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Financial view: Corporate social responsibility

The only corporate social responsibility a company has is maximizing its profits. —Milton Friedman.
Creating a strong business and building a better world are not conflicting worlds, they are both essential ingredients for long-term success. —Bill Ford.

The vast majority of companies in the world are small businesses with few employees. These micro-enterprises are relatively easy to manage, since, due to their small impact, they have to cater primarily to the demands of a single stakeholder group; the customers.


In contrast, large companies have a greater impact, as they tend to operate on a large scale and their actions directly or indirectly affect a large part of the population. As is to be expected, these companies are forced to behave ethically, and thus avoid any kind of complaints, which can go viral on the Internet and cause serious consequences for the company. As a result of this potential threat, many large companies decide to invest enormous amounts of money in acting ethically in order to improve their corporate image.


A priori, such decisions usually make a very good impression on the public, especially consumers and the government. However, from an economic and financial point of view, the economists of the company have to ask themselves... to what extent is this decision a wise one?


On the one hand, it is necessary to approach this problem from the stakeholders' point of view. If the company decides to invest more money in improving its image, some people would agree and others would disagree.


Shareholders would probably be unhappy with such a decision, since many, if not most, would prefer that the money be used to increase dividends or be reinvested in the company so that it can continue to grow. It is true, however, that many shareholders would agree with the decision, since, according to them, such a distribution of resources would increase long-term profitability as a result of greater overall customer and societal satisfaction.

In contrast to the shareholders, the government and pressure groups (NGOs such as UNICEF) would be in favor of such decisions being made, as this would increase the general welfare of the population. As a consequence, the government would exempt the company from paying certain taxes, and pressure groups would probably not be as critical of the company's practices. Who should I keep happy, the shareholders or society and the government? Who has more power and influence in the company?


On the other hand, this decision has to be approached from a long-term point of view. It is possible that, if the company allocates a percentage of its resources to improving its image, in a few years' time this image will finally be consolidated. This would give the company a great competitive advantage over other organizations, allowing it to differentiate itself, thereby increasing sales and recovering the money invested. In addition to all this, employees' motivation is likely to increase considerably if they feel that their efforts are having a positive impact on the world.


However, it could also be the case that most or all companies of the same sector would decide to invest in improving their corporate social responsibility, since, as we can see, this can generate great benefits for the company. If that were to happen, then it would be useless from an economic point of view, since improving the company's image would not give it a competitive advantage over other companies.


In conclusion... As a consequence of society's growing demand for ethics, many companies around the world are deciding to carry out projects to improve their CSR. However, as we have been able to deduce from the article, taking this type of action can be dangerous from an economic point of view, so it is advisable to make a thorough analysis of the possible advantages and desirability before making a decision.





 
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