Social Responsibility

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DEFINITION of 'Social Responsibility'

The idea that companies 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 which they operate in. According to the International Organization for Standardization (ISO), this relationship to the society and environment in which they 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."

INVESTOPEDIA EXPLAINS 'Social Responsibility'

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.

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.

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