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Social Responsibility and Corporate Ethics

Updated: Oct 9, 2023

Long gone are the days when the sole responsibility of a firm was to maximize the wealth of its owners i.e. the shareholders. With the onset of the new capitalist economy, the top management has shifted their focus from solely serving the shareholders to protecting the interests of all stakeholders as a whole.

Corporate ethics, social responsibility, environment

Image Graphics by Team Geostrata

Unlike the old folks, the younger generations are embracing social responsibility by driving change. Social responsibility means that individuals and companies must act in the best interests of their environment and society as a whole. In professional terms, social responsibility is known as corporate social responsibility (CSR).

CSR is becoming a more prominent area of focus within businesses due to shifts in societal norms. It is a firm's social responsibility to enact policies that promote an ethical balance between the dual objectives of striving for profitability and benefiting society as a whole.

Social responsibility has become increasingly important to not only business firms but also to investors and consumers who seek investments that not only are profitable but also contribute to the welfare of society and the environment.

But one may think what is the need for social responsibility, I mean why would anyone waste money, time, and effort towards something that does not affect the firm directly?

It is not entirely wrong to assume that not everyone believes in the principle of striving in society as a whole. Not everyone thinks that businesses should have a social conscience. Some experts even say that social responsibility defies the very point of being in business: profit above all else.

However, social responsibility is essential for the long-term profitability of a firm.

Benefiting society and lessening the negative impacts on the environment are among the main benefits of social responsibility. Consumers are more likely to buy goods and services from socially responsible companies, which can have a positive impact on their fundamentals.

Many companies have adopted green governance policies, and have made social responsibility an integral part of their business models and they have done so without compromising profitability. This also helps the company in avoiding legal troubles in the course of its functioning.

There is a moral imperative attached to it as well. As this will affect future generations. Put simply, social responsibility is just good business practice, and a failure to do so can have a deleterious effect on the balance sheet.

Companies can adopt various practices to fulfill their social responsibility. Companies engaging in social responsibility can do so in a number of ways, including making changes that benefit the environment, engaging in ethical labor practices, and promoting volunteering, and philanthropy.

Though social responsibility in practice can come off as costly to the firm resulting in lesser profits overall. It is beneficial for the growth and expansion of the firm while also helping society in solving social conflicts and preventing unhealthy corporate practices as a whole.

We can’t talk about CSR without talking about corporate ethics. Ethics and social responsibility are integral to a firm's corporate governance policies.

Corporate ethics (also called business ethics) guide executives, managers, and employees in their daily actions and decision-making. For example, consider a company that has decided to dump chemical waste that it cannot afford to dispose of properly on a vacant lot it has purchased in the local community. This action has legal, environmental, and social repercussions that can damage a company beyond repair. This could lead to class action suits, unhealthy business practices, tarnishing of the firm's reputation, etc.

The concept of business ethics is fairly new as it came into the corporate scene only when corporations became more aware of a rising consumer-based society that showed concerns regarding the environment, social causes, and corporate responsibility. Since that time, the concept of business ethics has evolved. Business ethics goes beyond just a moral code of right and wrong and has advanced without limiting it to just being based on societal values and beliefs.

Business ethics refers to implementing appropriate business policies and practices regarding potentially controversial subjects, including corporate governance, insider trading, bribery, discrimination, corporate social responsibility, fiduciary responsibilities, and much more.

The law usually forms the base for business ethics, providing a basic guideline that businesses can choose to follow to gain public approval.

There are several reasons business ethics are essential for success in modern business. Most importantly, a well-defined ethics program establishes a code of conduct that drives employee behavior ranging from executives to middle management to the newest and youngest employees.

When all employees make ethical decisions, the company establishes a reputation for ethical behavior. When the reputation of the company grows, it begins to reap the benefits of a moral establishment leading to brand recognition and growth, increased ability to negotiate, increased trust in products and services, customer retention and growth, and attracting talent and investors. When combined, all these factors affect a business' revenues.

Moreover, as a part of ethical practice, it is essential for companies to ensure they are reporting their financial performance in a way that is transparent. This not only applies to required financial reports but all reports in general including the annual reports published to their shareholders.

Fostering an environment of ethical behavior and decision-making takes time and effort. Most companies need to create a code of conduct/ethics, guiding principles, reporting procedures, and training programs to enforce ethical behavior.

Those companies that fail to set ethical standards and enforce them are doomed to eventually find themselves alongside Enron, Arthur Andersen, Wells Fargo, Lehman Brothers, Bernie Madoff, and many others.

In conclusion, social responsibility and corporate ethics are essential for a firm's long-term interests as these form the basis of its corporate governance policies. Therefore, every business should develop ethical models and practices that guide employees in their actions and ensure they prioritize the interests and welfare of those the company serves. Along with this, there should be enough efforts made toward societal welfare and protecting the interests of all stakeholders, such as employees, customers, suppliers, and others concerned with the firm and its business.




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