Companies serve as vital economic links in society, providing jobs for their employees, paying business taxes and producing goods and services that consumers can choose to purchase. But many companies also have a social function, pursuing voluntary activities in an attempt to enhance their images or better their communities. Corporate social responsibility, or CSR, can cause some problems unless businesses undertake it with care and planning.
One of the key drawbacks to a corporate social responsibility program is the cost to the company. Efforts such as event sponsorship, charitable donations, product donations and commitment to voluntary environmental standards all cost money that a company is unlikely to make back in the short term. Despite the long-term positive effects of an improved corporate image, it's impossible for companies to measure the value of corporate responsibility, instead taking its cost out of profits. This means less money for stockholders and less money to invest back into the company for future growth. It also places companies that invest heavily in corporate responsibility at a competitive disadvantage compared to other companies that do not.
When a company chooses to invest in corporate responsibility, it can spend the money in any way it chooses. Often this means selecting from among a long list of worthy charities and organisations, or from a group of social concerns, such as environmentalism, civil liberties or a political cause. As such, board members and executives who make spending decisions are free to bring their personal opinions and biases into the process. Corporate responsibility dollars can end up where they're most visible to the public rather than where they're most needed or best able to make a difference.
Social responsibility can have unintended and unanticipated consequences for businesses, regardless of how or where they spend money. This happens when a business' attempts at exercising social responsibility conflict with government efforts to do the same thing, confusing members of the public by offering a new, and perhaps temporary, option for solving a specific social problem. This type of social responsibility can cause taxpayers to resent their government for supplying a service that a private business also pays for. Another type of unintended consequence is a social responsibility investment in a program or organisation that turns out to be inefficient or illegitimate.
A company that undertakes a socially responsible course falls under increased scrutiny from critics, customers and competitors. For example, if a company invests in energy-efficient manufacturing methods and a public awareness campaign to promote recycling, competitors may attempt to debunk the behaviour by pointing out other parts of the business' operation that are less environmentally beneficial. A company that regularly supports a local charity but withdraws its sponsorship during a period of financial hardship may appear overly concerned with its bottom line or insensitive to public concerns.