Jungmin Kwon
World Count 1755 / PIN- E10283
Desirable forms of Corporate Social Responsibility -Thinking the opportunity cost-
Jungmin Kwon
Introduction Throughout the history of the modern corporate business, the primary goal of management was simply to maximize the wealth of the shareholders. These days, however, this does not seem to be completely true. The bar keeps rising, where making profit no longer suffices to meet the expectations of the society. More active roles, under the name Corporate Social Responsibility (CSR), are expected from companies which involve taking social responsibilities ranging from simple charities to environmental conservation. Such activities, which once were recognized as philanthropic, have now become an essential part of business management. Not only are shareholdersâ€&#x; profits important, but also the demands of various stakeholders involved around the business should be taken care of. Modern entrepreneurs take this challenge seriously, approaching strategically to harmonize the two big goals, namely making financial profit and taking social responsibilities. CSR, however, is criticized by several reasons. The most dominant among these is simply that social activity is a role of the government and not of the cooperation. For example, spending money for charity could be replaced by paying more tax which will in eventually be used for social programs run by the state. Considering that entrepreneurs rack their brains in order to cut even a penny from their tax responsibilities, such charities are often regarded as hypocritical from the public. In order to circumvent those critics, companies need to raise serious questions why they need to take direct actions to the society. Various CSR programs should be evaluated in terms of whether they are really necessary or not. This essay will first start with the topic how corporate businesses benefit the society and suggest several standards which make up a good CSR program. The assertion will be assisted by real CSR cases especially by the ones in Korea. Corporate role in the society and CSR How does a company contribute to the society? This is a crucial question we need to answer before we turn to the question what a desirable CSR is. Primarily, a corporation contributes to the society by producing goods or services which people need. By competing with other competitors, a company does its job in the most efficient manner to create as much profit as it is possible. Such drive towards profit makes the private organization possible to create more than we would get if we had delegated such service to the public domain. Another contribution companies make is by creating jobs and giving wages. The market always creates new needs. Such needs in turn create new opportunities for business and therefore, jobs are created by social demand. In such manner wealth can be distributed approximately proportional to the amount of work each individual has exerted meeting the 1
Jungmin Kwon
needs of the society. A third way a company enriches our community is by paying tax. In each country, a fixed rule is set to return a certain proportion of the profit back to the state. Such money is eventually used for common benefit such as building public infrastructures or giving unemployed financial aids. Therefore, a corporation contributes a lot for the society alone by its existence. Then, why should companies do something more for the society, even if they can contribute by concentrating on their own jobs? Shouldn‟t the government take care of the real “social” issues letting the enterprise people focus on running their business? From the perspective of the business, the main reason why they care about social activities is because corporate images have become very important. Contemporary customers are bombarded by information making vague images of a brand the deciding factor of choosing a product. Therefore under the name „Corporate Social Responsibility‟, companies consistently try to show the customers that they really do something for the society. As the inherent contributions of the corporate business are rather indirect and unclear to the public, entrepreneurs intend to expose their good intentions directly to the customers. Samsung spends hundreds of millions of dollars to support charity funds or scholarships whereas General Electric runs its own organization called „Elfun‟ which manages 800 kinds of voluntary work all around the globe. Such efforts are often internally conceived as part of marketing activity. Shareholders, thus approve such spendings, also because those spendings are often compensated by tax cut. However, considering CSR as marketing activity, one could serious raise the question whether or not this money is the right way to spend. In terms of effective values of the whole society, wouldn't it be wiser to spend that money on tax or even as investment on its own business? Scholarship foundations run by enterprise is simply inefficient both because the government could do the job better and also because the corporate wastes precious workforce on tasks of which it doesn't possess any specialty.
