Skip to 0 minutes and 4 secondsAccording to Financial Times, Corporate Social Responsibility(CSR) can be defined as “a business approach that contributes to sustainable development by delivering economic, social and environmental benefits for all stakeholders.” Traditional view in economics and business is that a company should maximize profit under budget constraint. To make profit, it should satisfy the needs of customers. Note that the maximized profit belongs to the owners of the company, that is shareholders. Therefore, the two most significant stakeholders have been customers and shareholders, and thus, customer satisfaction and shareholder value maximization have been regarded as key performance indicators. In 1950s and 60s, however, firms began to pay attention to social responsibility.

Skip to 1 minute and 9 secondsIn 1970s, social, environmental, and regulatory issues received attention from the public, making companies become aware of the positive and negative impact of their business on the rest of society, including their own stakeholders and the environment. After 1980s. companies began to use CSR to build good reputation and differentiate themselves from competitors. Indeed there have been much debate about CSR. In 1970, Friedman wrote an influential article on NY Times, arguing that the social responsibility of business is to increase its profits. When its shareholders get the profits, they can decide freely whether they will use the money for their own or for the society for example, Bill Gates Foundation.

Skip to 2 minutes and 11 secondsIf CEO uses part of profits for CSR-related activities such as donation, it is usually for the CEO’s own reputation at the expense of shareholders’ benefits, and thus, it should be punished (or even sued) as suggested by the agency theory In contrast, a number of researchers argue that CSR-related activities can increase firm value in the long term by changing customers’ and investors’ perceptions, helping acquire or retain customers, helping recruit or keep elite employees, and playing a role of insurance under critical situations If this is the case, CEO should actively engage in CSR to benefit his or her shareholders. Some companies may attempt to do CSR activities to cover their bad behaviors. What would happen?

Skip to 3 minutes and 15 secondsResearchers find that such activities would be perceived by stakeholders as behaviors with little authenticity, and thus, do not increase firm value. With the advent of social networking services and smartphones, people have very good access to information. Moreover, they are tightly connected with each other, which allows them to share information with ease. In this situation, it is almost impossible for a firm to deceive stakeholders with CSR activities. Accordingly, firms pay attention to gain authenticity through strategic CSR or partnership, which will be discussed in the following step.

CSR

Let’s look at the traditional view of economy & business and the backround of the emergence of CSR.

Traditional view in economics and business is that a company should maximize profit under budget constraint.

In 1950s and 60s, however, firms began to pay attention to social responsibility. In 1970s, social, environmental, and regulatory issues received attention from the public, making companies become aware of the positive and negative impact of their business on the rest of society. After 1980s. companies began to use CSR to build good reputation and differentiate themselves from competitors.

Share what you think about the influence of CSR with other learners.

Share this video:

This video is from the free online course:

Social Innovation in South Korea

Hanyang University