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During the 1970s, Milton Friedman sustained that the social responsibility of a business is to increase its profit. This is because the shareholders of a company are often the main thrusting engine of the company itself. However, is this still true and relevant?
The ‘Shareholder Theory’ by Friedman has been the object of many controversies. Let’s have a look at what the priorities of modern companies should be.
The study conducted during the 1970s by Milton Friedman affirms that the main responsibility of a brand is to its shareholders.
The Shareholder Theory of Friedman Doctrine, as this is called, relies on the assumption that the main engine of a company is its shareholders. However, this research has been the object of numerous controversies throughout the years.
In fact, many economists and social activists claim that from an ethical point of view, there are other priorities for a business.
It led to the belief that the theory is morally and economically wrong. Moreover, other theories suggest that, instead, a company should take into account all the people affected by its decisions.
This variety of opinions becomes even larger if considered the changing needs and preferences of consumers. In fact, while during the 70s, CSRs were not the priority for a business, statistics show that they are essential to winning over today’s market.
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To better understand whether the social responsibility of a company is to increase its profit, let’s have a look at what CSR is. This term includes all the responsibilities a company pledges to have to the community and environment. These can include, but are not limited to:
● Improving the wellbeing of the local community.
● Improving the wellbeing of employees and their families.
● Looking after the environment through various green initiatives.
● Reducing the emissions and waste produced by the business.
● Organizing volunteering days to help the community or environment.
● Introducing a disaster response strategy.
● Reducing carbon footprint.
● Charitable giving.
● Undertaking ethically, financially, and environmentally conscious investments.
● Participating in Fairtrade.
● Introducing sustainable labor policies.
While these are only limited examples of the power of CSR, you can see how shareholders are only a relative priority for the business.
Moreover, today the benefits yielded by the introduction of these policies can reach shareholders and the financial situation of companies.
Friedman sustained that a company is alive due to the effort of its shareholders. An increased profit would benefit them, and this made increasing its income a priority. However, today a company can benefit from introducing a wide range of CSR.
For example, introducing greener policies or volunteering work has been seen to improve the quality of many aspects.
Employees tend to be more engaged when encouraged to undertake volunteering work. In the same way, customers are today drawn towards sustainable companies.
It has made clear that a company should look after its shareholders, external and internal environment, and community in the same way. Ultimately, introducing these policies will have a positive effect on the return of investment and financial growth.
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Pro bono work gives the opportunity for employees to give back to the community. It has been seen as greatly beneficial to increase employee morale and retention.
Moreover, 83% of Deloitte employees report being much more satisfied with their job and able to learn more skills.
If you are wondering what the main benefits of pro bono work are, here are some of the best:
● A company is capable of retaining its employee 20% longer
● Purpose-oriented employees find their job more satisfying
● Giving back to the community can keep your employees more engaged.
● 60% of employees report having learned essential job-related skills through pro bono work.
● Pro bono work can help increase employee experience and confidence
● Pro bono work can increase the visibility of an employee’s talent outside and inside the company.
● These activities have been deemed excellent to encourage connectivity and networking among employees.
With the raging climate crisis on our doorstep, it can be hard to argue that the main social responsibility of Business is to increase its profit.
In fact, a working business can have a great positive or negative impact on the local and international environment. Being conscious of this and taking action has been granted incredible benefits to greener businesses.
Some of the greatest benefits that have convinced many businesses to go green are:
● Reduced costs of electricity and supplies when lowering their emissions and impact.
● Increased employee satisfaction.
● Increased consumers’ loyalty.
● Improved brand image.
● Better return on investments.
● Tax benefits and other governmental incentives.
● Increased savings when using organic or recycled materials.
● Better and greener reputation.
If you are interested in turning your business more eco-friendly, there are ways to show this to your target market.
Today there is a high availability of green and sustainability certifications that can earn your extra business points. And they are there for you to achieve them!
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Originally, the main social responsibility of business was to increase its profits to benefit its shareholders only.
However, today, investing to create an efficient CSR strategy can benefit both the shareholders, the community, and the environment. All this while increasing the company’s profit.
While going green can represent a big challenge and investment, the long-term benefits of this choice have been seen to be limitless.
Both small and large businesses can see:
● Improved customer base.
● A higher loyalty in customers who are now returning.
● Improved employee productivity and satisfaction.
● Higher savings from limiting the use of water and electricity and reducing wastage.
● Higher chances of obtaining precious governmental benefits.
● Increased ability to expand into another sector of the market.
● An improved brand image that appeals to modern consumers.
Be sure that all these factors will show you increased profits in no time!
Today, many increasingly successful businesses have implemented bulletproof CSR manifestos.
However, if you are looking at starting small, focus on the value proposition of your business. In fact, it can be extremely hard to introduce an extensive CSR strategy overnight.
That is why some of the most successful businesses out there start by creating one achievable promise to their consumers.
It can focus on a variety of sectors, such as:
● Improving the local environment
● Sending funds to a local charity
● Improving internal labor policies
● Guaranteeing that all materials and products are sustainable sources
● Using only plant-based ingredients
● Avoiding all products tested on animals
● Reducing your business footprint
● Providing an efficient disaster relief system
Moreover, many businesses tend to publish a manifesto with their proposition at the beginning of the year.