Desirable forms of CSR Thinking of the question what a desirable CSR program is, one always has to consider the opportunity cost. The idea that social participations of the business are always good is a naive way of interpretation as the company would benefit us more by doing its own task. Therefore, CSR programs make sense only if the total benefit maintaining such program outstretches the opportunity costs. In which cases does this happen? The best scenario is when social programs can be done more effectively by the company because the program is closely related to the business. Google recently announced they will invest money on green technology, especially to cut the amount of energy they spend to run the huge data centers for their search engine. This itself is great investment, as they can cut their energy cost in the future. Moreover is this a philanthropic act because less energy consumption means less carbon emission to prevent further global warming. Would the government have done a better job by reaping more tax from Google? Not really. The techniques to reduce the amount of energy in such data centers require sophisticated technology which is beyond the knowledge of the people working for 2
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the public service. Therefore, in such situation, it is much wiser of the company to take the role of driving the world for the better. Another situation where CSR makes sense is when there is a possibility of unnecessary collision between the community and the business. For example, imagine a company wishes to build a plant in a new residence. Suppose that from an objective perspective, the plant is proven to be safe regarding any threats against the residents. Initially, however, it is usually expected that the residents would resist because of some vague anxiety that the company could harm themselves. Obviously, such avoidable clash between the enterprise and the inhabitants would result in meaningless waste of energy. The main cause of such collision often comes from the strangeness between the two parties which lead to distrust and doubt against each other. This is the point where CSR can do its job. By giving something the residents might need, the company can attain basic trust and thereby mitigate the doubt which residents often possess. Woongjin Coway, for instance, a Korean household electonics company, continuously puts its effort on participating in diverse green activities such as conserving the river located near their factories. Such efforts, indeed, have great effects to bring the relationship between the local residents and the company closer together. The third way of doing desirable CSR is when a company is committed to contribute for long period of time in a specific field. Yuhan-Kimberly endeavored for more than 20 years to improve the natural environment. Especially under the campaign slogan 'Our Landscape is Greener and Greener', Yuhan-Kimberly carried out various activities related to protecting the forest in Korea. Such a long commitment for philanthropic purposes is a very special one which is rarely found even in public services as people on duty are periodically replaced by other people. Yuhan-Kimberly's lasting project was only possible under a strong leadership of the founder of the company who recognized his lifelong responsibility to protect the green forest of his own country. This kind of program is neither superficial nor hypocritical and can't be mimicked by any other organization without such strong motives. All three ways mentioned above share a common property; namely that the service the companies offer cannot easily be replaced by the state. Therefore, in such cases the opportunity cost of not doing CSR does hardly exceed the social benefit return from such programs. And this in turn justifies the existence of effective CSR programs. Conclusion So far, we have begun to mention the inherent benefits a business corporation brings to the society; a company contributes by offering necessary services the society needs, by creating proper jobs and giving out wages and by paying taxes which is used for common goods. Therefore, simply blaming a company not paying for a charity is a misleading approach because, as active social involvements without careful consideration is, essentially, can lead to a big minus from a higher perspective. Unfortunately, although the situation is getting improved, the dominant form of CSR in Korea is still cash donations (79% in 2002, 64.3% in 2005) where donators often distrust the government and avoid paying taxes. CSR has sometimes even been misused to overcome social criticisms against mistakes companies 3
Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship
Jungmin Kwon
have done in the past. Such forms of CSR are highly undesirable, primary because the purpose is superficial and also is their actual effects on the society. A desirable form of CSR emerges when the total benefit attained by the program is higher than the opportunity cost of not doing it. Three situations have been mentioned to meet this restriction; when the company possesses specialty on the field, when unnecessary collision between the company and the residents are to be avoided and when the enterprise is committed to endeavor in a certain social field for a long period of time. In such cases, CSR programs are well justified against criticisms that CSR is essentially the government's role and not of the company. In order to reinforce the desirable CSR programs and to suppress the undesirable ones, social citizens should distinguish among the various kinds of programs where these days CSR have even becomes a fad. No corporate should be blamed of not doing any active social contributions, nor should any company blindly praised only by the fact of taking social responsibility. Only through thoughtful interest, we can achieve a step forward towards a more healthy relationship between the business and the society.
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Global Initiatives Symposium in Taiwan 2009