The report is based on certain theories of corporate social responsibilities. Corporate social responsibility can be termed as responsible business and the main object of this policy is to monitor the business mechanism and maintained the standard of business within the sphere of law (Brown, 2013). The process includes certain standard of statutory requirements and engaged the companies to act for the benefit of the society. It has been stated by the policy that every company should have to do certain works from that the society can be benefitted and the main theme of the policy is based on this fact. However, the acts of the companies should be performed within the purview of law. The policy has given certain options to the labour organisation so that they can take part to this noble action and understand the socio-political issues of the company (Cheng, Ioannou, & Serafeim, 2014). In recent times, it has been observed that the companies are suffered gender discrimination and recruitment of disabled workers. Sexual abuse in the workplace or irregularity in the payment of wages are also burning topic in the companies and these affected the social and personal life of the workers. Corporate social responsibilities are restricting the power of the corporation and act as a guide to the companies (Crane, Matten & Spence, 2013). It regulates certain business ethics and for the betterment of the company. According to the view of the political economists, this policy can secure the interest of the stakeholders and will help to manage the enterprises by strategic and ethical point of view. Milton Friedman had stated that the ultimate goal of the corporation is to ensure profit for the interest of the shareholders. Reverend Freeman concentrated on the ethical promises of a business. This report has been discussed the theories and critically analyse all the necessary concepts to come into a conclusion regarding the motto and objective of the corporate social responsibilities (Hombert et al., 2014).
Therefore, it has been notified that the main theme of this report is to discuss the importance of the corporate social responsibilities. This matter can well be understood by point out the purposes of policy that has been mentioned by several theories and it should be analysed critically (Kelman et al. 2014). It has been pointed out by several economists that the purpose of the companies are not only to be a profit making machine, they have certain contribution towards the society and the environment as well. According to Jobber Chadwick, the companies should be responsible for the operations so that it could not affect the society and the environment (Korschun, Bhattacharya, & Swain, 2014). Carroll has extended the sphere of corporate social responsibility by including the ethical responsibilities within the policy in his book published in the year 1991. Based on his theory, the business dictionary has pointed out the four pillars of the policy such as economic, ethical, philanthropic and legal responsibilities. On the other hand, Epstein Reeves stated that the companies should take care of the social responsibilities as they are taking care of the interest of the consumers. Somerville was of the opinion to invest the companies in certain charity work. Therefore, as per the above noted views, the main aim of the companies should not be earning profit only.
However, Milton Freidman has described the policy of corporate social responsibility as a method of sustainability (Friedman, 2016). It has been stated by him that the companies should gain the resource for the increment of profit and should regulate their business policies in a systematic way. The company should not adopt any fraudulent way to gain profit. He has taken certain approach towards the interest of the shareholders. As per his view, the companies are only responsible for the shareholders and they should have to remain responsible for securing their interest.
Another approach regarding the purpose of the corporate social responsibility has been described by Edward Freeman. He emphasised the theory of stakeholder’s interest (Freeman, Herriges, & Kling, 2014). It has been mentioned by him that the company should take care of the stakeholders and it should operate their policies within the sphere of ethical promises. It has been stated him ethics are important as they are based on the moral judgment. Decisions are playing an important role to draw the culture of the company. Therefore, as per his opinion, the only social responsibility of the companies is to maintain an ethical promise for the betterment of the stakeholders and the company as well (Pedersen, 2015).
Apart from the above noted theories, there are certain other theories that can be proved fruitful to come into the conclusion regarding the original purpose of the companies relating to the social responsibilities. Jensen was of the view that it is important to maximise the values of the firm and ensure the wealth of the shareholders (Jensen, 2017). His theory is based on the modern managerial economics and in his words value maximisation depends on the ethical responsibilities.
Another approach has been made by John Boatright where he has stated about the equity argument regarding the stakeholders. He has provided certain possible relationship within the managers and the shareholders. He examines the theories of fiduciary duties and the stakeholder’s theory.
The term corporate social responsibility is circled with the idea of benefit of the society. It is a self-regulatory body that works within a schedule and implement certain requirements for the development of the society as well as the benefit of the firm. It has been pointed out that a company can be produced high quality goods if it acts as a social responsible company. It has been observed that the most common base of the corporate social responsibility is philanthropy (Salibet al., 2015). The policy includes certain monetary donation for the benefit of the society. There are certain approaches to define the objective of the policy. The first part of the theory describes the social welfare and the environment –based contents of the theory whereas another approach of the theory concentrates on the operational area of the company. It has been stated that the competitive approach regarding the society is based on the equal opportunity of the philanthropic view (Suliman et al., 2016).
