Thursday, October 01, 2009

Free market (9) - Corporate social responsibility

There is a focus on corporate social responsibility. This focus is to encourage corporates to recognize that they have to go beyond making profits for their shareholders and to take care of other stakeholders, such as their workers, customer, community and the environment.

Many corporates proudly embrace this concept, but pay only lip service to it. To be truly a responsible corporate citizen, they have to create a proper balance in the sharing of the profit among the various stakeholders.

The most important task is to provide goods and services at fair prices to their customers. They should not make excessive profits at the expense of their customers, by offering goods of inferior quality or provide misleading information about the value of the goods. They have to be honest.

The corporations have to provide fair wages to their workers. It is possible to use the market forces to suppress the wages and increase profits for their shareholders, but that would be against the concept of social responsibility. It is understandable for a corporation to reduce its wages, if this is necessary for the corporation to survive in a competitive market or where there is a drop in demand. However, if the corporation is able to make big profit, it should give a fair share to the workers.

A part of the profits should be set aside for the community and the environment.

The shareholders are entitled to the residual profits but there must be benchmarks on what is a reasonable rate of return. The corporation should not go beyond this reasonable rate, if it is done at the expense of the other stakeholders.

The concept of corporate social responsibility requires these benchmarks to be established. It will lead to a fairer society and ensure its long term sustainability.

Tan Kin Lian

1 comment:

Tan Kin Lian said...

The best example of corporate social responsibility is Warren Buffett and Bill Gates. They build a wealth of billions of dollars and donated their fortunes to a charitable foundation to take care of the less privileged in the society.

Just as important, the built their fortunes in an honest way by giving value to their customers.

But people like these two gentlemen are the exceptions in this world. We need to have a better system to regulate business ethics and require high income earners to contribute more in taxes to society.

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