An increasing preoccupation in business is corporate social responsibility (csr), where by a business's pursuit of success should benefi t it's shareholders in a way that respects (and benefi ts) the other stakeholders that make it possible: employees, suppliers, customers and the wider community. Being a good corporate citizen is also about a business taking responsibility for the impact it has on the world in areas such as the environment, including the consumption of global resources, pollution, carbon footprint and the generation of waste. For example, bp in a billboard advertisement in 2005 had the line "it's important to answer to shareholders and to more than six billion other people". The csr argument is that only by working in harmony with all these external infl uences can a business achieve true success and contribute to an ethical goal of prosperity for all. A company to overtly embrace success within this context is Ben and Jerry's, an American ice cream company that is now part of Unilever.
It has three interrelated parts to its mission:
. Economic - To operate the company on a sustainable financial
basis of profi table growth, increasing value for our stakeholders
and expanding opportunities for development and career growth
for our employees.
. Product - To make, distribute and sell the finest quality all natural
ice cream and euphoric concoctions with a continued commitment
to incorporating wholesome, natural ingredients and promoting
business practices that respect the earth and the environment.
. Social mission - To operate the company in a way that actively
recognises the central role that business plays in society by
initiating innovative ways to improve the quality of life locally,
nationally and internationally.
The third part is perhaps the most altruistic in recognising the role of
a business is to "improve the quality of life". Cynics might say that this
is just good marketing: by giving the business strong ethical credentials it
attracts certain types of loyal customers and boosts sales.
Whichever view you take, there is growing momentum behind the desire for businesses to
balance their duty to shareholders with their responsibility to other stakeholders.
Paying insuffi cient attention to the latter, especially if that results
in adverse media coverage, will undermine the long term sustainability of
the business and ultimately shareholder value.
Setting up a new business
At the outset of starting a business the founders need to raise money to
cover the costs of setting up and running the business until it is generating
suffi cient revenues to cover the business's costs. To get this initial capital
the directors must convince potential investors and other providers of
fi nance of the soundness of the business proposition and the returns that
can realistically be expected.
There are two options to raise the money to set up in business:
. Loan. The founders could put together a business plan showing
how they anticipate being successful, making enough money
to pay interest on a loan and ultimately repay the principal.
However, if the business has just started there will be nothing to
provide security for the loan should the venture fail. The risk to
the provider of the loan is therefore high and repayment depends
on the founders being able to carry out their business plan. The
loan provider would therefore want the founders to put some of
their own money into the business, not only sharing the risk but
also demonstrating their belief and commitment to the venture.
Alternatively, it would require some security from them - a charge
on their homes, for example, which could mean the founders
losing their homes if the business does not work out.
. Equity (or share) capital. A company is owned by its
shareholders, so if the founders want to part own the business,
they need to invest some of their own money to buy shares
in addition to attracting outside investors. Any profi ts that the
business generates belong to the shareholders (the owners) and
any losses are borne by the shareholders (up to the amount
invested). The shareholders are therefore the ones that take the
highest risk in a business, but they also have the potential for
the highest reward. Should the business fail any assets it owns
will be sold to pay the creditors (in the fi rst instance secured
lenders and then unsecured creditors such as suppliers and other
payables). Only after all debts are satisfi ed will the shareholders
get any of their investment back.
With a signifi cant amount of share capital invested to take the primary
risk of the business, a bank will be much more willing to provide loans.