In today’s business and social environment, it is generally expected that a corporation undertake some “Corporate Social Responsibility” activities. This requires donation of time and money for social good by the corporation. The question then is that is donation of time and money the best way to add to society. According to some, this is not the best way. Instead, corporations should focus their resources on “maximising long-term shareholder value”. This, according to these people, will add more to society than donating time and money would.
Importance & my position:
- If a corporation wants to altruistically give back to society, it is highly important that they know which is the more effective way of giving. If direct charity is more effective, they would want to do that. If maximising “long-term shareholder value” is more effective, they would want to focus on that.
- If a corporation wants to be seen as someone who gives back to the society, this concept is not important. This is because to be seen as someone who gives back to society, the corporation must follow the most popular line of thought prevalent at that time. It does not matter to them what is actually a more effective way. What matters is to be in sync with the popular opinion. If devoting time and money for social good is the popular way today, such corporations would simply do this.
For society, however, it is highly important to know the most effective way. The society would then indirectly demand that organisations follow the most effective way.
Personally, this is important to me as I am both a part of society and a part of a corporation in the future.
In my personal opinion, it is more effective for organisations to maximise shareholder value in order to contribute more to the society. The more an organisation can add to shareholder value, the more the organisation adds to society. The core competency of an organisation is maximising shareholder value and not doing direct charity. It should focus its efforts on this core competency, as this gives maximum returns. However, by adding to shareholder value instead of direct charity, the organisation gives maximum to society as a whole, but there is a risk of this value being concentrated to a few people in society (the shareholders) rather than being distributed amongst poorer society participants. However, two mechanisms take care of this. First, shareholders today are not necessarily rich individuals, but also small individual public owners. So, even the poorer have an option of being shareholders. Second, direct charity runs the risk of putting an organisation into a downward spiral, where it is no longer financially beneficial for shareholders to own the company, thus putting at risk the benefit an organisation provides to all stakeholders. This means that simply by the act of all stakeholders being a part of the activities of an organisation, the organisation adds value to these participants who are also a part of society.
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