Social Responsibility

Business practices of engaging in ethical behavior and in taking actions aimed at benefiting the society that the business operates in

What is Social Responsibility?

Social responsibility refers to the business practices of engaging in ethical behavior and in taking actions aimed at benefiting the society that the business operates in.

 

Social Responsibility

 

Corporate social responsibility has become an increasingly important factor for companies to consider since the turn of the century. It is at least partly because millennials – the customers and stock investors of the future – have shown increasing concern about socially responsible business practices.

Many companies have become more eager to practice corporate social responsibility after finding that it can actually increase their revenues and profits. Numerous marketing studies have found that both investors and consumers are more likely to support and purchase from a company that fosters a social cause they favor or practices social responsibility in other ways, such as engaging in environmentally friendly practices.

However, the corporate social responsibility movement is not without critics.

 

Summary

  • Social responsibility refers to the business practices of engaging in ethical behavior and in taking actions aimed at benefiting the society that the business operates in.
  • Corporate social responsibility has become increasingly important, as both investors and consumers have expressed a greater desire for such actions.
  • Companies can pursue enacting socially responsible policies in many different ways, but the most successful efforts appear to be those directly related to a company’s core business operations.

 

Means of Practicing Social Responsibility

Different companies pursue implementing socially responsible practices in different ways. One of the simplest and most commonly used practices is giving a percentage of profits to support a specific charity or designated cause.

Many companies have begun to tout the environmentally friendly nature of their operations. For example, some companies involved in the food and drink industry proclaim the fact that they only use organically farmed ingredients in their products. Some businesses concentrate on reducing their carbon footprint (energy sources that produce greenhouse gases), water pollution, or the use of non-recyclable materials.

Other businesses choose to practice social responsibility simply by contributing to the communities where they are located, such as by providing fitness facilities or discount housing to their employees.

 

Social Responsibility in Action – Examples

Here are two examples of how major companies have chosen to implement socially responsible actions in their business operations.

Johnson and Johnson (NYSE: JNJ), the medical device corporation, has pursued social responsibility in a couple of primary ways. First, they have made a firm commitment to move toward and sustain obtaining their energy needs from renewable energy sources, such as wind power. Second, they have extended charitable work that provides clean water in areas of the world where it is in short supply.

The Coca-Cola Company (NYSE: KO) has focused on making its large supply chain more environmentally friendly and socially responsible by gradually transitioning much of its fleet of delivery trucks to vehicles that use alternative fuels, such as electricity, rather than traditional oil-refined fuels, gasoline, and diesel.

 

Social Responsibility – Best Practices for Companies

As the practice of social responsibility by corporations has become more widespread, some best practices for companies to follow have been recognized.

When companies engage in charitable giving, their socially responsible practices appear to be easier to implement and sustain and to garner a better public response when they are related to the company’s core business operations. For example, a food company will generally do better to make contributions to local food banks or homeless shelters than to, say, simply make monetary donations to general charities.

Many businesses have done well by adopting socially responsible practices before they are required by laws or regulations. For example, companies may take substantial steps to clean up wastewater from their production facilities over and above what is required by law. By taking such steps, they may be recognized as industry leaders in practicing social responsibility.

 

Criticisms of Corporate Social Responsibility

The increasing practices of corporate social responsibility are not without critics and detractors. The corporate social responsibility movement draws fire on several grounds.

The first ground for criticism is that many companies, in focusing on social responsibility, detract from what should be their primary focus – generating profits for shareholders. The critics often argue that pursuing socially responsible practices is making the overall economy less efficient.

Other critics fault the genuineness of some corporate social responsibility efforts, writing them off as mere public relations stunts with little positive impact on society. It is a common criticism when companies engage in a “one-off” charitable contribution rather than in sustained socially friendly operations.

 

Additional Resources

CFI is the official provider of the Certified Banking & Credit Analyst (CBCA)™ certification program, designed to transform anyone into a world-class financial analyst.

In order to help you become a world-class financial analyst and advance your career to your fullest potential, these additional resources will be very helpful:

  • Ethical Investing
  • ESG (Environmental, Social, and Governance)
  • Socially Responsible Investment (SRI)
  • Sustainability

Financial Analyst Certification

Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes and training program!