Social Responsibility in Business: Meaning, Types, Examples, and Criticism

What Is Social Responsibility?

Social responsibility is an ethical focus for individuals and companies whereby they seek to take action and be accountable for practices that benefit society. Social responsibility has become increasingly important to investors and consumers who seek investments that not only are profitable but also contribute to the welfare of society and the environment.

While critics have traditionally argued that the basic nature of business does not consider society as a stakeholder, younger generations are embracing social responsibility and driving change.

Understanding Social Responsibility

Social responsibility means that individuals and companies must act in the best interests of their environment and society as a whole. As it applies to business, social responsibility is known as corporate social responsibility (CSR) and is becoming a more prominent area of focus within businesses due to shifting social norms.

The crux of this theory is to enact policies that promote an ethical balance between the dual mandates of striving for profitability and benefiting society as a whole. These policies can be either commission (philanthropy: donations of money, time, or resources) or omission (e.g., “go green” initiatives such as reducing greenhouse gasses or abiding by U.S. Environmental Protection Agency regulations to limit pollution).

Many companies, such as those with “green” policies, have made social responsibility an integral part of their business models, and they have done so without compromising profitability.

Additionally, more consciously capitalistic investors and consumers are factoring in a company’s commitment to socially responsible practices before making an investment or purchase. As such, embracing social responsibility can benefit the prime directive: maximization of shareholder value.

There is a moral imperative as well. Actions—or the lack thereof—will affect future generations. Put simply, social responsibility is just good business practice, and a failure to do so can have a deleterious effect on the balance sheet.

Social responsibility can also boost company morale, especially when a company can engage employees with its social causes.

Areas of Focus

The International Organization for Standardization (ISO) emphasizes that a business’s ability to maintain a balance between pursuing economic performance and adhering to societal and environmental issues is a critical factor in operating efficiently and effectively.

The key ways that a company embraces social responsibility include philanthropy, promoting volunteering, ethical labor practices, and environmental changes.

For example, companies managing their environmental impact might look to reduce their carbon footprint and limit waste. There’s also the social responsibility of ethical practices for employees, which can mean offering a fair wage, which arises when there are limited employee protection laws.

Examples of Socially Responsible Corporations

Social responsibility takes on different meanings within industries and companies. For example:

• Starbucks Corp. (SBUX) committed to social responsibility from the start, including sustainability and community welfare. It purchases Fair Trade Certified ingredients to manufacture products and actively supports sustainable farming in the regions where ingredients are sourced.
• Ben & Jerry’s Homemade Holdings Inc. has integrated social responsibility into the core of its operations. Like Starbucks, the company purchases Fair Trade Certified ingredients.
• Salesforce.com Inc. (CRM) developed what it calls the 1-1-1 model. The company dedicates 1% of its equity, 1% of its product, and 1% of its employees’ time back to the community.
• Big-box retailer Target Corp. (TGT), also well known for its social responsibility programs, has donated money to communities in which the stores operate, including education grants.

Criticism of Corporate Social Responsibility

Not everyone believes that businesses should have a social conscience. Economist Milton Friedman stated that “‘social responsibilities of business’ are notable for their analytical looseness and lack of rigor.” Friedman believed that only individuals can have a sense of social responsibility. Businesses, by their very nature, cannot. Some experts believe that social responsibility defies the very point of being in business: profit above all else.

However, social responsibility has become more mainstream and is now practiced among a wide range of companies. Younger generations, such as millennials and Gen Z, are embracing social responsibility and driving change in the workplace and as consumers.

The Bottom Line

Social responsibility benefits society and the environment while lessening negative impacts on them. Companies engaging in social responsibility can do so in a number of ways, including making changes that benefit the environment, engaging in ethical labor practices, and promoting volunteering, and philanthropy. Consumers are more actively looking to do business with socially responsible companies, which can also benefit bottom lines.