It allows them to then publish the results achieved throughout that time. This has been seen as much appreciated by customers and often used as a marketing strategy.
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Studies have found that introducing a valid CSR manifesto can be more effective than a marketing campaign to attract customers. But what about retaining them? The same research conducted throughout the past years has shown that:
● Customers of green companies are willing to spend more for better and more sustainable products.
● Customers tend to make more frequent purchases when shopping sustainably.
● Customers tend to spend more per transaction.
● Customers of sustainable companies tend to resist better to the marketing and advertising of rivals companies.
● Customers of sustainable companies tend to create a more positive word-of-mouth recommendation, increasing the company’s visibility and reputation.
Since attracting new customers can represent high expenditures for a company, CSR can be a great source of customer retainment. Moreover, this strategy has been proven to create an increased emotional attachment and loyalty in your customers.
Stagnating in an old, home market can be frustrating for navigated businesses. CSR has been proved to be able to help you get out of that and attract a bigger market share.
In fact, there are two ways for you to expand your business:
● Introducing a new product – a new and more sustainable or greener product can reach out to the market share you were desiring. It can help you increase your customer base and enlarge your business towards new ventures. Moreover, if your competition has not brought out a sustainable alternative, you will benefit from a unique competitive advantage.
● Introducing your business in a new location – creating a sustainable business can have great benefits, especially if you are trying to create branches in developing countries. It will also allow you to minimize your waste and pollution and gain governmental funds. A new environment and extra capital can just be the right push for your business to flourish!
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With a larger availability of jobs, worldwide professionals look at working for a company that has strong values and goals.
In fact, over 50% of millennials report being attracted by companies that display similar values to their own. Introducing appropriate CSR can, therefore, attract highly skilled and determined professionals in the field.
Moreover, introducing green or social initiatives can help you retain these high-flying individuals. More companies every day introduce particular symbols, such as custom enamel pins to improve the sense of belonging among their workforce.
Lastly, over half of professionals claim that for them working for a purpose-led company is a priority when picking their future jobs.
In recent times, displaying an appropriate value proposition and a better way to operate have set companies above the competition.
It has allowed them to attract like-minded employees and professionals to help them improve their business.
While there are government-led green initiatives and policies to be introduced by law, consumers value the proposition of individual companies.
In fact, not only this is appreciated, but often expected by both small and large companies. 64% of consumers think that CEOs should create value within their companies without being prompted by the government.
It has put leading companies in the position of creating an efficient and alternative CSR manifesto. The positive response that this has created among consumers has been incredible!
Modern consumer behavior has revealed that they prefer to support companies with a strong value and goal.
Making a difference in the society and environment as so become a priority and changed the belief that the main social responsibility of a business is to increase its profits.
Moreover, you should consider that a great percentage of consumers are happy to convince others to shop at sustainable companies.
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With the increasing number of companies, startups, and small businesses, the competition for a new venture can be extremely high.
Moreover, many companies and products are already on the market, making it even difficult to find a niche or unique selling point.
Introducing a valid CSR strategy can lead to:
● Setting your brand above the competition – especially if your competitors have not specific CSR policies in place, you could have a unique competitive advantage.
● Improve your brand image – when looking for new customers or a new market share to win over, having a CSR policy can convince potential customers.
● CSR can be used as a useful marketing tool.
● Showing your business’ value can improve your brand awareness as it will be much more noticeable by your consumers.
Creating a brand that is inspirational and socially responsible will set you above common business practices. Moreover, especially if the competition in your field is particularly strong, this can give you and help you sustain a significant competitive advantage.
While in the 1970s, the main social responsibility of business is to increase its profits, today the market changing need can have an impact on your business decisions. In fact, today, consumers are always more concerned with:
● The sustainability of the products they choose.
● The environmental impact of the services and products they buy.
● Whether the practices used by the company are sustainable.
● The wellbeing of employees.
● The help provided by a specific company to the local community.
These factors have created a drastic change in the common business practices used until a few years ago.
Today, this revolution encouraged businesses towards introducing alternative environmental strategies and sustainable products that will attract a more extensive customer base.
Depending on what your target market is, you should know that millennials are the drivers of this huge market change.
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While the main responsibility for a business might not be to increase its profit, taking care of its social and environmental responsibilities will increase its profitability. Studies have in fact found that introducing a valid CSR strategy and acting towards it can:
● Enhance the company’s sales by over 20%
● Improve the company’s employee’s productivity by 13%
● Increase employee retention and reduce turnover by 50%
● Increase the company’s share price by 6%
● It can also reduce the company’s financial risk and insurance costs.
● Companies with CSR could also justify increasing their prices.
These long-term changes can represent an investment at first, but the increased profitability that derives from introducing CSR cannot be denied.
Ultimately, while a business’s social and environmental responsibilities should be its first priority, they are also the key to increase the company’s profit.
The studies conducted during the 1970s by Milton Friedman have been the source of continuous controversies.
However, modern studies have found that the key to profitability for a business is not to focus exclusively on its shareholders but also to care for the environment and community. It has been seen as essential to win over consumers and high-flying professionals.
Have you decided to turn your business into a greener one? Do you already have a CSR manifesto on your website? Has this been helpful in winning over new customers? Let us know by leaving a comment below!