Arguments in favour of CSR:

The following arguments favour corporate social responsibility:

1. Protect the interests of stakeholders:

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Labour force is united into unions which demand protection of their rights from business
enterprises. To get the support of workers, it has become necessary for organisations to
discharge responsibility towards their employees.

Caveat emptor (‘let the buyer beware’), no more holds true. Consumer today is the kingpin
around whom all marketing activities revolve. Consumer does not buy what is offered to him.
He buys what he wants. Firms that fail to satisfy consumer needs will close down sooner or
later. Besides, there are consumer redressal cells to protect consumers against anti-consumer
activities. Consumer sovereignty has, thus, forced firms to assume social responsiveness
towards them.

Firms that assume social responsibilities may suffer losses in the short-run but fulfilling
social obligations is beneficial for long-run survival of the firms. The short-term costs are,
therefore, investments for long-run profitability.

2. Long-run survival:

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Business organisations are powerful institutions of the society. Their acceptance by the
society will be denied if they ignore social problems. To avoid self-destruction in the long-
run, business enterprises assume social responsibility.

3. Self-enlightenment:

With increase in the level of education and understanding of businesses that they are the
creations of society, they are motivated to work for the cause of social good. Managers create
public expectations by voluntarily setting and following standards of moral and social
responsibility.

They ensure paying taxes to the Government, dividends to shareholders, fair wages to
workers, quality goods to consumers and so on. Rather than legislative interference being the
cause of social responsibility, firms assume social responsibility on their own.

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4. Avoids government regulation:

Non-conformance to social norms may attract legislative restrictions. Government directly

influences the organisations through regulations that dictate what they should do and what
not. Various agencies monitor business activities.
For example, Central Pollution Control Board takes care of issues related to environmental
pollution, Securities and Exchange Board of India considers issues related to investor
protection, Employees State Insurance Corporation promotes issues related to employees’
health etc. Organisations that violate these regulations are levied fines and penalties. To avoid
such interventions, organisations have risen to the cause of social concerns.

5. Resources:

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Business organisations have enormous resources which can be partly used for solving social
problems. Businesses are the creation of society and must work in the best interest of society,
both economically and socially.

6. Professionalisation:

Management is moving towards professionalism which is contributing to social orientation of

business. Increasing professionalism is causing managers to have formal management
education and qualifications. Managers specialise in planning, organising, leading and
controlling through their knowledge and subscribe to the code of ethics established by a
recognised body.

The ethics of profession bind managers to social values and growing concern for society.
Thus, there is increasing awareness of social responsibility. To grow in the environment of
dynamism and challenge, business concern does not decide whether or not to discharge social
responsibilities but decides how much social responsibility to discharge. A good business
anticipates developments and acts in accordance with the currently conceived social
responsibilities to achieve the future targets.

Arguments against CSR:

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Corporate social responsibility is limited on the following grounds:

1. Business is an economic activity:

It is argued by the opponents of social responsibility that basic function of a business

enterprise is to look into economic viability of its operations. It is for the Government to look
after interests of the society. The prime responsibility of assuming social responsibility
should, therefore, be of the Government and not of the business enterprises.

2. Quantification of social benefits:

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What measures social responsibility and to what extent should a business enterprise be
engaged in it, what amount of resources should be committed to the social values, whose
interest should hold priority over others (shareholders should be preferred over suppliers or
vice versa) and numerous other questions are open to subjective considerations, which make
social responsibility a difficult task to be assumed.

3. Cost-benefit analysis:

Any social-benefit programme where initial costs exceed the benefits may not be taken up by
enterprises even in the short-run.

4. Lack of skill and competence: Professionally qualified managers may not have the aptitude
to solve the social problems.

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5. Transfer of social costs:

Costs related to social programmes are adjusted by the business concerns in the
following ways:

(a) High prices:

The costs are passed to consumers by increasing prices of goods and services.

(b) Low wages:

If managers maintain the level of prices, the social costs may be reflected in reduction of
wages.

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(c) Low profits:

If wages are stabilized, profits would be reduced, which will lower dividends to the
shareholders. Low profits will reduce managers’ desire to further engage in corporate social
responsibility

6. Sub-optimal utilisation of resources:

If scarce resources are utilised for social goals, this would violate the very purpose of
existence of an organisation.

Why should business be concerned about social

responsibility?
This question has attracted the attention of many thinkers, both from academics as well as from
practitioners. There have been arguments and counter-arguments in favor of and against social
responsibility of business. In an effort to present a balanced view of social responsibility of
business and its role as an objective of business, it is worthwhile to present briefly the
arguments for and against it that have surfaced over time. It should be pointed out, however,
that each argument for and against social responsibility assumes a certain understanding of
the concept that may vary.

Arguments for and against Social Responsibility of Business

Arguments for Social Responsibility

There are several core ideas about social responsibility of business. Over the period of time,
the things have changed too much giving new thoughts and replacing the classical economic
view of profit maximization in the business. Based on this feature in the present context,
arguments for social responsibility are as follows:

1. Business is a part of society

Business is a part of society. Society is a system and business is one of its subsystems. Every
subsystem of a system functions for the betterment of the whole system and not for its own
betterment only. This version applies to business too. Therefore, business is responsible for the
society as a whole and profit motive of the business cannot have precedence over other motives
of the society.

