Sep 01, 2015 Expanding the definition of a shareholder
A Millennial Perspective by Annie Wilson
The concept of corporate social responsibility (CSR) has been a highly discussed and researched business decision in the last decade, but do most companies really know where its theories come from?
Corporate social responsibility is defined as the economic, legal, ethical and discretionary expectations that society has of business organizations; it is the moral, ethical and philanthropic responsibilities of business in addition to their responsibilities to earn fair return for investors and comply with the law. CSR differs from the term business ethics, which usually focuses on the internal moral and behavioral decisions of individuals and groups within an organization.
The history of CSR dates to early corporate charters that included clauses that corporations serve some sort of public purpose. However, these incorporation statutes were so broad that they made little to no impact because corporations did not take them seriously. It was not until the beginning of the 20th century that corporations were seen to be too powerful and the concepts of unionization and anti-trust laws were beginning to be enforced. In response, public attitudes towards corporations began to shift and companies began to adopt CSR measures more seriously as a way to separate themselves from the public’s association of big corporations.
At the time, companies who favored CSR believed that modern corporations create many social problems and therefore should assume the responsibility of addressing them. They also believed that it is in the corporation’s best interest to assume social responsibilities as a means to ensure their company’s continued growth and to reduce impending governmental regulation.
Companies who were opposed to CSR believed that the economic feasibility of the endeavor was too unrealistic. Conversely, these companies found that corporate social responsibility was an unethical practice because it contradicted the fiduciary duties of the business: to maximize the amount of dividends for their shareholders. Noted economist Milton Friedman was one of the people who assumed these views and found that dealing with social issues should be left to those who are equipped to do so and that participating in social endeavors places them at a competitive disadvantage.
Moving forward, the idea of CSR started to become more normalized and justified amongst corporate executives and a CSR binary was developed: companies either adopted the shareholder approach or the stakeholder approach. The shareholder approach refers to the traditional output of a company where the philosophy remains that company efforts should be made towards maximizing profits and distributing their highest attainable dividends to their investing shareholders. In this approach, the shareholders are the only prioritized group and their maximized dividend distribution is the company goal. However, in the stakeholder approach, shareholders share equal weight with stakeholders, or everyone else who is affected by the company’s actions. It requires that a company adopts a broader view of their responsibility to those who are affected by their actions. Not only would this include shareholders in the company but employees, suppliers, local, state and federal governments, environmental groups, local communities, etc. For companies who adopt the stakeholder theory, these groups are held of equal weight to one another and decisions on behalf of the company are made with a more holistic representation of whom they are affecting through their actions.
Historically, it seems as though the corporate climate towards CSR has undulated back and forth with the regulatory trends. In today’s modern corporate world, companies are moving forward with a stronger stance towards their CSR measures and are more readily incorporating these initiatives into their policies. More companies are using CSR not only because more executives believe that it is within their duty as a company to act with social awareness but because they see it as a way to attract consumers as well. The millennial generation, approximately 80 billion people born between 1980-2000, have overwhelmingly expressed that making socially sustainable investments are of high priority to them and this is an asset that many companies are interested in tapping into.
The question that a lot of companies are posing to their internal CSR and marketing teams is if millennials are really going to make a lasting impression in the way that corporations operate. In recent 2014 polls from the Nielsen Global Survey, when asked whether or not respondents would pay extra for products that were sustainable, 51% of those who answered ‘Yes’ belonged to the millennial generation (aged 21-34) compared to just 25% for Generation X (aged 35-49) and 15% for those older than 50. When asked if whether or not one would prefer to work for a socially sustainable company, those who responded ‘Yes’ were comprised of 49% millennials, 26% Generation X and 16% for respondents who are over 50. Considering that the millennial demographic is going to have the largest purchasing power in the economy and comprise the most sought after employee demographic in the next few decades, this trend is going to have an impactful influence on our economy and our overall notion of good business practice. As previously mentioned, corporate attitudes towards corporate social responsibility have ebbed and flowed with the different regulatory environments from varying presidential administrations. However in my opinion this particular upturn in favor of CSR will reverberate into the generations to come and not only change how companies operate in the short term but in the long term as well. In that sense, corporate vitality may end up hinging on their CSR efforts not only by means of their public relations but their ability to remain competitive in a B2B environment.
We at Wilsonwest believe that companies that incorporate social impact as an integral part of their business strategy build stronger brands, attract more committed employees and develop deeper connections with customers. It’s smart business that benefits both shareholders and stakeholders. These same goals are at the heart of our event management strategy and why we believe it’s a natural partnership to embed social impact into your event marketing efforts.
All sourcing from this Blog post is credited to Professor Carol Janssen, professor of “Governmental and Social Influence on Business” at Cal Poly San Luis Obispo, Spring 2015. For her lecture notes, please click here.