Social Responsibility

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DEFINITION of 'Social Responsibility'

Social responsibility is the idea that a company should embrace its social responsibilities and not be solely focused on maximizing profits. Social responsibility entails developing businesses with a positive relationship to the society in which they operate. According to the International Organization for Standardization (ISO), this relationship to the society and environment in which businesses operate is "a critical factor in their ability to continue to operate effectively. It is also increasingly being used as a measure of their overall performance."

BREAKING DOWN 'Social Responsibility'

Why Companies Consider Social Responsibility

Social responsibility means that individuals and companies have a duty to act in the best interests of their environments and of society as a whole. Social responsibility as it applies to businesses is known as corporate social responsibility, or CSR. Many companies, particularly "green" companies have made social responsibility an integral part of their business models. What's more, some investors use a company's social responsibility, or lack thereof, as an investment criterion. For example, one who has a moral (or other) objection to smoking, may not want to invest in a tobacco company. Therefore, a company's dedication to social responsibility can actually turn into profits for the company, since this responsibility will inspire people to invest and customers to purchase goods and services from the company. Social responsibility gives the company a good reputation that attracts investor and consumer involvement.

Social responsibility takes on a different meaning for each industry and each company within that industry, but the basic definition remains the same: to positively impact society while also improving the company's management. For example, a company in the energy industry might decide to reduce emissions or change operations in some way that positively impacts the environment. A company in the social sphere might make an effort to give back to the community by providing services for the less fortunate.

In general, social responsibility is more effective when a company takes it on voluntarily, as opposed to it being required by the government or some higher source. Social responsibility tends to boost company morale, but this is especially true when a company and its employees are actively engaged in the social cause they're taking on.

Arguments Against Corporate Social Responsibility

That said, not everybody believes that business should have a social conscience. Noted economist Milton Friedman noted that the "social responsibili­ties of business are notable for their analytical looseness and lack of rigor." Friedman believed that only people could have social responsibilities. Businesses, by their very nature, cannot. In fact, many experts believe that social responsibility is in direct opposition to the basic point of a business and the economics that govern it.

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