The factors that determine the extent to which a business is socially responsible

Each of the stakeholders of a business will all have different amounts of power and interest over a business; some have more power than others. The firm’s decision makers are more likely to take into account the social responsibility that the most powerful stakeholder’s would like to implement. The shareholders in a company are seen to be the most important stakeholder becasue they have risked their money in the business and have power over decision as they can vote at shareholder meetings. The shareholders must seek to keep shareholders happy with high dividends and profits so that they don't sell shares and so therefore making the company vulnerable to takeover. Each of the senior managers will have a different view about corporate social responsibility and whether they should incorporate it in their business strategies.


One factor that affects the extent to which a firm is responsible is legislation that is imposed. Abiding by legislation is the minimum requirement for firms however it can be the most influential factor determining the responsibility accepted by firms. This is to make sure businesses are socially responsible to the minimum extent; however it is down to firms to accept the responsibility and go beyond this. Many businesses only accept CSR in compliance with the law, however there are some very good firms that accept CSR in excess of the minimum required by law. If a firm goes beyond the law then they are increasing the amount of CSR thet they implement in their company.

However somtimes firms try to sidestep the law or seek to try and avoid regulation by a change in strategy, an example of this is having an offshore bank account in order to reduce tax liability. When firms sidestep the law then their activity is illegal and so fines would be imposed in order to try and make businesses comply with the law and to try and stop it happening again. However when firms try to exploit loopholes in the law then they aren't technically breaking the law; however many believe that even though the firm isn't breaking the law their activity is still unethical and so still unnacceptable of a socially responsible company. In order to try and combat the problems with the law is to make sure that there isn't loop holes so that people can get away with things that are still morally wrong.


There are many mixed views about CSR between the Public and Private sector. Businesses in the private sector there is conflict between the stakeholders and whether their objectives should be profit or social responsibility. The shareholders of the business would generally want the main objectives of the business to be profit maximisation as they want a high return on their investment. Even though being more socially responsible presents a higher intial cost in the long run it will improve the brand image of the firm as they will be diversified, meaning they will be generating more profits in the long run. However other stakeholders such as the local community and consumers may want the business to be more socially responsible.  However business in the Private sector are more likely to have the objective of social responsibility. Public sector organisations such as the BBC accept CSR by raising £127m for Comic Relief. lso not for profit organisations such as Nationwide Building Society try to reduce thir carbon footprint through suppliers etc, also by supporting people who are homeless or who have housing issues and also encouraging and supporting sustainable living and housing.

Overall Private sector businesses are generally more likely to focus on profit as their shareholders have power over them and so can influence whether they accept CSR or not. However firms in the public sector will have objectives to incorporate social responsibility into their business as they are in the not for profit sector.
 
The type of legal structure that a firm has may affect the extent to which a firm is socially responsible. This may be due to the limited liability status and the accountability to shareholders. Many unincorporated business such as sole traders and partnerships have limited liability and so the are limited to the amount of money that they can invest into a business, however this would be protected if the business was to ever be liquidated. As a limited companies accounts are open to scruitiny then this means that companies are more willing to adopt more socially responsible methods. However as sole traders and partnerships are owned by the individual owners and Private Limited companies are owned by the shareholders this means that they only have to meet the standard of CSR that is desired by the private owners. Even though they have laws which firms are required to meet they only have a few that require them to report accounts to the public. Partnerships and Private limited companies have to produce a an annual report and account to the Companies House, however this isn't available to the public. This doesn't mean that they don't incorporate CSR methods, however the owners or shareholders can decide the amount of CSR that is accepted as the public can't see the accounts.

 Whereas Public limited companies have an obligation to produce all CSR productivity in the annual report. This means that they may accept CSR methods as the public and shareholders can see the reports and so CSR may benefit profits and possibly investments. As Public Limited companies are run by directors who report to the owners, the shareholders for the company demand return on their investment, for example in dividends. This means that the company may not have the money to use for using more CSR methods, unless this is suggested by the shareholders and all agree that this would be worthwhile for the business. Under the Companies Act 2006 business have to take into account the wider communit of stakeholders.

The Companies Act states that the business should be run in the interest of the shareholders and the objectives should still remain that of profit seeking and shouldn't be distracted by consideration of corporate social responsibility for other shareholders. Also it states that the director should act in a way that is most likely to promote succces for the company. This includes taking into account the company's employees, suppliers and customers, the impact of the businesses operations on the environment and the need to maintain high standards of business conduct. The act suggests that directors should incorporate CSR methods aswell as creating a high return on investment.

The extent to which Governments should influence Corporate Social Responsibility

Corporate Social Responsibility (CSR) has been accepted by many companies, mainly in order to improve their brand image and so further generate profits, and so not for the purpose of the community or the environment. However other businesses refuse to undertake CSR as they believe it will increase the costs for the business. Therefore as the Governments are voted into office by the majority of the population then they are expected to be concerned about the impact of business decisions.

It is the Governments aim to try and defend the rights of the employees, consumers and the local community against the actions of the larger and more powerful businesses. The larger companies will generally only accept CSR methods if they are low cost and are more beneficial to the company, therefore they will ignore different types of stakeholders such as the employees, consumers and the local community as they don’t have the power over the firms. As Governments are voted into office every four years they will need to have responsibility for the current generation and for the future generation. Therefore they shouldn’t just make decisions that will benefit the country in the short-term but have a major impact in the log-term (short-ism). Also the competitiveness of the UK businesses shouldn’t be undermined, by encouraging people buy from abroad and not the UK due to the increased costs form CSR.

