Trading Off CSR and Profitability/Shareholder Value

Trading Off CSR and Profitability/Shareholder Value

Traditionally, businesses used to engage in corporate social responsibility (CSR) because it was a good thing to do. However, that has since changed, and it has become an obligation. Firms that want to gain a competitive advantage must actively engage in CSR programs to boost their image. Most consumers do not just associate with a brand; rather, they want an intimate brand that cares about society. Therefore, this means that business leaders must balance CSR, shareholder value, and profitability.

Making Effective Trade-offs

Authenticity is a key driving factor when a business leader is developing a CSR strategy. It requires firms to marry their CSR programs to their mission and values (Murphy, 2020). For the CSR program to be impactful, the firm should develop and communicate a CSR strategy that aligns with its mission and values. In the case of Merck, the organization failed by not ensuring the Vioxx drug was safe and that it was aligned with organizational values of promoting safety. Administering the Vioxx drug to people made the company lose its credibility. The company’s value statement states, “Medicine is for the people. It is not for profits. The profits follow.” (Rothaermel, 2021). The company’s CSR projects in Africa cannot be used to clean the company’s poor safety standards.

Strategies to Guide the Organization on Challenging Issues

Successful CSR implementation should be aligned with the company’s goals. Therefore, a leader must first understand the goals of the company. Common goals include creating brand awareness, developing reputation, and ensuring employee retention (Yan, 2019). The company should then identify the stakeholders’ goals. Consequently, the company will compare the goals of both parties and identify sustainable actions. Another strategy is to create partnerships and build positive relationships. Creating partnerships will help the company have partners with whom to implement CSR goals. To that end, the business will not exhaust itself while trying to serve the community.

References

Murphy, G. (2020). Council Post: Why CSR Is Good For The Heart Of Your Business. Forbes. https://www.forbes.com/sites/forbescommunicationscouncil/2020/08/14/why-csr-is-good-for-the-heart-of-your-business/?sh=1a98ca7e7bad

Rothaermel, F. T. (2021). Strategic management (5th ed.). Mcgraw-Hill Education.

Yan, M. (2019). Corporate social responsibility versus shareholder value maximization: Through the lens of hard and soft law. Nw. J. Int’l L. & Bus., 40, 47.

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Merck illustrates how a firm’s values define both what it should do and what it should not do. This strategy highlight offers the opportunity to illustrate that a firm’s strategy is—and should be—constrained by its core values. These values guide a firm on strategies on which it should embark and strategies that it should avoid or abandon. It also does a nice job of illustrating that strategic planning involves many decisions that are legal but may not conform to the firm’s ethical values.

In the discussion about Merck (Strategy Highlight 1.2) it is clear the firm has followed a socially responsible path by donating more than 1 billion drug treatments to remedy river blindness in remote African communities. Yet Merck must also meet shareholder responsibilities and make profits on drugs in use in more affluent societies. How should a responsible firm make these trade-offs? What steps can strategic leaders take to guide organizations on these challenging issues?