Executive DigestThe benefits and costs of corporate social responsibility
Section snippets
Perspectives on corporate social responsibility
Business leaders have expressed far-ranging and deeply-held opinions about corporate social responsibility (CSR). Nobel Prize-winning economist Milton Friedman (1970) succinctly expressed one viewpoint on CSR in his article The Social Responsibility of Business is to Increase Its Profits. John Mackey, the founder of Whole Foods, advanced a different viewpoint when he stated: “The business model that Whole Foods has embraced could represent a new form of capitalism, one that more consciously
What is CSR?
The expansive literature on CSR contains numerous definitions of the construct. For example, the European Commission (2010) defines corporate social responsibility as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.” A common definition in the management literature comes from Davis (1973, p. 312), who defines CSR as “the firm's considerations of, and response to, issues
Why do firms engage in CSR?
There are numerous reasons underlying organizations’ motivations for engaging in socially responsible endeavors. First, firms may have altruistic intentions: they simply believe their CSR efforts are part and parcel of being a good global citizen. (Admittedly, it is difficult to disentangle such intentions from profit-seeking aspirations) For example, SC Johnson, Gap Inc., and Target prominently note on their websites that CSR and sustainability activities are simply “the right thing to do.” An
The role of accounting
The heart of accounting is measurement. Accounting aims to provide decision makers, both within and outside the firm, with relevant and reliable cost and benefit information to support decision making (see, e.g., Balakrishnan, Sivaramakrishnan, & Sprinkle, 2009). Externally, investors use accounting information to make stock acquisition and disposition decisions, and banks use accounting information to make lending decisions. Internally, accounting supports decisions that span the value chain,
Measuring CSR costs
Costs—as well as benefits—arise from performing activities. Indeed, the concept behind activity-based costing, a popular managerial tool, is that products and services require activities which consume resources such as cash or employee time (Balakrishnan, Sivaramakrishnan, & Sprinkle, 2009). The costs associated with CSR can be measured by identifying the activities associated with CSR, discussed in Section 2, as well as the activities the company was unable to undertake due to engaging in CSR
Measuring CSR benefits
Many of the benefits of corporate social responsibility naturally mirror the reasons firms engage in CSR. We view these benefits in terms of increased cash inflows to the company or reduced cash outflows. Next, we list some of the more salient benefits that firms may wish to estimate.
First, above and beyond the tax deductions garnered by cash and product donations, local, state, and federal agencies frequently provide tax credits for CSR and sustainability efforts. For example, RBC Bearings
Concluding thoughts
Organizations increasingly are concerned about how their actions affect the environment and social welfare. Employees, consumers, investors, lenders, governmental agencies, and other stakeholder groups are demanding that firms operate in a socially responsible manner. While internalizing societal goals is laudable, organizations cannot wantonly abandon their profit maximization aims. As with other organizational decisions, CSR decisions are not made in a vacuum but, rather, are made via an
Acknowledgment
We greatly appreciate the helpful comments and suggestions of Ramji Balakrishnan, Jason Brown, Jerrold Stern, and Michael Williamson.
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