Tuesday, 19 October 2010

CSR and the firm

An important issue in CSR (Corporate Social Responsibility) is what a company should do and what is the purpose of it. Some, like the widely recognised economist Milton Friedman, would argue that CSR is not what a company should do; a company should instead focus on maximising returns for the shareholders, and abide the law and general ethical principles in doing so. Thus instead leaving the work of forming standards to ensure a responsible behaviour to the government, and if this is done well there would be no room or need for CSR in the companies, rather what is best for the shareholders would be best for the society. This is well in line with classical economics going back to Adam Smith and the invisible hand regulating the market.
However, this view is disputed. The assumption made here is that an efficient market, including an efficient state apparatus, will make sure that business is conducted in a responsible way. Obviously, this is not the case in reality, thus there is an important role for CSR work to play in filling the void between the real market and the ideal market. In this context it seems CSR work has an important role to fill and it should be something important for companies in catering to the interests of the stakeholders in regards to the interaction with the market, society and externalities. Actual it could be assumed that CSR has developed from a liberal market view, where not enough regulations are present to ensure commitment to responsible business principles. In this context it is not surprising to see an increase in CSR activities of companies, some argues that companies have taken over some of the responsibilities of regulating the market, which was earlier an activity exclusively conducted by the state. Not only are many companies conducting CSR activities in their own organisation, but also in their extended value chain containing several tiers of suppliers.

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