Social Responsibility and Risk Management

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Businesses are socially responsible for the environmental damage they cause.
Businesses are socially responsible for the environmental damage they cause. (Image: Jupiterimages/Photos.com/Getty Images)

For a corporation, social responsibility and risk management are very closely related. In many ways, social responsibility is itself a form of risk management as it maintains the goodwill needed to avoid costly political and legal setbacks. A strong adherence to social responsibility and risk management can create many opportunities for a business. The nature of these benefits depends on the type of responsibility in question.

Corporate Responsibility

Corporate responsibility consists of the duties a business owes to its board of directors, shareholders and stakeholders. Corporate executives are responsible for informing the board about how they spend company money, giving shareholders their due share of corporate earnings and minimizing damage to unaffiliated stakeholders in the community. These responsibilities are very serious, and in many cases are enforced legally by bodies, such as the Securities and Exchange Commission and laws, including the Sarbanes-Oxley Act.

Environmental Responsibility

Environmental responsibility is a broad concept. In general, corporations are responsible for following any laws and regulations concerning pollution, emissions and endangered species. However, environmental concerns run much deeper than this. Corporations that want to reap continued profits must ensure that they do not over-exploit natural resources. If a company puts a resource at risk, it may run out of the supplies it needs to do business. There is also a strong incentive for companies to develop clean energy products as fossil fuels are a non-renewable resource. Thus, environmental responsibility is intertwined with supply chain risk management.

Business Responsibility

Business responsibility includes duties to employees, customers and community stakeholders. If a manufacturing company is irresponsible to suppliers by failing to make timely payments, it may find itself unable to produce. If a company is irresponsible to its customers by running out of advertised products, consumers will go elsewhere. If a company is socially irresponsible with regard to the broader community, such as by polluting, it may find itself facing a mountain of lawsuits. Thus, business responsibility is very much linked to financial risk management.

Management Responsibility

Managers are socially responsible through risk management in whatever business or business unit they oversee. Management must deal with all of the concerns of corporate, environmental and business responsibility, as well as the challenging task of weighing these concerns against the company's need to make a profit. Social responsibility and risk management are most closely intertwined from the manager's perspective because the manager (unlike the shareholder or local community) knows perfectly well the demands of the owners and those of the community. Managers are therefore responsible for optimizing financial growth without jeopardizing the company's future through socially irresponsible actions.

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