2. Long-term Self-interest of Business

Social responsibility is in the long-term self-interest of the business. Existence of any business
is because of existence of various social organs like financiers, employees, customers, society
as a whole, etc., and not otherwise. Therefore, business should provide satisfaction to all these
organs on continuous basis for its continued existence. By discharging social responsibility,
the business may provide this satisfaction.

3. Moral Justification

Social responsibility has moral justification. This moral justification emerges from the fact that
if any one takes something from others, he must give something to them in return. On moral
ground, this equation must be based on equity so that it continues. A business takes various
inputs (money, materials, people, information, etc.) from the society and gives outputs (goods
and services) to the society by using various inputs. System of taking inputs and giving outputs
works well only if it fulfills social requirements.

4. Creating Better Public Image

Any business which involves in fulfilling the aspirations of the society creates better image in
the public. Creation of this type of image is a source of satisfaction itself for those who operate
business. This also helps in increasing the business volume, both in terms of taking inputs and
giving outputs.

5. Avoidance of Government Regulations

Government aims at maintaining equilibrium in the society on long-term basis. For this
purpose, it tries to ensure that every organ of society meets social requirements. If any organ
fails to do so, government has power to take actions against it. Since business is an organ of
the society, government may take actions against those business organizations which involve
in activities not meeting social requirements. In order to avoid such actions having long-term
negative impact, it is preferable to adopt social responsibility.

6. Maintenance of Society

For maintaining society, there are legal provisions but these provisions cannot be
comprehensive because of social changes on continuous basis. Therefore, the business has to
be socially responsible in order to avoid anti-social activities so that society is maintained on
continuous basis.

Arguments against Social Responsibility

There are various arguments against social responsibility though most of these are based on
classical economics. These arguments are as follows:

1. Contrary to Basic Function of Business

The basic function of a business is to provide a product to its customers at a price which is
lower than the level of satisfaction provided by the use of the product or, at the most, equal to
that. If this relationship is reversed, the product becomes meaningless. Generally, cost of
production is a significant factor in determining the product price. Discharge of social
responsibility adds to cost, hence product price which may reverse the above equation and
business may not remain viable in the long term. Because of this phenomenon, Milton
Friedman, a noted economist, has observed,

there is one and only one responsibility of business — to use its resources and engage in
activities designed to increase its profit so long as it stays within the rules of the game.

2. Conflict with Profit Motive

Social responsibility is in conflict with profit motive of business. Undertaking business

involves assuming risk. Earning profit is the reward for this risk. If social responsibility is
added as an objective of business, it reduces profit margin which is against the concept of profit
optimization even if not profit maximization. Thus, social responsibility and profit motive do
not proceed in the same direction.

3. Distortion in Resource Allocation

Social responsibility leads to distortion of resource allocation. Resources in an economic

system are allocated on the principle that every resource finds its most optimum utilization.
This utilization is best possible without social responsibility and not with it. Thus, social
resources may go in waste if the concept of social responsibility is added to business operations.

4. Imposition of Business Values

Discharging social responsibility involves lot of influence of the business on the society.
Therefore, by undertaking social responsibility, a business is likely to impose its own values
on the society, thereby replacing the social values with business values. This phenomenon has
taken place in many cases. This is highly undesirable from social point of view.

5. Inefficiency in the System

Social responsibility brings inefficiency in the system. There is no substitute for the power of
self-interest to get people to act. Any replacement of self-interest will, therefore, be fatal to the
efficiency of the system. Social responsibility tends to replace self-interest of business defined
in terms of profit motive to a great extent, thus, making the business as a system inefficient.

6. Operational Problems

There are certain operational problems in implementing social responsibility. Conceptually as

well as operationally, social responsibility is a confusing term. Therefore, managers involved
in managing business affairs are not very clear about what they are expected to do under social
responsibility. As a result, actions ranging from mere showing lip sympathy to undertaking
multi-crore concrete programmes are included in social responsibility.

Conclusions
The arguments of those who argue that business organizations have nothing to do with social
responsibility except the maximization of shareholders’ wealth are weak on two points.

1. First, they overstate the trend and ultimate magnitude of business’s voluntary assumption of
social responsibility.

2. Second, they want business organizations to do something they cannot do and that is to
ignore societal demands on them.

In fact, no business can survive for long in total disregard to its social concern. Many forces
will come in its way to destroy it. Therefore, even if business is involved in making profit, it is
done through the creation of utility to the social needs. Better these social needs served, better
will be the prospect of its survival and progress. Even in Western countries, where economic
activities are comparatively free from controls, it has been accepted that profit is not the sole
criterion for measuring the success of a business organization.

Arguments for CSR: Moral Argument

CSR is an argument of moral reasoning that reflects the relationship between a company and
the society within which it operates. It assumes businesses recognize that for-profit entities do
not exist in a vacuum and that their ability to operate and achieve ongoing success comes as
much from societal resources (e.g., infrastructure, rule of law) and consent (e.g., social
contract) as from factors that are internal to the firm. CSR emerges from the interaction and
interdependence between for-profits and society. It is shaped by individual and societal
standards of morality, ethics, and values that define contemporary views of human rights and
social justice. Thus, to what extent does a business have an obligation to re-pay the debt it
owes society for its continued business success?

On the one hand, it can be argued that business success depends on the society that provides
the infrastructure, employees, consumers, and other elements that are central to success. On
the other hand, if a business must fully reflect societal costs, it may not be able to compete—
especially with firms in other societies that may be able to externalize their costs (such as
dumping unfiltered pollution into local waterways).