According to the view of the corporate social responsibility, the company should based on the strategy and the plan should have to support the strategic management of the society and the company. Bueble has mentioned certain effects of the corporate social responsibility thatb can be categorised as follows:
As per the view, there can be an increment regarding the loyalty of the employees can be observed. There is a leaning mentality over the litigation process has been observed in this cases in the company. It can be reduced if the companies are taking the policies over the litigation process. It has been observed by the other researchers of the political arena that CSR policies can help to increase the standard of the employees and it can also be stated that brand value of the company can be increased and due to the policy, the reputation of the company can be published everywhere (Tai & Chuang, 2014).
It has been observed that the term corporate social responsibility that is active amongst a variety of corporations and its stakeholders could give to the macroeconomic progress of a developing country through sustainable profit to all. It also has created certain optimum national impact, cooperation, and message would be optimistic and socialized. There are certain theories that can define the character and purpose of the policy in a better way. These theories will help to understand the motive of the corporation towards the shareholders.
It was the opinion of Friedman that the company is at all the time responsible to the shareholders only and it has no other responsibility or impact on the society (Friedman, 2016). The main reason of the theory is that the shareholders are taking all the risks for the benefit of the company and therefore, the company should have to remain responsible to ensure the interest of the shareholders. According to the theory of Friedman, the companies are gaining profit by the assistance of the shareholders and it is the duty of the company to share certain portions of the profit with the shareholders. He has mentioned about this concept in his book Capitalism and Freedom. He has mentioned the term totalitaniarism in his book. This situation occurred when the companies are focusing on the community and not on the profit making policies (Poussenkova et al. 2016).
In the book, Friedman writes: "There is one and only one social responsibility of business – to use its resources and employ the same in activities intended to enhance its profits. The theory of Friedman is suffered from certain arguments and it has been stated by the critics that the stockholders theory is not appropriate regarding the policies taken or the society. There are several instances where it can found that the companies are engaging themselves in certain social job and it has also been observed that they are donating money for the under-developed classes, or the disaster affected people or for the education purpose. These can be treated as the corporate social responsibility (Tran, 2018). A company should not involve or promised to the shareholders only and therefore, the theory of Freidman proved wrong. In the words of Somerville, a company should have to develop its social aspect with ethical intention.
The Friedman doctrine is controversial. Naomi Klein, in her book The Shock Doctrine, mentioned that the corporal giants are engaging themselves in a profit-making machine, while most of the members of the society are suffering from poverty. Professor Rudy Rummel demonstrates the nations or neighbourhood with blond rules, moderately imposed upon all people in spite of political situation, are greater in imperative human method. Rummel's work supports liberal democracy, which is essential for the second circumstance of Friedman’s stockholder theory “play by the rules”, is far better in terms of human advancement, GDP/capita, and lowering poverty. These circumstances of fairness entail democracy and private assets according to Rummel.
Another theorist regarding the policy is Edward Freeman. In his words, the most important threat is the economic threat and that can be reduced by the enhancement of the business. If a company enhanced, more people will be employed and their life could be better with the remuneration they will get from the company (Freeman, Herriges, & Kling, 2014).
The most frequent assembly of stakeholders in a publicly traded company is the board of directors, which consists of high-ranking executives and infrequent outsiders who clutch large amounts of equity or share in the company. They are known as the shareholders. These stakeholders have the power to upset decisions or introduce innovative information to the company. The board of directors has the power to appoint all levels of senior management - including the CEO and remove them if necessary.
There is a leaning mentality of the board of directors in a more "hands off" approach to controlling a company. However, some stakeholders favour the "hands on" approach by directly assuming management positions. In a company, the shareholders are playing an important part. Stakeholders can take over certain departments - such as human resources or research and development and manage the business and assure success. In both the privately owned and publicly traded companies, large investors often directly take part in business decisions on the administration level.
