It has been argued that shareholder wealth maximization is not a realistic normative goal for the firm, given the social responsibility activities that the firm is "expected" to engage in (such as...

It has been argued that shareholder wealth maximization is not a realistic normative goal for the firm, given the social responsibility activities that the firm is "expected" to engage in (such as contributing to the arts, education, etc.).  Explain why these social responsibilities are not necessarily inconsistent with shareholder wealth maximization.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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It is certainly possible to argue that corporate social responsibility (CSR) is consistent with the idea of maximizing shareholder wealth.  The reason for this is the fact that it is possible to “do well by doing good.”

Often, we think that CSR activities cannot help a firm financially.  This is not necessarily the case.  There are at least two ways in which engaging in activities related to CSR can help a firm prosper.  First, a firm that engages in these activities may well attract better employees than one that does not.  People will often want to work for a company that they can be proud of.  They will therefore be attracted to one that does things like helping with the arts or with education.  By attracting and retaining good employees, CSR activities will help a firm do well.

Perhaps more importantly, engaging in these activities can help a firm attract and retain customers.  In America today, many people want to do business with companies that are committed to doing good.  For example, if we know that WalMart is committed to taking actions that will lessen its impact on the environment, we will feel better about buying goods from that firm.  We like to think that we are giving our money to firms that have some sort of a conscience.  This means that CSR activities can actually help firms sell more of their products.

Thus, it is certainly possible for CSR to be consistent with maximizing shareholder wealth.  CSR activities are likely to help companies attract and retain good employees and they are likely to help a firm have a good image in the eyes of consumers.

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