fbpx

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 partly because millennials – a generational group of employees, customers and stock investors – 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 believe in or practices social responsibility in other ways, such as engaging in environmentally friendly activities.

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 employees, 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 companies have integrated them directly into their core business operations.

 

Means of Practicing Social Responsibility

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 promote the environmentally friendly nature of their operations. For example, some companies involved in the food and beverage 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 ways. First, they made a firm commitment to move towards obtaining their energy needs from renewable energy sources, such as wind power. Second, they have supported charity projects that provide 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 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 have been recognized.

When a company’s socially responsible practices are incorporated or integrated into their core business operations, they tend to be easier to implement, to sustain, and will garner a better public response. For example, a food company will have more success donating surplus food to local food banks or homeless shelters than to, say, simply make monetary donations to various charities.

Many businesses have done well by adopting socially responsible practices before they have been 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 spread of corporate social responsibility is not without critics and detractors. The corporate social responsibility movement draws fire from several different grounds.

The first, is that many companies in focusing on social responsibility, become distracted from 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. This is a common criticism when companies engage in a “one-off” charitable contribution rather than having integrated socially responsible operations.

 

Additional Resources

CFI is the official provider of the Commercial 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!