Corporate Social Responsibility Versus Profit Maximization

Topics: Corporate social responsibility, Social responsibility, Socially responsible investing Pages: 6 (2239 words) Published: March 14, 2012
Corporate Social Responsibility versus Profit Maximization
Nowadays, many large multinational corporations which occupy increasing shares in the market and high statues in the society are usually powerful in having both positive and negative effects on the public to a great extent. As a consequence, today, the concept of Corporate Social Responsibilities (CSR) draws much more public attention. Social responsibility goes beyond profit making and social obligation. CSR is a business intention focusing on minimizing the harmful effects and maximizing the benefit for the society (Mohr, Webb and Harris, 2001, p. 47). According to the Triple Bottom Line Concept of Elkington (1997), a company should be responsible for its social, environmental as well as financial performances, which is also known as the“profit, people and planet” approach. This concept encourages a company to take both the contributions and impacts they make to the social and environmental into account when measuring their corporate performance (Mellahi, Frynas, Finlay, 2005, p.109). To follow this concept, some corporations have started to look for a strategy which seeks to maximize both financial return and social good. However, some others state that corporate social responsibility contract the economic performance of one company. In this paper, the relationship between corporate social responsibility and the goal of profit maximization of one company will be critically appraised, and analyses will be given to the issue on whether there is a divergence or a positive interaction between them.

Relationship between Corporate Social Responsibility and Profit Maximization Before looking at the different views towards the relationship between CSR and profit maximization, it is necessary to emphasize the concept of “stakeholder”. It is claimed by Branco and Rodrigues (2007) that in managerial decision making which is related to socially responsible activities, stakeholder is the inclusion of all the constituents or groups, rather than just shareholders. The introduction to the identification of stakeholders which will be used in the further analyses repeatedly makes it easier to look into the relationship between CSR and the economic performance of one company. In terms of the further analyses of this issue, the opinions held by different people are presented as follows. (1) Conflicts between CSR and Economic Performance

In a famous article of the Nobel laureate Milton Friedman (1970), it is stated that a corporation actually spends someone else’s money when performing the social interest. That is to say, when the managers spend the money of the firm on social responsible activities, they probably have reduced the shareholders profit, the employees’ salaries, or the money which can originally be used in other profit making activities. Therefore, the benefit for the society and for the shareholders cannot be realized by any managerial strategies at the same time. It is true that problems and conflicts will arise when the managers of one company attempted to achieve the benefit of all the above stakeholders. The following business example can better interpret the conflicts. As a large multinational corporation, Nike has built up its factories in many of the developing regions, such as Mexico, Bangladesh and Mainland China, to get access to cheaper resources and labors for their production, whilst the host country can only gain very little percentage of the profit from the product. As most of the revenue flows to the home country of Nike, the goal of profit maximization has been achieved by reducing the costs. The approach for Nike to realize their owners’ benefit is to make use of the unregulated labor markets in other countries, and to “ride roughshod” over the environmental standards of these countries (Hindle, 2009), which is contrast to the benefit of the stakeholders in the host country, including employees, suppliers as well as the...
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