Social Responsibility in the Finance Sector
Organizations exist in societies and they have the obligation to make sure they improve the welfare of the surrounding society. As the organization strives to make more profit, the organization should also strive to strike a balance between economic activities and environmental sustainability. Social responsibility refers to ethical obligations that ensure a business conducts its economic activities ethically and puts into considerations the culture, social and environmental issues (SAguinis, and Glavas, 2012, p.945). Social responsibility ensures a business is able to differentiate what is right from what is wrong so as to avoid hurting the surrounding community. Social responsibility is divided into main groups which include economic, legal, philanthropic and ethical. All organizations need to have social responsibility initiatives even if the business does not pollute the environment. This essay is written to describe social responsibility in the finance sector and highlight factors which hinder social responsibility and measures which managers can take to address the challenges that hinder social responsibility in the finance sector.
Economic social responsibility entails entity becoming profitable so that the society can also benefit in various ways. For instance, financial institutions should offer financial advice to the people of the society so that people can make better investment decisions that will help to improve the welfare of the society (Kitzmueller, and Shimshack, 2012, p.65). The economic aspect of the social responsibility entails providing employment opportunities to the people in the surrounding environment so as to improve the living standards of people in the society. Financial institutions can also construct structures that will ensure economic prosperity in the society.
The legal aspect of social responsibility is concerned with ensuring that the business obeys all the laws and regulations that govern businesses in the society. The financial institution should conform to all company acts which include providing financial statements to the public and the financial statements should be prepared according to international accounting standards (Kim, et al.2012, p.784). The firm should also pay taxes and rates as required by the government without defaulting or engaging in tax evasion. The financial institutions are also supposed to pay the imposed fines for breaking certain regulations. The firm is also supposed to obtain the relevant licenses needed to conduct a certain type of business in the society. The firms should also renew the operating licenses as required by the enacted laws in the society.
Ethical aspects of the social responsibilities of financial institutions involve recognizing and following certain principles, moral and codes of conduct which have been established by the society or the industry. Ethics help the business to make decisions that are right as the business can judge what is right and wrong. Ethics ensures that the business provides equal opportunities to all people in the society when employment opportunities arise without discrimination on basis of gender or color (Wang, and Bansal, 2012, p.1145). All employees working the firm should have equal benefits provided they hold the same position regardless of gender. Same positions in the organization should also attract equal pay because that is morally right. The financial institutions also should provide services without exploiting the target customers. The firm should ensure that customers get value for their money. The services offered should be fairly priced. The firm should also be in good relations with other stakeholders who help the financial institutions to operate smoothly. This is done by ensuring timely payments to all the involved stakeholders.
Factors Undermining Social Responsibility Performance
Philanthropic in social responsibility entails the firms in finance sector making donations to the society so as to improve the welfare of the society. The donations can involve donating funds to finance education for needy students in terms of scholarships and bursaries. The firm can also decide to construct social amenities in the society such as schools and dispensaries. The firms in the finance sector can also decide to sponsor various events in the region such as sporting competitions or academic competitions (Zhao, et al.2012, p.284). Philanthropic responsibility is just a way of the financial institution being generous because there is no ethical, economical or even legal regulations that force the business to donate funds to the society.
Financial institutions engaged in social responsibilities for various reasons. Social responsibility benefits the organization to a large extent and that is the reason why institutions in finance sector engage in social responsibility because there is no environment pollution involved. Finance sector engages in social responsibility as it helps to improve brand recognition in the society. Brand recognition in the society is achieved through promotions and advertisements and also by engaging in social responsibility initiatives (Yin, and Zhang, 2012, p.308). Brand recognition leads to more people in the society being aware of the products and services offered by the organization. This will enable the firm to issue more loans to customers as they have the advertised their products through engaging in social responsibility activities.
