Concept of Corporate Social Responsibility
Corporate Social Responsibility which is also referred to as corporate citizenship, corporate responsibility, corporate social performance is a kind of corporate self regulation which is built into business model. Corporate social responsibility operates as an inbuilt, self controlling device sued by an organization to monitor and ensure its adherence to law, ethical stipulations and international norms. An organization takes responsibility for the impact of its environmental activities, employees, consumers, communities and members of the public. Apart from obeying environmental laws, companies become socially responsible by aggressively promoting public interest through voluntarily avoiding activities which are harmful. Social responsibility is an ethical or theory that an entity, either an organization or individual has an obligation to act for the benefit of the society at large.
The obligation a business assumes towards a society is referred to as social responsibility and when managers take responsibility for the consequences of their decisions not only for their own short term profits but also for the natural environment, for society generally and for all groups that may be affected by those decisions, they are said to be involved in corporate social responsibility. Therefore is the act or process of operating a business in a manner that meets or exceeds the ethical, legal, commercial and public expectations that society has of business. To be socially responsible is to maximize positive effects and minimize negative effects on the society.
The European Commission defines corporate social responsibility as the integration by companies of social and environmental concerns in their business operations and in the interaction with their stakeholders on a voluntary basis. Social responsibility is a duty every individual or organization has to perform so as to maintain a balance between the economy and the ecosystem. It can also be understood as the administration of companies in a socially responsible way (ICAN, 2010).
2.2 Background and Debate in Social Responsibility
In 1970, Friedman Milton published a short essay ‘The Social Responsibility of Business is to increase its profits’ in the New York Times Magazine, which has generated a lot of controversy ever since.
In his argument corporations should pursue their economic self interest. He held in the essay that there is one and only one social responsibility of business, which is to use its resources and engage in activities designed to maximize profits for the shareholders. According to Mitton, “…a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible…”
He went further to put forward that any attempt to promote corporate responsibility, however it might be defined, amounts to moral wrong. Milton questioned the logic of corporate social responsibility as it had developed. He insisted that in a democratic society, government was the only legitimate vehicle for addressing social concerns. Thus the function of business in a society, which is to maximize profits, should not be confused with other social functions performed by governments, institutions and charities.
Apart from Milton, other critics also argue that corporate social responsibility (CSR) distracts from the fundamental economic role of business, others argue that it is nothing more than superficial window-dressing; others argue that it is an attempt to pre-empt the role of government as a watchdog over powerful tricop corporations. Friedman and others co-critics represent the shareholder theory which claims that the purpose of the firm is to maximize the welfare of the shareholders perhaps subject to some moral or social constraints.
In accordance to this theory is the belief that managers have fiduciary duty in the interest of the shareholders to maximize the return on investment with no direct concern to the well-being of the society because according to the advocates, it is only when business focus on profit that business will provide good service that consumers want which would then promote the societal well being. Adam Smith maintained that the free pursuit of self interest without the intent to benefit the society will, as if directed by an invisible hand, bring about more social benefit than if visible hands (government intervention) try to intervene and bring about just results in the wealth of nation.
On the other side, the “stakeholder theory” which opposes the shareholder theory primarily began as a response to the belief that the owners of share or stock should be the prime beneficiaries of the organizations. That is to say that the firm should be run in such a way as to maximize the wealth of shareowners. The stakeholder theory suggests that there is a multiplicity of groups having a stock in the operation of firm, all of whom merit consideration in the management’s decision making and chose needs must be met. In other words, the concern of business managers ought to go beyond profit to include helping society gain a greater sense of the meaning of community by honouring individual dignity and promoting overall welfare and accommodate wider stakeholder interests.
A critic of the shareholder theory and one of the strong advocates of stakeholder theory Professor Merric Dodd of Harvard law school posited in his view that business corporation is an economic institution which has a social service as well as a profit-making function. The ideal purpose of the corporation and of course the corporate managers, he argued is not confined to making money for shareholders. In his view, it is more secured jobs for the employees; better quality products for customers and greater contributions to the well-being of the community as a whole. A significant number of studies have shown no negative influence on shareholder results from CSR but rather a slightly negative correlation with improved shareholder returns.
2.3 Social Accounting in Organization
Social Accounting also known as social and environmental accounting or sustainability accounting is the process of transmitting the social and environmental implications of the economic actions of companies/organizations to specified interest parties within and outside a country. Crowther D. defines social accounting in the idea of corporate accountability, as “an approach to reporting a firm’s activities which stresses the need for the identification of socially relevant behaviour, the determination of those to whom the company is accountable for its social performance and the development of appropriate measures and reporting techniques”.
Social accounting highlights the fact that companies have influence, positively and negatively over their external environment, through their action and inactions and should consequently render stewardship for these effects as part of their standard accounting traditions. Social accounting makes available an alternative account of significant economic entities, it is capable of exposing the tension between the pursuit of economic profit and the drive of social and environmental objectives.
Social accounting poses challenges to conventional accounting, particularly financial accounting for narrowing the image of the interaction between companies and society. As a largely normative concept, social accounting seeks to broaden the scope of accounting by: