Does Corporate Social Responsibility Contribute to the Business Financial Performance?

NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.

NB: All your data is kept safe from the public.

The idea of corporate social responsibility (CSR) has become extremely popular among scholars, business administrators, and executives (Ludescher & Mansud, 2010, p. 123). Many companies attach more importance to their social performance or environmental practices. The general premise is that compliance with ethical principles is essential for the profitability of an organization.

This essay is aimed at examining the effects and alleged benefits of CSR. In particular, it is vital to determine whether it really contributes to financial performance of a business.

Overall, one can argue that CSR does not necessarily raise the profitability of company. However, it is essential for retaining the competitive strength of an organization as well as its position in the market. This is the main thesis that should be illustrated in this paper.

First, one should mention that there are several theoretical justifications of CSR and business ethics. In particular, the most popular approach is called the stakeholder theory; its supporters believe that a company influences and is influenced by several agent or stakeholders, for instance, customers, workers, governmental or non-governmental organizations, mass media, and many others (Lopez-De-Pedro & Rimbau-Gilabert, 2012, p. 149; Kaufman & Englander, 2011, p. 421).

This is the major premise of the stakeholder theory. Therefore, a company that disregards the ethical principles and the needs of community can become very vulnerable because mass media, employees, governmental agencies, or clients may become opposed to it. Any organization has to accept the idea that it is dependent on some external forces, such as the opinions of buyers (Luo & Bhattacharya, 2006, p. 15).

Similarly, the performance or an organization may be determined by the motivation and commitment of employees (Daft, & Marcic, 2005, p. 448). Thus, business administrators should note that ethical way of doing business is important for maintaining good relations with various stakeholders since their bargaining power is very strong. So, managers should think how the activities of company can impact other people. This is one of the ways of looking at this issue.

Nevertheless, some scholars are more skeptical about the alleged importance and benefits of CSR and ethical business (Ludescher & Mansud, 2010). For instance, Jessica Ludescher and Rubina Mansud (2010) point out some organizations may not be able to adhere to the principles of ethics; for example, one can mention those organizations that manufacture weaponry (p. 125).

Their products may eventually threaten the lives of people. Secondly, in the opinion of these authors, it may be difficult for an organization to trace the effect of their activities on a variety of stakeholders (Ludescher & Mansud, 2010, p. 130). Besides, many business administrators tend to speak about the importance of CSR without actually telling what kind of steps their companies take.

Many business administrators are mostly concerned with good public of their firms, rather than ethical principles (Aras & Crowther, 2009, p. 20). These arguments may be convincing, but they do mean that corporate executives should not think about the needs of customers, employees, and stockholders. To explain the importance of CSR, one should at those companies that completely overlooked the ethical components of doing business.

For instance, one can mention such a company as Arthur Anderson. For a long time, it has been one of the most successful consulting firms in the United States (Edelman & Nicholson, 2011, p. 1). However, the participation in an accounting fraud damaged the reputation of this organization and this scandal subsequently resulted in bankruptcy (Edelman & Nicholson, 2011, p. 1).

Thus, the main rationale for CSR is to prevent similar cases and minimize possible risks. Thus, it is not permissible to assume that business ethics does not play an important role for modern companies.

The second important aspect is the empirical evidence which can support the idea that CSR improves the profitability of a business. Several studies have been carried out in order to examine the effects of CSR and business ethics from a quantitative standpoint.

For example, the research conducted by Oikonomou, Brooks, and Pavelin (2012) has been aimed at examining the relationship between CSR practices of a company and its financial risks. In particular, the researchers focus on the effects of such activities as pollution prevention, promotion of diversity in the workplace, or participation on charitable activities (Oikonomou, Brooks, and Pavelin, 2012, p. 493).

Their study suggests that CSR efforts may reduce the financial risk of a company, but its effects are not statistically significant (Oikonomou, Brooks, and Pavelin, 2012, p. 511). Therefore, the supporters of CSR and business ethics should be aware of this limitation when speaking about the alleged benefits of improving the social performance of a company.

In turn, Phillip Schreck (2011) investigates the relations between CSR and such financial indicators as share price or market value of a business. This author focuses on such dimensions of CSR as community involvement, for instance, sponsoring sports events, empowerment of employees, the adoption of eco-friendly technologies, and so forth (Schreck, 2012, p. 167).

This researcher argues that believe that there is no sufficient evidence to say that CSR is linked to improved financial performance. On the whole, scholars believe that the positive effects of CSR are difficult to identify because the profitability of an organization may be dependent on various external forces such as demand and supply of products and services (Sheehan, 2010, p. 171).