Social responsibility helps to improve the reputation of the business. Good public reputation helps to improve the brand image. Many people in the society will want to be associated with financial institutions that have a good reputation in relation to helping the society. This helps the firms in the finance sector to attract more customers (Uadiale, and Fagbemi, 2012, p.51). Public image plays a critical role in the performance of the company as customers hate to be associated with organizations that are faced with a lot of scandals especially customer exploitation scandals. Social responsibility can help to improve the damaged image of the firms in the finance sector as helping the surrounding society will help to change the perspectives of the target market. The good reputation will also enable the company to ensure there is customer loyalty as people in the society will want to be associated with the financial institutions as their own and they can do anything to defend it.
Engaging in social responsibilities will also enable the involved financial institution to attract top talent in the society. Such initiatives will also enable the firm to retain talented staff (Bravo, et al.2012, p.139). This will help the business avoid disruptions that are associated with hiring new staff and this will result in better services to customers. Top talents in the organization will also ensure that the organization has various innovations which will help to create a competitive advantage and position the firm in a better position than its competitors (Ni, and Van Wart, 2015, p.185). Employee retention will also enable the firm to cut operational costs as costs associated with the hiring process such as advertising for various vacancies in the organization will be avoided. This will translate to lower prices for the offered which will help in attracting more customers and be able to compete favorably. Firms in the finance sector engage in social responsibility initiatives as there are more benefits to be gained even though there no environmental degradation.
Tactics for Addressing Challenges to Social Responsibility
Firms in the finance sector may be willing to engage in social responsibility but there are various factors that hinder them. Some of the factors include; poor social responsibility reporting guidelines and regulations that ensure that organizations disclose their social responsibility activities for the whole year correctly. Lack of the laws and regulations enable organizations to engage in accounting manipulations so as to increase their social responsibility activity. The loopholes enable financial institutions to avoid social responsibilities as there are no rules that force organizations to conserve and enhance the welfare of the society (Dowling, 2017, p.303). This is worsened by the fact that financial institutions do not engage in activities that lead to environmental degradation. This also makes firms in the finance sector to neglect social responsibilities as they term such efforts wastage of limited resources that can be used to expand the operations of the business.
Green washing mentality in the society has also forced many organizations in the finance sector to neglect social responsibilities. This is due to the fact that members of the society do not appreciate the efforts made by the organizations in trying to improve the welfare of the society. Members of the public believe that financial institutions use their financial expertise to exploit the society (Stecker, 2016, p.379). The member’s belief that the efforts made by the firms are not genuine and will only benefit the organization and hurt the society at long last. This discourages many firms in the finance sector from engaging in social initiatives that help the members of the society.
There are various measures that managers in the firms can employ to ensure the identified challenges are well addressed. The recommendations include acting ethically and ensuring that all the existing rules and laws that govern the social responsibility disclosures during financial statements preparations are followed. This will force the firm to engage in more social responsibility initiatives as managers in the organization are guided by moral and ethics and will not engage in social responsibility disclosure malpractices (Kansal, et al.2014, p.224). The other recommendation is creating awareness among the members of the public about the social responsibility initiatives and the aim of such initiatives. This will enlighten members of the public and the society will start appreciating such initiatives. Such appreciation will motivate the firms to engage in social initiatives as this will lead to good relations.
In conclusion, social responsibility plays a critical role in ensuring that firms in the finance sector conserve the environment so as to avoid environmental pollution. Such responsibility enables an organization to differentiate what is right from what is wrong and this will enable the business to act ethically so as to avoid exploiting the society for the sole purpose of making a profit. Social responsibility helps both the society and the firm. The firm is able to improve public image and enhance brand recognition in the society. Retention of staff and attraction of top talents in the society is also associated with social responsibility initiatives carried out by the business. There are various factors which hinder the engagement of firms in social responsibility and they include green washing perceptions and poor laws guiding social responsibility reporting. Such challenges can be addressed by following the existing laws governing social reporting initiatives and creating public awareness about the importance of social responsibility initiatives in the society
References
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Wang, T. and Bansal, P., 2012. Social responsibility in new ventures: profiting from a long?term orientation. Strategic Management Journal, 33(10), pp.1135-1153.
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