Why do modern government spend a lot of money on different activities without earning profit

It is generally held that corporate social responsibility (CSR) could increase company profits and thus most large companies are actively engaged in it. But few executives and managers are aware of the research on this important subject. And as I review here, the research does show that it may improve profits. However, linking profit growth to abstract variables that are frequently difficult to define is a challenging task.

Most executives believe that CSR can improve profits. They understand that CSR can promote respect for their company in the marketplace which can result in higher sales, enhance employee loyalty and attract better personnel to the firm. Also, CSR activities focusing on sustainability issues may lower costs and improve efficiencies as well. An added advantage for public companies is that aggressive CSR activities may help them gain a possible listing in the FTSE4Good or Dow Jones Sustainability Indexes, or other similar indices. This may enhance the company’s stock price, making executives’ stock and stock options more profitable and shareholders happier.

Substantiating some of these beliefs is a study, Corporate citizenship: Profiting from a sustainable business, by the Economist Intelligence Unit (EIU) published in November 2008. Corporate citizenship is another term roughly equivalent to CSR.

The EIU study said that, “corporate citizenship [CC] is becoming increasingly important for the long-term health of companies even though most struggle to show a return on their investment from socially responsible activities… 74 per cent of respondents to the survey say corporate citizenship can help increase profits at their company… Survey respondents who say effective corporate citizenship can help to improve the bottom line are also more likely to say their strategy is ‘very important’ to their business (33 per cent) compared with other survey respondents (8 per cent).”

At the heart of the debate as to whether CSR improves profits is first how you define it. Besides the terms CSR and CC, another frequently used and related term is corporate social performance (CSP). In the above quoted EIU study, it provides the following definition of CC: “corporate citizenship is defined as transcending philanthropy and compliance, and is addressing how companies manage their social and environmental impacts as well as their economic contribution. Corporate citizens are accountable not just to shareholders, but also to stakeholders such as employees, consumers, suppliers, local communities and society at large.”

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