HRER 825 - Lesson 07 Stakeholder:Shareholder

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Pennsylvania State University, World Campus *

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825

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Management

Date

Jun 21, 2024

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docx

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5

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Krissy Avancena June 19 th , 2024 HRER 825 - Lesson 07 Stakeholder/Shareholder Summary of Scholarly Article In the scholarly article "Corporate Social Responsibility and Financial Performance: Evidence from U.S. Tech Firms" published in the Journal of Business Ethics in December 2022, researchers Laura Thompson and Mark Andrews analyze the impact of CSR initiatives on the financial performance of companies in the technology sector. The study employs a longitudinal data analysis covering the years 2015 to 2021, focusing on U.S.-based technology firms listed in the S&P 500 (Thompson, 2022). Key Findings: 1. Positive Correlation between CSR and Financial Performance: The study found a statistically significant positive correlation between CSR activities and financial performance metrics such as return on assets (ROA), return on equity (ROE), and profit margins. Firms that invested more in CSR activities such as environmental sustainability, employee welfare, and community engagement reported better financial performance compared to those that did not (Thompson, 2022). 2. Enhanced Brand Reputation and Customer Loyalty: CSR initiatives were shown to enhance brand reputation and customer loyalty. Companies that were perceived as socially responsible experienced higher customer retention rates and were able to charge premium prices for their products and services. This, in turn, contributed to increased revenue and profit margins (Thompson, 2022).
3. Operational Efficiency: The study also highlighted that CSR practices led to operational efficiencies. For example, investments in energy-efficient technologies and waste reduction strategies not only reduced environmental impact but also lowered operational costs. These cost savings directly contributed to improved financial outcomes (Thompson, 2022). 4. Employee Satisfaction and Productivity: Another significant finding was the positive impact of CSR on employee satisfaction and productivity. Firms with strong CSR programs reported lower employee turnover rates and higher levels of employee engagement and productivity (Thompson, 2022). This was attributed to a greater sense of pride and motivation among employees working for socially responsible companies. 5. Risk Management: Engaging in CSR was found to mitigate risks associated with regulatory compliance and social backlash. Companies with robust CSR strategies were better prepared to handle regulatory changes and avoid fines and penalties. Additionally, these companies were less likely to face negative publicity and boycotts, which could harm their financial performance (Thompson, 2022). Impact on Shareholder vs. Stakeholder Perspectives The research findings have significant implications for the debate between the shareholder and stakeholder perspectives on corporate governance. The shareholder perspective, primarily advocated by Milton Friedman, argues that the sole responsibility of a corporation is to maximize shareholder value (Friedman, 1970). In contrast, the stakeholder perspective, supported by Edward Freeman, posits that corporations have a broader responsibility to all stakeholders, including employees, customers, suppliers, and the community (Freeman, 1984). Affirmation of the Stakeholder Perspective:
1. Holistic Approach to Value Creation: The positive correlation between CSR and financial performance supports the stakeholder perspective that addressing the needs and interests of all stakeholders can lead to better financial outcomes. By considering the broader impacts of their actions, companies can create sustainable value for both shareholders and stakeholders (Freeman, 1984). 2. Long-term Financial Health: The research demonstrates that CSR initiatives contribute to long-term financial health rather than short-term profit maximization. This aligns with the stakeholder theory’s emphasis on sustainable and ethical business practices that benefit all parties involved (Freeman, 1984). 3. Enhanced Corporate Reputation: The enhancement of brand reputation and customer loyalty through CSR activities further validates the stakeholder approach. Companies that invest in their communities and operate responsibly are likely to attract and retain customers, leading to sustained revenue growth and profitability (Freeman, 1984). Challenges to the Shareholder Perspective: 1. Short-term vs. Long-term Gains: The shareholder perspective's focus on short-term financial gains is challenged by the study’s findings. The evidence suggests that neglecting CSR can lead to missed opportunities for cost savings, enhanced reputation, and customer loyalty, ultimately affecting long-term profitability (Friedman, 1970). 2. Risk Mitigation: The risk mitigation benefits of CSR also question the shareholder perspective. By proactively addressing environmental and social issues, companies can avoid potential legal and reputational risks, which can have substantial financial implications (Friedman, 1970). Conclusion
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