How can and do Governments Influence CSR?

One way in which the government can influence whether firms adopt CSR is by imposing legislation. Legislation that has been imposed for example is employment rights, health and safety, discrimination, consumer rights and for pollution. The main laws for pollution are The 1990 Environmental Protection Act and the 1995 Environment Act which encourages firms to have the responsibility to clean up their own land and make sure it isn’t contaminated. If the legislation is broken then firms will incur major fines. Since the Gulf of Mexico disaster, BP have and are continuing to spend millions to ensure they meet the introduction of stricter regulations the government are planning to put in place. Even though firms recieve fines these still may not have an effect on the social responsiblity of the business, as this will depend on whether the level of fines outweigh the consequences of not being socially responsible.

Regulations can also be imposed to force firms to implement CSR, for example the reporting requirements and product safety. An example of when products didn’t meet the product safety requirements would be when the cars made by Toyota were recalled due to faults in the accelerator pedals.As implementing CSR methods can be extremely expensive the Government should also provide businesses with subsidies, grants and tax concessions so that they can research and develop methods of using renewable energy, and so encouraging firms to adopt CSR methods. However the amount of power that the governement can impose will rely on the whether the population that voted them into power will keep supporting them in their decisions.

The case for Government action

The reason for some businesses not being socially responsible is usually because they have a Profit Motive. If there wasn’t any government intervention then a firm’s main aim would be profit maximisation, causing a loss to the rest of society. Therefore the Government action is required to force firms to accept CSR. However as it is now a requirement to have a minimum level of CSR corporated into the business plan, this could help to boost the firms brand image. Therefore this will be benefiting the firm and also the community, consumers and other stakeholders. When BP had an oil spill in the Gulf of Mexico in 2010 11 people were killed and 4.9 million barrels of oil was discharged, having a major impact on the environment as miles of coastline was damaged and threatened marine life. Due to the oil spill BP were fined $34 billion in order to try and prevent such damage happening again. As BP had such an effect on the environment this meant that their profit margins dropped significantly. Therefore as the shareholders main priority is profit and so as the margins were reduced people began to sell shares and some even withdrew investments as they didn't want toplay a part in such a harmful business. This meant that BPs price per share was dramatically reduced and so could have a negative impact on the firms brand image.

As CSR is forced upon companies by legislation etc. then it can be argued that even though they have to undertake CSR, their main motive is profit. It may be seen by some that for a firm to be socially responsible they need to go beyond the minimum requirement set by legislation as by following the legislation the firm isn't taking any voluntary action to be socially responsible.

There are also particularly strong arguement for governement action in relation to pollution. Pollution is becoming a rising issue due to the increased scale of production in order for businesses that are trying to meet the higher demands of the public. Pollution from these companies has a negative impact of the environment, including the local community and the other businesses in that community. Many profit seeking businesses may have methods of production that are high polluting but are cheap rather than having ones that have low levels of pollution but are more expensive. The shareholders of the profit seeking business would be more concerned about the profits of the firms rather than the impacts it has on that community. The pollution from these companies will not only inflict a cost on the present generation, it will also on future generations and so the governement need to be concerned about the future generations. Therefore for these reasons governement intervention is essential to try and prevent the amount of pollution that firms cause. The amount of pressure the governement puts on businesses will depend on the political party that is in power and their attitude to CSR and the impacts on the environment.

There has been laws and regulation introduced in order to try and reduce the amount of pollution providing minimum requirements that they need to take responsibility to meet. However the legislation are only forcing the companies to take their responsibility of meeting the minimum standards and so there will still be pollution occuring. If there is only action being taken by UK governements then this will not be suffiecient as we will be effected by pollution from Europe and visa versa. Therefore there isn't much help to the environment if only the UK are enforcing these regulations.

The case against government action

The main reason against governement action is that it damages the free market economy. A free market economy operates by voluntary exchange in a free market and is not planned or controlled by a central authority. In the free market economy the governement plays a neutral role. There are many advantages of a free market economy; the profit motive in a free market ensures that businesses supply the goods and services that people need. Another advantage is that the competition among business benefits customers who want to buy what they need at the lowest price and with the highest quality as possible. Another advantage is that a free market rsults in high levels of economic growth, which then therefore raises living standards. There are some market failures

Conclusion

In conclusion I believe that the governement should intervene as they should do right by the whole population and so should enforce requirements to tackle the issues that are caused by businesses such as pollution that harms the community and also future generations. Governments want firms to accept CSR and as firms aren't willing to do this then it needs to be achieved by legislation, incentives and threaths. However successful businesses create jobs , provide people with goods and services, provide the country with export earnings and genertae tax revenue. The taxes of businesses contribute to public services such as education and health care and without the taxes from businesses then they wouldn't be as good a service. There is a limit to the amount of control that can be inforced by the government as there is the possibility that UK businesses could be forced to migrate abroad. In my opinion there does need to be government intervention however there needs to be a balance between a free market and state control. There should be a minimum amount of CSR that businesses should meet and if they aren't then penalties should be enforced. However the amount of CSR that should be enforced will depend on the governement party that is in power at the time as all will have different views about how socially responsible a firm should be.