Therefore, the companies should have to take responsibility to the shareholders. Without the effort of the stakeholders, the internal growth of a company is not possible and the idea of Freeman is based on this fact (Tran, 2018). He thought that the companies should maintain certain ethical behaviour to the shareholders. He was also of the view that the corporate social responsibility can fetch major reimbursement to a business. For instance, they may:
- be a magnet for customers to the firm’s commodities, which means boosting sales and profits;
- Make employees want to stay with the business, diminish labour earnings and therefore boost productivity;
- draw more employees urging to work for the business, decrease employment costs and enable the company to get the most talented employees;
- Attract investors and keep the company’s share price lofty, thereby protecting the business from takeover.
The newly appointed employees made a promise to work in an ethical and responsible manner by allowing the investors’ peace of intelligence that their money is being used in a way that organize with their own ethical standing. When working for a company with strong business ethics, employees are comfy in the facts that they are not by their own exploit allowing unprincipled practices to continue.
A company that chalk out plans to work within its own ethical strategy is also less at risk of being fined for meagre behaviour, and less likely to find themselves in breach of one of a large number of laws relating to necessary performance (Wagner, Lutz, & Weitz, 2013).
As per Freeman, reputation is one of a company’s most essential assets, and one of the most tricky to rebuild should it be lost. Maintaining the promises it has made is crucial to maintaining that reputation. Businesses not following any kind of ethical code or carrying out their social responsibility leads to wider cost. Unethical behaviour may damage a firm’s reputation and make it less attractive to stakeholders. This means that profits could fall as a result. Therefore, ethics is important to businesses for many reasons. Businesses can augment sales or their reputation (Takkar, 2015).
The second main view about the proper ends of corporate governance is given by stakeholder theory. This theory was first forwarded by Freeman in the 1980s and then advanced by Freeman and various partners over the next 30 years. According to stakeholder theory or early formulations of the theory, managing the firm in the best interests of shareholders only, managers should seek to “balance” the interests of all stakeholders, where a stakeholder is anyone who has a “stake”, or interest (including a financial interest), in the firm.
This theory is also faced certain critiques and it has been observed that the stakeholder theory insufficiently uttered and feebly defended. With respect to expression, one question that has been pressed is: Who are the stakeholders (Waldman & Jensen, 2016). The groups most commonly recognized are shareholders, employees, the community, suppliers, and customers. However, other groups have also stakes in the firm, including creditors, the government, and competitors. It makes an immense deal of difference where the line is drawn. With respect to defence, critics have stunned what the rationale for managing firms in the interests of all stakeholders is. In one place, Freeman (1984) offers an instrumental argument for his view, claiming that balancing stakeholders’ welfare is better for the firm strategically than maximize shareholder prosperity. In another, he provides an disagreement that appeals to Rawls’s justice as equality (Poussenkova et al. 2016).
In recent years, questions have been put on about whether stakeholder theory is appropriately seen as a authentic contestant to shareholder ascendancy, or is even appropriately called a “theory”. In one article, Freeman and collaborators say that stakeholder theory is simply “the body of research, in which the idea of ‘stakeholders’ plays a crucial role”. In another, Freeman describes stakeholder theory as “a genre of stories about how we could live”. Norman (2013) had tried to define, that stakeholder is now best regarded as “mindset” for the companies, i.e., a way of looking at the firm that emphasizes its embedded in a network of relationships.
I has been stated by Jensen that value of the firm is measured by manipulative current value of cost flows of proceeds of the firm over a number of years in the future (Jensen, 2017). To do so profits of future years must be inexpensive because money value or a rupee of profit in a future year is worth less in place of a rupee of profit in the present. Therefore, the value of the firm or shareholder’s wealth is given by the present value of all expected future profits of the firm. Therefore, the corporations should take reasonable care to the shareholders.
As per this theory, it can be stated that there should be certain prospects of the equity arguments. It has been mentioned by him that there should not be any discrimination between the manager and the employees. He has been stated all the rights and the wrong facts of the corporate social responsibility (Tran, 2018). However, it can be argued that the main theory regarding CSR is to act for the benefit of the society.
Therefore, it can be stated that many authors have stated about the nature and purpose of the corporate social responsibility (Zentes, Morschett & Schramm-Klein, 2017). It has been observed by Freidman that the only social responsibility of the companies is towards their shareholders. On the other hand, Freeman was of the view that the companies should maintain certain ethical aspect regards to their operations. Many other theories have been propounded on later occasion. However, it can be stated that the corporate responsibility means all the responsibilities that can have direct effect on the society.
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