Introduction 3
Corporate Social Responsibility and Sustainable Development 3
Role of CSR in Developing Nations 4
Corporate Social Responsibility and the Financial Performance 5
Ethical Behaviour 6
The Role of the Financial Sector 6
Conclusion 7
Introduction
Under the conventional economic theories the businesses have been operating with the sole purpose of profit maximization and the increase in shareholders’ wealth. According to the classical view of business operations, the managers are liable to use the available resources in the best optimum manner to generate the revenues for the organization, while following the relevant legal rules, requirements and regulations (Reinhardt and Stavins, 2010). Besides, under the traditional economic theories, the acts of social responsibility belong to the government, and therefore, it is believed that the businesses should leave alone the social activities and focus on their goal of profit maximization.
However, the contemporary theorists have argued that the responsibilities of the business entities extend beyond the realms of profit maximization, to a more socially responsible behaviour. Since the businesses generate their revenues from operating within an economy, therefore, they do also carry the responsibility for the society’s sustainable development.
Ethics play a strong role when sustainable development is discussed. Since it is strongly dependent upon issues such as the legal, political, social, cultural and technological aspects, therefore, without having an ethical behaviour, such concepts cannot be argued upon. However, the research implications in this concern suggest that such measures need to be taken care of in order to sustain the long-term performance of the business entities.
Corporate Social Responsibility and Sustainable Development
Sustainable development and the Corporate Social Responsibility (CSR) are emerging concepts that are being developed as an important phenomenon in the business world. Corporate Social Responsibility activities are referred to as the acts of promoting justice and the enhancing of the social welfare. In simple terms, it refers to going beyond the objective of profit maximization to show their responsibility to all the relevant stakeholders. Hopkins (2006) identified that it involves relevant stakeholders going beyond the realms of shareholders and extending their interest to the customers, suppliers, employees, environment, and the local communities at large. The social responsibility aspects can be through this theory be defined as a reference to clean environment, public safety, eradication of poverty, social justice, and the workers welfare, if discussed in the broadest aspects. Organizations in most developed countries are aware of CSR and demonstrate their responsible behaviour, but the concept is not as well furnished in the developing countries, and therefore the potential for the development of the concept is highest in such economies.
Moreover, instilling the concept of sustainability in the entrepreneurial intentions can harvest the best results for the sustainable development. Kuckertz and Wanger (2010) presented through their empirical research that bringing sustainability orientation into the equation of entrepreneurship is in fact meaningful. Most of the entrepreneurs tend to go for the activities that propose the highest rent for them, but those involved in ethical behaviour seem more inclined towards the element of satisfaction. Hence, a need for sustainable entrepreneurship besides the government intervention should be promoted so as to ensure a global culture based on equality and justice.
Further, the roots of the traditional economic principles lie in the operation of free market economies, which have been believed by the economists as a source of strengthening the economies and achieve sustainable development at the global and national levels. Ebner and Baumgartner (2006) referred to the concept of Sustainable Development as a phenomenon which ensures the present needs without compromising on the needs of the future generations. However, the market forces and the concept of the hand in the capitalist economies may lead to the exploitation of the natural resources, making sustainable development a myth.
Role of CSR in Developing Nations
The developing nations are usually seen to have weak rules and regulations, and lower compliance to the enacted law. Moreover, the exploitation of the natural and human resources is also witnessed to be the highest in such economies. As for the concept of CSR, it has has been interlaced with the Millennium Development Goals of the United Nation in the developing nations which could not be effectively conceptualised because of the weak governance in such economies (Visser, et al., 2010). As such, the responsibility therefore lies with the corporate sector to ensure the sustainable development of these economies.
In most developing economies, the cost of externalities is not included in the financials of the organization. Due to weak regulations and law enforcement, the organizations tend to escape from realising these costs. Considering such factors, it is necessary to highlight the importance for socially responsible actions.
Moreover, a misconception among the corporate sector of the developing nations is that such an expense is a sheer drain of the organizational financial resources. What they do not seem to understand is that such expenditure is in fact an investment which can help them attain new business prospects. Moreover, such activities can also lead to improved relations with customers, suppliers, and workers. The management theorists in this aspect argue that improved relations with the workers can lead to a much more satisfied workforce, which tends to work in the optimum manner to yield the highest productivity for the organization. Hanlon and Fleming (2009) have researched in the context, and concluded that CSR activities are not a fraud or the drain of resources and is wrongly argued to get the nature of social regulation away from collective to individual solutions. Hence, the critics need to take up the concept in a more serious and comprehensive manner and avoid the creation of a propaganda view against it, since the concept is a key element of the new neo-liberalism and a building block for the civil society. As a result, it can well be argued that the business entities have an ethical responsibility added to their goals and should therefore act in a responsible fashion when particularly operating in the developing economies.
Corporate Social Responsibility and the Financial Performance
Poddi and Vergalli (2008) identified that the corporate social responsibility (CSR) expenditure initially may be regarded as an additional expense for the firms, but in the long run such activities can yield sustainable financial benefits. Competition as of today has risen to a cut-throat level, and therefore, the firms must have a differentiated strategy to yield the sustainable superior financial performance. One element that can help an organization differ from its competitors is by acting in a socially responsible manner. On one end where the organization may be expending on social welfare, there on the other end it will also be acquiring a unique status and marketing itself as the organization that serves people which will consequently lead to better performance. This fact has also been highlighted by Iamandi (2007) in the research where the basic research findings indicated to a positive correlation between the socially responsible acts of an organization and the financial performance.
