generic social components to not only boost a company’s reputation, but to achieve a competitive edge. This approach will lure potential investors by demonstrating that morally ethical practices can contribute to above average returns.
References:
Friedman, M (1970). The Social Responsibility of Business Is to Increase Its Profits [Online]. Available from: http://www.marshall.edu/cber/LE691/Friedman-The_Social_Responsibility.pdf (Accessed: September 4, 2009)
Thompson Jr., A.A, Strickland III, A. J., Gamble, J.E. (2010). Thompson Jr., A.A, Strickland III, A. J., Gamble, J.E. (2010). Crafting and Executing Strategy- The Quest for Competitive Advantage, Concepts and Cases. 17th edition .New York: McGraw-Hill/Irwin, pp. 310-321.
Werhane, P.H, Freeman, R.E. (1999). Business ethics: the state of the art [online]. Available from: http://management.uta.edu/Shumate/Stakeholder%20theory.pdf (Accessed: September 4, 2009)