Reasons for Companies Engaging in Corporate Social Responsibility

The development of CSR ideals and the shift in the expectations of stakeholders has raised the question to managers worldwide whether or not improving the performance in CSR activities pays off for firms in the long term, that is, whether the use of company resources to address social, environmental and governmental issues will increase firm value and improve financial performance, ultimately benefiting the company. CSR commitment is costly and requires that companies spend their limited resources that could otherwise be used for investment in value-enhancing projects (Maretno H. et al. 2016). In order for investment in CSR to occur, managers need a rationale and business justification. The business case of CSR can be summarized by asking whether companies do perform better financially by addressing both their core business and their responsibilities to the wider society (Kurucz et al., 2008). Managers need to know if investing in CSR activities will benefit their companies, thus helping them fulfil the primary responsibility of a business: the economic responsibility (Carroll et al. 2010).

Nevertheless, more and more companies have begun to develop their business strategies around CSR and managed to create a competitive edge (Carroll, 2008). The reason being for companies engaging in CSR has much to do with the potential benefits, which both the company as well as society can take advantage of – by no means being pure altruism (Carroll, 2015). Companies engage in CSR activities for several reasons. These range from pure philanthropy (actions taken for a better world and society without any direct payback) to conformity with institutional pressures from the external environment and explicit return benefits such as financial gains and stronger reputation (Lee & Shin, 2010). Barnett and Salomon 2006 summarised the following benefits for a company of being socially responsible: (1) it is easier to attract resources; (2) it can obtain quality employees; (3) it is easier to market products and services; (4) it can create unforeseen opportunities; and (5) it can be an important source of competitive advantage. In a similar way, Weber (2008) also identified five potential benefits of CSR for companies: (1) the positive effects on a company’s image and reputation; (2) a positive effect on employees’ motivation, retention and recruitment; (3) cost savings; (4) increased revenue from higher sales and market share; and (5) a reduction of CSR-related risk.

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