Nelson (2010) focused on the issues of financial performance of the businesses arguing that the managers strongly believe that it is their ‘nature and purpose’ to give the profit maximization objective their foremost concern. However, what they fail to understand is that by doing so the very nature of the social values believed in is being defied. Moreover, it has also been argued that in order to have hope in the social-world, the businesses need to think in terms of ‘money versus love’ and not undermine the concern for social actions. Although significant amount of research has been carried out in the academia, but in most cases the traditional economist view has been given more weight which may be argued as a narrow approach.
Ethical Behaviour
The psychological theorists have a firm belief that ethics and morality in an individual are dependent upon their formative years. Hence, teaching ethics at educational institutions may not yield the expected results, as it is an aspect which belongs to the feelings rather than thinking. Moreover, the financial and the legal incentive provision is one of the elements that can trigger the ethical behaviour among the managers, since business personnel tend to respond to such measures alone (Hooker, 2004). However, comparative studies have indicated that if the ethical behaviour is followed, then the positive yield in the value of the business can be expected.
Zekos (2004) indicated towards this fact by establishing the argument that corruption, which is an unethical behaviour may lead to the value minimization, while ethical behaviour may lead to the otherwise in the long run. However, a strong need for establishing global ethical regulations should also be worked upon. Numerous large organizations have failed in the recent times due to the indulgence in the unethical behaviour. Enron is one such example, where the management claimed to have been working in the best interests of the shareholders. Although, this might just be the best case scenario as per the traditional economist view, but it had a far negative impact on the employees, shareholders, creditors, society, and the business at large, only because it had itself involved in fiduciary accounting activities, and building its share values upon nothing. Conroy and Emerson (2006) discussed this as the changing attitude of the ethics for Enron and emphasise upon the fact that such failures need to trigger the change in the ethical behaviour and attitudes of the corporation as such breaches may well be a result of changing ethical values, which of course is not what should be targeted.
The Role of the Financial Sector
The financial sector is the most important sector of any economy. Sustainable growth and development is heavily dependent upon the performance of these institutions. The financial sector should have its focus upon the stakeholders’ perspective and should show their financial responsibility in both the developing and the underdeveloped countries by coming up with sustainable products and ensuring financial inclusion.
Wilson (2008) discussed CSR in perspective to the financial exclusion in the Australian economy. The research strongly emphasised upon the fact that it is the duty of the financial institutions to fulfil the short term liquidity requirements of the low income customers and that all the business entities and financial institutions have their responsibility beyond the maximization of their own shareholders. Wise and Mehboob (2009) in another study concluded that there is a strong relationship between the CSR, corporate governance and ethical behaviour. Analysing the commercial banks of Bangladesh in context to CSR, two major sectors (Agriculture and SME) were identified as the ones which required financial support, but were unable to acquire. Being an agricultural based economy, such measures of CSR expenditure or ethical behaviour of financing these sectors can critically enhance the GDP of the economy and yield higher sustainable growth in the longer run.
Moreover, the financial crisis of 2008, although a systematic failure, can also be referred to as due to the lack of ethical responsibility on behalf of the credit agencies and investment bankers. The main objective of the institutions then was the sustainable profit maximization. However, the instruments introduced were non-sustainable and the investment bankers had an idea of the failure of the derivatives market and the housing bubble creation supported through the sub-prime mortgages and credit default swaps (Argandona, 2012). Despite having the general idea of the prospective failure, the institutions and the top management kept seeking the benefits generated by the system and show the financial improvement in their performance without disclosing any information to the general public. As a consequence of the bubble burst, the whole global economy was hit by recession, with millions of people losing on their savings It can therefore be argued that be it the generic business, or the financial institutions, the responsibility of sharing the financial and the nonfinancial information is an ethical dilemma in the business world that ought to be considered.
Conclusion
In order to conclude the discussion, it can be said that the concepts of ethics and social responsibility have been entwined into the modern economic concepts and theories, and must be followed to ensure sustainable performance of the organizations in the longer run. The main objective of the business entities however shall remain to be the revenue generation, but the responsibility to the other relevant stakeholders should not be undermined.
Globalization has led to the enhancement in competition and in order to thrive and maintain sustainable profits, the corporations need to have an element of competitive edge over its competitors. It must be understood by the business world that the responsibility of the social welfare does not rest alone with the government but also falls upon the shoulders of the corporate business entities. By following such practices, the corporations can attain the confidence of all its relevant stakeholders and most importantly the loyalty of the customers which is by far the most important aspect for the sustainable financial performance. It can therefore be argued as a concluding remark that the social responsibility and ethics are now an integral part of the business strategies and lead to higher and sustainable performance in the long run. Hence, the profit maximization as of now is not the only relevant factor in the corporate industry of the contemporary world as it now takes the socially responsible and ethical attitudes alongside.
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