From a financial economic perspective, organizational success of a company is the maximization of the profit. The relationship between financial performance and social performance has been a debate since the 1960s. Whether or not a relationship exists clearly is important for corporate management. The relationship is affected by various factors such as firm size, industry, economic conditions. The relationship between social performance and financial performance could be positive, negative or neutral. In this paper, I will examine whether being social responsible would increase the financial performance of a firm or even a key to the organizational success. The paper will examine both side of the argument by analyzing previous research and data.
Social responsibility is the key for organizational success
Positive relationship between social performance and financial performance
Some researchers have argued that CSR investments and financial performance of a firm are positively related including Clarkson(1995), Waddock and Graves(1997).
A study conducted by Verschoor (2003) shows that firms that are socially responsible outperformed other firms in terms of market value added (MVA). An empirical study (Cotrill, 1990) which has examined 118 firms in 18 industries during 1982-1983 indicated that there was a positive relationship between market share and CSR.
Enhancement of firm reputation
The value of CSR is a proxy for management quality and a tool to attract and establish superior quality workforce. A strong reputation for CSR is intangible asset that deliver shareholder value such as management quality, people management skills, brands trust , emotional appeal and product quality. It is a valuable intangible asset which prompts repeat purchases by loyal consumers and helps to retain better employees to increase productivity and enhance profitability.
A recent survey indicate that 50% of the fund managers and analysts believed that intangible assets...