One highly popular debate in corporate law is the debate that took between Professor David Dodd and Professor Adolf A. Berle in the 1930s. Both of these professors were invested in the activities of companies in relation to the environment and tried to prove their arguments using logic and reasoning. So which one was more convincing? Dodd or Berle?
The first view says that the companies are established to advance the goals of the owners an2d the directors and agents should work towards the same goal. While this true for the most part, society is a major part of the business and its revenue generation.
The stakeholders, like employees, customers, government and others are greatly impacted by the activities of the business.
The global fortune 500 companies made approximately $2.15 trillion profits in the year 2019, with Saudi Aramco making the highest profits at $110 billion. It is true that main goal of any business is profit making and serving the society means delaying or reducing profits, but these successful companies are making enough money to give back a little to the society.
The second view, Dodd’s view says that a company is a social institution with responsibilities regarding the public including safety and health measures.
Other than it being morally imperative, CSR has many advantages.
Firstly, customers now are better informed than ever. People are trying to fight social issues and climate change and want to use products that are environment friendly.
Second, you can use this good reputation of yours to justify premium pricing. This way you can improve your profits.
Third, by taking care of your employees, you can increase their job satisfaction which can lead to greater productivity.
Fourth, CSR can increase your access to finance.
Fifth advantage is, through social activities, your team can learn about different cultures and markets which can enable new partnerships. You can increase your distribution or market share this way.
Another benefit is that by starting projects, you can help your workers develop soft skills like collaboration, innovation, leadership and communication.
Giving corporations a choice and expecting them to voluntarily work for the community might function in some situations but not all companies take social responsibility seriously unless there is a serious legal compulsion. There are companies like Google, Dell, & Ben & Jerry’s who are committed in funding community action, social change, and sustainability.
On the other hand, there are companies like Walmart and Apple, who are known for their poor environment. Saudi Aramco, the company I talked about earlier is accountable for the most carbon dioxide emissions since 1965. These companies prove that there needs to be legal compulsion to be socially responsible.
Also Read: Fundamental Concepts of Corporate Finance