How Much Social Responsibility Should Firms Assume and of Which Kind? Guidelines for Firms’ Social Engagement

Abstract

How are firms, and MNEs in particular, to reconcile the trade-off between societal pressures to engage in CSR activities and the demand of a free market and profit maximizing activities? How are they to allocate their resources between the competing considerations and inconsistent concerns imposed by these claims? And should they assume responsibility to set up agendas in areas that extend beyond their sphere of business, in which they possess no expertise and for which they have not been trained? From a broader societal perspective, is this state of affairs, whereby firms are treated as social institutions expected to take on economic, social and environmental responsibilities traditionally held by governmental bodies, desired? Does the creation of public goods by profit-maximizing firms generate the greatest societal paybacks? To tackle these questions, I present firms and governments as alternative providers of social services, and classify the universe of these services based on the attributes of the input used in their creation as core or non-core to what firms do, and those of the output, whether proprietary or public goods. I allot the resulting categories to firms or governments, and seek to draw a normative partition between them that builds on their relative strengths in the provision of social services. I use the resulting framework to specify the type of social activities in which firms should engage and the type of firms that should undertake them, and offer guidelines for firms for designing an agenda for social engagement that is based on the generation of proprietary benefits that improve their competitive position, and serves to advance their strategic objectives. I maintain that the scope for firms’ provision of social services is narrower than what most firms practice and far more limited than what stakeholders expect them to do. I also extend a call for society to use responsibly its power to shape the social agenda of firms and to recognize the opportunity costs of driving firms away from their core activities. I appeal for appreciation of the wealth of common goods created via the pursuit of profit-maximizing activities, and acknowledgement that by this is the best way for firms to serve society.