Question

In: Accounting

The following quote appeared in an article entitled ‘Business and society in the coming decades’, which...

The following quote appeared in an article entitled ‘Business and society in the coming decades’, which was available on the website of McKinsey & Company (accessed in October 2015).
“There are compelling reasons companies should seize the initiative to drive social and business benefits. First, in an interconnected world facing unprecedented environmental and social challenges, society will demand it. Increasingly, a basic expectation among customers, governments, and communities will be that the companies they do business with provide a significant net positive return for society at large, not just for investors. This will be part of the implicit contract or license to operate”.


Required:
a) Explain the above statement in the context of corporate social responsibility. [Word limit 150-200 words]
b) Further, do you think such a statement would impact the perceived ‘legitimacy’ of companies? Explain. [Word limit 200 – 250]

Solutions

Expert Solution

a) The above statement is an accurate depiction of the future of corporate social responsibility we shall witness in the upcoming years. Our society is growing deeper and broader as we speak. But a society does not just grow without the necessary inputs. This growth demands a number of things from the main benefactors of a growing society - the business corporations. It is a mutually beneficial transaction whereby the business firms contribute to the society's growth by fulfilling its social responsibilities and in return, they receive a better world to operate in and gradually increase their profits. Therefore, it is only logical for the society to expect the business firms to perform their social responsibilities. It may even affect those firms which disregard the need for corporate social responsibility negatively since the society will only favor its competitors who contribute to the society. Social responsibility has even taken the form of a marketing strategy these days. As long as the companies perform its duties, the society does not mind if it uses those duties to boost its public image.

b) The given statement is a reminder to the companies stating the importance of corporate social responsibility. It provides a positive feedback to those companies which already perform their social responsibilities. It also provides a warning to those companies that don't. I think it will affect the legitimacy of the companies to some extent. It may even change the definition of legitimacy in the near future. The companies that do not fulfill corporate social responsibilities may even be considered illegitimate. Sooner or later, they all will realize that there is no survival in an expanding world without giving anything in return to the society. The companies that do understand the urgency of this matter will take necessary steps towards it and they will have a higher probability of survival than the ignorant companies. It is definitely the author's success if at least one company decides to provide for the society after reading this statement. Incurring expenditure towards the fulfillment of social responsibilities is just the same as incurring expenditure for the company. The spent money will broaden the economy and provide the company with better opportunities for growth and profitability. Fulfilling social responsibilities is the way of the future. The companies that realize this fact shall remain and the others shall perish.

Hope this helps :)


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