CAT / FIA FBT Syllabus B. Business Organisation Structure, Functions - Social Responsibility Objectives - Notes ^{5 / 5}

Corporate Social Responsibility

Corporate Social Responsibility (CSR) philosophy is based on the idea of being sensitive to the needs and wants of all the stakeholders in the business, not just the shareholders.

A stakeholder needs analysis can be carried out to bring some structure to the implementation of CSR programme.

The analysis involves doing research to determine:

Who are the key stakeholders of the business?
What are their needs?

Economic activities often impact those who are not involved in the activity.

For example, a corporation manufacturing automobiles generates pollution and the cost of this pollution is borne by nearby residents.

External costs (or benefits) arising from economic activities are referred to as externalities.

While firms of any size can create externalities, multinational corporations can use their political influence to avoid bearing responsibility for significant external costs.

Advantages of adopting a good CSR strategy:

CSR can be expensive in the short term but it should result in long term profits and therefore will eventually increase the business value and brand of the organisation
Even though CSR results in more red tape, it will often result in a feel-good factor in employees
It may act as a differentiating factor for business
It will help to fall in line with changing social expectations
It benefits an organisation by a reduction in environmental taxes

Disadvantages of adopting a CSR strategy:

It costs money to be socially responsible
It does not ALWAYS result in attracting more customers, it might actually be necessary to turn away business in order to be socially responsible

Buying raw materials internationally does NOT help an organisation to limit its environmental impact because more transportation results in more pollution.

Doing public good is providing something to all members of society without a profit objective.

Two examples include street lighting and national defence.

This is because these things are enjoyed by everyone, regardless of whether any payment has been made.