Corporate Social Responsibility
Corporate Social Responsibility
Corporations that conduct business within their legal boundries have one, and only one social responsibility. That responsibility is to allocate all corporate resources into activities that are designed to maximize shareholder value. The desire for wealth creation among corporate investors is the very incentive that stimulates innovation, competition, and capital expansion in a free market economy. Corporate managers that pursue these activities for the purpose of creating wealth, unintentionally benefit society through technological advancements, job creation and new tax revenue.
On the flip side, managers who embrace the stakeholder or corporate responsibility philosophy of business, often redistribute financial resources to activities and agendas that do not contribute to the financial growth of the firm. This behavior, also known as corporate socialism, weekens the financial leverage of corporations and reduces their ability to finance profit making activities. This scenario discourages individuals from investing in corporate equity, therefore further reducing the financial leverage of corporations.
The potential financial restraints on corporations, due to social responsibility, is actually counterproductive to society in three ways.
First, the reduction in capital growth opportunities due to inadequate equity financing, reduces the probability of job development associated with capital expansion. . That lack of job creation diminishes new cash inflows into the treasury department in the form of tax revenue.
Second Reason. The reduction in private investments restrains the ability