Primacy Profit Corporate Governance

Introduction

This paper aims at discussing exploring the discourse that the objective of the business to make profit and to create shareholder value ought to be reconciled with corporate social responsibility.

Profit is one of the anticipated benefits by the shareholders from a firm and if profits are not realized in the long-run, a firm’s value will not be maximized (Richards, 2019). They are regarded as a category for accounting and they stand for the historical performance of a business. The Anglo-American ideology for corporate governance has for long relied on the concept of managers of a business working under the interests of the shareholders alone (Dolenc, et al., 2012). This is the reason why creation of profits for shareholder value is the main objective for businesses even in the current world.

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The growing network economy has a variety of scholars who insist on the recognition of the impact that a business has on the external environment. This necessitates the need to consider corporate social responsibility as one of the accounting categories by businesses, apart from profits (Dolenc, et al., 2012). By definition, CSR is the concept where a business integrates environmental and social concerns in their corporate objectives and in the way they interact with every stakeholders (Crowther & Guler, 2008). The CSR falls in with the stakeholder theory whose rationale is that businesses, through corporate governance, ought to establish their objectives by considering the interests of stakeholders (Wheeler, et al., 2003).

Reconciling Business Objectives

The increasing need to consider every stakeholder in the development of business objectives results in the preference of a combination of CSR with profit making as the primary goals over having profit-making for shareholder value as the primary goal alone (Richards, 2019). Defining the primary objectives of a business from the perspective of every stakeholders, and this will include the shareholders as well, will result in a broader multi-faceted definition (Dolenc, et al., 2012).

In addition, Carroll developed a four-part construct of CSR that originally suggests that CSR appeals to the legal, economic, discretionary (philanthropic), and ethical expectations from a society concerning the organization at a particular point in time (Caroll, 2016). Carroll’s framework consists of four, easy to distinguish, components of CSR, which are empirically related and conceptually independent (Caroll, 2016). Economic responsibilities are significant because the only way to sustain themselves is by being profitable, being able to incentivize shareholders or the owners to invest further and acquire resources sufficient in running their operations. Legal responsibilities include the ability of a firm (as an economic entity) to conform to the minimum ground rules that society has developed an expectation that it will operate (Caroll, 2016). Ethical responsibilities are the expectations that firms will go beyond laws and regulations to include the societal norms, practices and standards in their activities. The discretionary or philanthropic responsibilities are part of the daily public expectations (Caroll, 2016). This involves voluntary activities, guided by a firm’s desire to take part in social activities.

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Bibliography

  • Crowther, D. & Guler, A., 2008. Corporate Social Responsibility.
  • Dolenc, P., Stubelj, I. & Laporsek, S., 2012. What is the Objective of a Firm? Overview of Theoretical Perspectives. In: Overcoming the Crisis: Economic and Financial Developments in Asia and Europe. s.l.:s.n., pp. 50-66.
  • Haney, L., 2003. Business Organization and Combination: An analysis of the Evolution of Business Organization in the United States and a Tentative Solution of the Corporation and Trust Problems. s.l.:Batocher Books.
  • Richards, L., 2019. Maximizing Firm Value Vs. Maximizing Stockholder Interest. [Online] Available at:
  • Sundaram, A. & Inkpen, A., 2004. The Corporate Objective Revisited. Organization Science,
  • Wheeler, D., Colbert, B. & Freeman, E., 2003. Focusing on Value:Reconciling Corporate SocialResponsibility, Sustainabilityand a Stakeholder Approachin a Network World. Journal of General Management, 28(3).

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