Corporate Social Responsibility (CSR) is a self-regulatory mechanism incorporated by corporations in their business model. The term CSR is also used for activities carried out by companies around the globe to give back to the society. The concept of CSR has been acknowledged by companies around the world and it is considered to an essential part of the operations of the companies. In the recent past, there have been several advancements in the corporate world which have necessitated the need for incorporating CSR in the core business model, specifically for large scale corporations with operations situated in multiple territories all around the world.
Although CSR is largely unregulated, corporations have acknowledged that carrying out CSR activities reflects positively on their brand image. In case of financial reporting, companies are required to follow strict standardized requirements; however in case of CSR, there are no strict regulations which make CSR mandatory. Despite the lack of regulations, the regulatory authorities encourage companies to engage in CSR as expenses incurred under CSR are deductible for tax purposes depending upon local laws. In the race to outrun their competitors, corporations conduct bigger and bigger CSR activities to earn higher goodwill among consumers. Corporations benefit from CSR as well because consumer prefer carrying out business with companies which have a positive image in the market.
With regard to the benefits and drawbacks of CSR, there are varying arguments. It is argued by some experts that CSR does not benefit shareholders as it jeopardizes the financial performance of the company. The proportion of profits that would otherwise be distributed to shareholders by way of dividends is spent in CSR activities which are not profitable or revenue-generating. These activities are considered to be merely an expense for the corporation. Since the primary purpose of a commercial organization is to generate value for its shareholders, it is only acceptable that the organization engages in activities which generate profit. On the other hand, other experts argue that CSR should be considered as ‘extended marketing’. Although it does not generate any profits directly, it does help the organization in strengthening its goodwill in the market which stabilizes, and at times, expands the consumer base of the organization resulting in greater revenues and therefore larger profits.
It can be concluded that Corporate Social Responsibility is a self-regulated addition to the business model of large corporations and it is considered to be extended marketing. Despite not being a revenue generating activity, it helps the corporations strengthen their brand image and stabilize their consumer base in the market.