In this blogpost, Sudhi Ranjan Bagri, Student, National Law Institute University, Bhopal, writes about what is corporate social responsibility and problems might arise in its implementation
Introduction
Corporate Social Responsibility has not been specifically defined anywhere. Though in its general meaning, it requires organizations to consider the company’s impact on society and the environment as they conduct business. Technically it is a good principle and is meant to benefit the society and also to take care of nature, but when its practicability is considered, there are a lot of problems which arise in its implementation, which the companies have to deal with. The blog would try to cover all those reasons which seem apparent to the author.[1]
Cost and Workload
The first and foremost point which goes against implementing the social responsibility is that the cost which is required for its proper implementation is very high. Further, at the initial stage, it requires a high labor workload. It requires for early planning and troubleshooting strategies, which usually require massive time and cost, thus would lay a burden on the company. The company has to make long-terms strategies which would have such impact on maximizing the benefit while taking care of its social responsibilities. Risk awareness as a result of the implementation has to be taken into consideration and monitored.[2]
Business Objective
Unlike public services which function to serve the public needs, the main aim of most of the private businesses is to maximize profit. Their main aim behind such incorporation thus makes it difficult to implement the social responsibility accounting system, as it requires a substantial amount of money. For example, it might happen that the policies and procedures, of a company, on disposal of chemical waste, is in accordance to the rules and regulation in that regard. However, it may not be sufficient to achieve the target of accommodating environmental and social needs.[3]
Staff Morale
The implementation process requires heavy workload, and this may deteriorate the morale of the staff working in a company. Logically thinking, if some employees have to work extra than their scheduled hours without getting any extra pay for the same, they would prefer to quit their job and would seek some other place to work. Thus, this will increase the labour cost of the company as they would be left with no other option than to recruit new staff and equip them with the necessary training, which would further be a burden on the capital of the company.[4]
Shareholder Interests
Proper implementation of corporate social responsibility requires a lot of changes to be made to many processes, which includes increased reporting. Companies usually hire some additional personnel to manage CSR initiatives. These require money, and thus the rivals in the market point out that the money spent on CSR comes directly from shareholders’ pockets, and that the company is thus taking steps which could hamper the interests of the shareholders. Elaine Sternberg, one of the most vocal opponents of the effects of CSR on shareholder profits, is of the opinion that CSR initiatives incur a great cost with the little measurable return.[5]
Corporate Reputation
While many companies carry out CSR initiatives with the purpose of bolstering their public images, these initiatives can at times necessitate a company to release certain information which could have an opposite effect to what is intended. The incident which happened in the year 2003, is a good example of this. Coca-Cola, as part of CSR initiative, released a report which included information about chemicals found in its products. However, the report resulted in lowering the reputation of the company instead of increasing it because of the company suffered huge revenue loss. [6]
Competitive Disadvantages
Proper implementation of corporate social responsibility initiatives might require a company to makeshift in their working model, and this might turn out as an impediment to a business to operate.[7] For example suppose a Company X, which due to the CSR initiatives undertaken by them, before supplying its products subjects it to strict regulations on product quality and also maintains the employee working conditions, and incurs huge amount for all this, company Y on the other hand concerns itself only with the rules and regulation which are mandatory and doesn’t spend any amount on these extra initiatives. Thus, Company Y which is a competitor of Company X can operate at lower costs and turn out products more quickly.
Expenses
Another reason, which provides a possible explanation as to why companies object to participating in CSR, is the associated costs which are attached to it. While implementing corporate social responsibilities, the company need to pay for environmental programs; they have to provide their employee more training and also to take steps for efficient waste management programs.[8]
The problem, however, is that while investment usually pays off to the company, CSR, on the other hand, doesn’t usually play any role in increasing the capital strength of the company.
Shareholder Expectations
Another challenge which comes up is the possible negative perception of shareholders. Traditionally, companies had a primary focus on maximizing shareholder value, but now they must balance the financial expectations of the shareholders with the social and environmental requirements of other stakeholder groups. The willingness of the shareholders to invest in such companies may differ. Some shareholders might be willing to invest in companies which maintain and follow their corporate social responsibilities while others may not approve of the aforementioned expenses of operating under CSR guidelines.
Author’s comment
All factors which go against the compulsory corporate social responsibility have already been mentioned in the blogpost. In my view, the corporate social responsibility is a very good step but only if it is on the discretion of the companies, as making it compulsory would do more harm than good to the industries. The large companies and corporations can very well perform their responsibilities as they have sufficient capital to do so. However, the small companies don’t have such capital strength, and thus, they would not be able to perform their obligations. This might also happen that if CSR is made compulsory, the small scale companies might need to shut down their businesses because of the heavy burden which they have to bear from their capital. So, in my view, the Corporate Social Responsibilities should not be made compulsory and should be left to the option of the companies.
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[1] http://www.ehow.com/info_8031857_disadvantages-corporate-social-responsibility.html
[2] See http://www.ehow.com/info_7950153_disadvantages-social-responsibility-accounting.html
[3]A. Abdullah, What Are the Disadvantages of Social Responsibility Accounting?, available at http://www.ehow.com/info_7950153_disadvantages-social-responsibility-accounting.html
[4] Ibid
[5] Supra 1
[6] K Evans, What Are the Disadvantages of Corporate Social Responsibility, available at http://www.ehow.com/info_8031857_disadvantages-corporate-social-responsibility.html
[7] Ibid
[8] See http://www.answers.com/Q/Advantages_and_disadvantages_of_corporate_social_responsibility
