RENOWNED economist Milton Friedman would never have imagined that
acceptable returns on shareholders’ investment would remain to be the only
measure for assessing a corporation’s success because for him there is only one
responsibility of business—to utilize its resources and perform activities
designed to boost profits so long as it follows the rules of the market without
fraud or deceit.
But current geopolitical and
business complexities and the radical change in regulatory policies of
countries all over the world now encourage and sometimes require corporations
to take an active role in social reform and action. These realities have
changed the traditional landscape for businesses and the way they
operate. Societal demands have increased the pressure for the Board of
Directors of companies to move from a purist “rights and duties” role to one of
good governance.
Larger role in society
And part of governance is
confronting the escalating impact of environmental, social and political issues
associated with a company’s daily activities. Companies are now increasingly
conscious about the impacts of their operations—pollution, climate change,
unfair labor conditions, hunger, political unrest and human rights. Since the
demand of different stakeholders for more socially responsible operations are
relentlessly growing, companies are left with no choice but to accept and
integrate these concerns into their practices. Benchmarks and internal systems
have been developed to assess performance on the basis of the aforementioned
impacts. All of these initiatives are now described in one term—“corporate
social responsibility” or CSR.
Good for the bottom line
The positive correlationship
between good financial performance and CSR is now becoming clearer more than
ever. In fact, many economic researches reveal that financial markets are
rewarding or punishing companies based on their perceived social performance.
Companies are realizing that there may be temporary tradeoffs between CSR goals
and profitability, but on a long-term basis, there are greater opportunities
for competitive mileage from establishing a social value dimension into typical
corporate strategy. CSR initiatives enhance shareholder value by compelling
companies to properly manage the risks, evaluate new markets, monitor and
anticipate governmental and regulatory action while contributing to the
developmental and welfare needs of the societies where they operate. In sum,
CSR attracts more investors, the right employees, improves the company’s brand,
leads to a positive reputation and pushes overall market performance.
CSR abuses
But not everyone is impressed
with companies and their present “fixation” with CSR. Some financial analysts
and critics dismiss CSR as nothing more than a convenient public relations
strategy. Others argue that CSR is a mere ‘‘window dressing,” “greenwash” and a
pathetic attempt of companies to shirk from their legal responsibility by
showing acts of corporate kindness and benevolence to hide the truth behind
their misdeeds. Certain non-governmental organizations and cause-oriented
groups have, likewise, shared their view of CSR as an effective preemptive move
of companies to stop governments from acting as watchdogs over their
activities. In fact, ethical compliance stakeholders observed that in many
instances, CSR is even being used as a vehicle for graft and corruption in the
area of charitable donations and social performance endeavors. Donations are
being given left and right to social organizations that are chaired or managed
by government officials, their relatives or minions. CSR has become a political
accommodation.
Way forward
These criticisms must be taken
very seriously if companies are genuinely concerned with doing good.
Process and governance-wise, companies must rigorously develop their respective
assurance frameworks where there are common parameters to measure CSR goals,
simple processes in place to achieve benchmarks, internal auditing and
probably, a system where these goals can be externally verified by
independent and reputable accredited bodies.
With CSR continuing to be a
critical business issue, it is to be expected that companies shall face the
challenge of proving to their investors, employees, customers and the general
public that they strive to create value for both their shareholders and society
in general. Striking that delicate balance is key. From philanthropy to
being a real vehicle for social and economic change, this should direct how a
company’s CSR platform should be measured. After all, there is always a large
room in the marketplace for responsible and ethical firms.
-Business Mirror
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