Researchers are usually very cautious when they discuss the benefits of CSR and business ethics because it may be difficult to measure them quantitatively (Blomgren, 2011, p. 263). This is one of the main challenges that the supporters of corporate social responsibility should take into consideration. It may not be permissible to say that it inevitably results in increased revenues. This assumption may be too optimistic.

Additionally, qualitative studies can also throw some light on the benefits of corporate social responsibility. For instance, the research carried out by Atle Blomgren (2011) was based on the interviews of corporate executives of such companies as Varner Group, Europris, or JC Jeans & clothes (Blomgren, 2011, p. 267).

Overall, the executives interviewed for the study argue that CSR does not necessarily improve the profitability of an organization (Blomgren, 2011, p. 272). However, in their opinion, it is essential for retaining the competitive strength of an organization (Blomgren, 2011, p. 272). From their standpoint, the principles of CSR are good for ensuring the quality of products and avoiding negative publicity (Blomgren, 2011, p. 271).

Doing business in an ethical way does not necessarily mean that the revenues of a company will dramatically increase. However, ethical norms help companies to stay in the business and remain competitive. This is probably the main benefit that CSR can bring.

Thus, when speaking about speaking about the benefits of CSR, one should not focus only on revenues that can be easily measured. Such a view is based on very simplistic understanding of companies and their operations. These organizations may be strongly affected by the opinions of customers, investors, mass media, or workers (Ulrich & Brockbank, 2005, p. 204).

Their favorable attitudes are important for the sustainability of a business. As it has been said before, the importance of business ethics can be better explained by looking at those corporations that completely did not attach importance to their social performance.

In many cases, these organizations ceased to exist (Edelman & Nicholson, 2011, p. 1). The example of Arthur Andersen is a very eloquent one (Edelman & Nicholson, 2011, p. 1). This is the main issue that business administrators should take into account.

This discussion has several important implications. First, it may not be permissible to argue to say that ethical business strategies inevitable lead to improved financial performance. Corporate social responsibility does not necessarily increase the price of company’s stock or its annual revenues.

Business administrators and scholars should be very careful when discussing the profits that CSR supposedly brings. Nonetheless, CSR is an indispensible condition for the long-term sustainability of a business. Moreover, without business ethics for-profit organizations will find it difficult to retain customers and employees.

This is the main rationale for thinking about the ethical aspects of business operations. The main task of corporate executives is to think about long-term strategies of a company, instead of just looking for short-term revenues.

Reference List

Aras, G. & Crowther, D. (2009). Global Perspectives on Corporate Governance and CSR. New York: Gower Publishing, Ltd.

Blomgren, A. (2011). Does corporate social responsibility influence profit margins? a case study of executive perceptions. Corporate Social Responsibility & Environmental Management, 18(5), 263-274.

Daft, R. & Marcic, D. (2005). Understanding Management. New York: Cengage Learning.

Edelman, D., & Nicholson, A. (2011). Arthur Anderson Auditors and Enron: What happened to their Texas CPA licenses?. Journal Of Finance & Accountancy, 3(8),1-9.

Kaufman, A., & Englander, E. (2011). Behavioral Economics, Federalism, and the Triumph of Stakeholder Theory. Journal Of Business Ethics, 102(3), 421-438.

Lopez-De-Pedro, J., & Rimbau-Gilabert, E. (2012). Stakeholder Approach: What Effects Should We Take into Account in Contemporary Societies?. Journal Of Business Ethics, 107(2), 147-158.

Ludescher, J. C., & Mansud, R. (2010). Opening Pandora’s Box Corporate Social Responsibility Exposed. Independent Review, 15(1), 123-130.

Luo, X., & Bhattacharya, C. (2006). Corporate Social Responsibility, Customer Satisfaction, and Market Value. Journal Of Marketing, 70(4), 1-18.

Oikonomou, I., Brooks, C., & Pavelin, S. (2012). The Impact of Corporate Social Performance on Financial Risk and Utility: A Longitudinal Analysis. Financial Management, 41(1), 483-515.

Schreck, P. (2011). Reviewing the Business Case for Corporate Social Responsibility: New Evidence and Analysis. Journal Of Business Ethics, 103(2), 167-188.

Sheehan, B. (2010). The Economics of Abundance: Affluent Consumption and the Global Economy. London: Edward Elgar Publishing.

Ulrich, D. & Brockbank, W. (2005). The HR Value Proposition. Boston: Harvard Business Press.

Click Here To Order Now!

Does Corporate Social Responsibility Contribute to the Business Financial Performance?

Do you need this or any other assignment done for you from scratch?

We have qualified writers to help you.

We assure you a quality paper that is 100% free from plagiarism and AI.

You can choose either format of your choice ( Apa, Mla, Havard, Chicago, or any other)