In a time when the business world is changing and consumers begin to worry about the way their investments affect the world they live in Corporate Social Responsibility plays an imperative role in the success of a company. This essay will look into the meaning of corporate social responsibility and explore two different theories regarding this topic called the Stakeholder Theory and the Stockholder Theory. It will also explore different governmental law making institutions and how those laws affect corporate social responsibility.
Corporate Social Responsibility When a business practices corporate social responsibility it is not a normal business whose only focus is to generate revenue, this business has a bigger purpose. Corporate social responsibility is when a company is concerned with the impact its operations will have on both society and the environment. This concern will lead management to look at the bigger picture of decision-making. Often times when companies practice corporate social responsibility management makes decisions that will not directly benefit the company; however the decisions will either benefit the environment or society.
Two Different Business Theories
There are two different models that companies can incorporate and they are know as the Stockholder Model or the Stakeholder Model. Each of these theories suggests a different way to manage a business. The major difference between these two theories lays in whom the business should use as a target for the benefits provided by the company. Both the Stakeholder model and the stockholder model view corporate social responsibility in a different light.
Milton Friedman originated the Stockholder model theory. This model is said to be the traditional model most businesses follow. The foundation of this model is focused on benefiting the investors of the company. In the stockholder model, a company is managed with the sole purpose of generating revenues for the stockholders. Friedman believes that the only social responsibility a company has is to follow the laws provided by the government. Under this theory a business has no obligation to help the community in anyway. Followers of this theory believe that as long as management is driven to generate revenue and obey the law the business will succeed.
R.E. Freeman developed the stakeholder model, which is also called the ethical business model. This model embodies a different purpose than that of the stockholder model. In this model the company’s mission is to benefit the stakeholders of the company not just the individuals who monetarily invest in the business. Stakeholders of any company include its employees, management, and customers along with the stockholders. These are all people who will be affected by the decisions made by the management of a business. The essence of this model is for the business to generate value for all of its stakeholders. It is important to understand that the way this model is executed varies within each company.
The value creation process for each individual stakeholder of one single business is different. Management can create value for an employee but that does not necessarily mean that the value will carry over to the investors of the company. It is believed that in the long run this company will attain higher profits.
As you can see the view of corporate social responsibility will be different for everyone. The reasoning behind these two models leads us to understand that not every business owner is willing to act in an ethical manner when managing his or her business. For this reason laws are put into place so that businesses do not take advantage of consumers and employees.
Governmental Law Making Institutions
Several governmental institutions provide companies with guidelines and laws to follow. Two examples of these institutions are the United States Department of Labor and the United States Food