We wrote in many occasions in these pages about Corporate Social Responsibility (CSR) and why it is important for a business to succeed by improving employees’ morale and adhesion to company’s culture, improve external and internal communication and gain new market shares.
We also discussed how challenging it can be to organize, implement and follow up and how it requires strong leadership to succeed.
Today, we’ll get a different approach:
Let’s see why companies cannot afford anymore to ‘make believe’ they are sustainable development conscious or ignore altogether CSR, thinking it is a marketing fad that will eventually be replaced by a new management fashion anytime soon.
First, let’s get a step back in time and have a look at how Corporate Social Responsibility was received no less than 47 years ago:
In 1970, the economist and Nobel prize Milton Friedman published an article in The New York Times Magazine titled, “The Social Responsibility of Business Is to Increase Its Profits.”
In the article, he referred to CSR programs as “hypocritical window-dressing,” and said that business-people inclined toward such programs “reveal a suicidal impulse.”
His views represented the general skepticism and contempt with which many in Corporate World viewed CSR.
Times have changed.
As mentioned before, there remain company heads who still agree with Friedman, of course, but many more have made CSR a priority.
Ten years ago, for instance, only about a dozen Fortune 500 companies issued a CSR or sustainability report. Now the majority does.
More than 10,000 businesses around the world have signed the UN Global Compact pledging to show good global citizenship in the areas of human rights, labor standards and environmental protection.
The next generation of business leaders is even more likely to prioritize CSR.
According to data released back in 2012 by Net Impact, the nonprofit organization that aims at helping businesses promote sustainability, 65% of MBAs surveyed say they want to make a social or environmental difference through their jobs.
Today, amid global economic and political incertitude that is knocking corporate profits and intensified pressure from shareholders, companies are devising new CSR models.
Rather than staffing a modest CSR department — and slapping it on the organizational chart as a small offshoot of the Public Relations (PR) or philanthropy division — many companies are instead trying to embed CSR into their operations.
Some blue-chip companies, such as VISA, even developed new market opportunities in the developing world by closely aligning social causes with their corporate strategies - more on that later.
“CSR is an old-fashioned idea that needs to be upgraded,” says Eric Orts, Professor of legal studies and business ethics at Wharton and Director of the school’s Initiative for Global Environmental Leadership. “For companies to take CSR seriously, it has to be integrated into the DNA of the enterprise. Companies need to say: ‘We want to make money, sure, but we also care about our effect on society and the environment. And that comes through in the kinds of jobs we provide, the kinds of products we make and the ways in which we use resources.'”
One of the biggest criticisms leveled against Corporate Social Responsibility is that companies only care about it for marketing purposes.
Corporate Social Responsibility is merely a buzzword embraced by corporations because they “should.”
“For most companies, [CSR] is PR,” according to Ian C. MacMillan, Professor of innovation and entrepreneurship at Wharton. “It looks good. It sounds good. It’s the ‘right’ thing to do — and it gets the media out of their face.”
These days, corporate motivation seems almost beside the point because of the significant business risks to ignoring CSR.
Consumers and other companies are likely to shun firms that develop unethical reputations.
And arguably, companies that don’t pay attention to their ethical responsibilities are more likely to stumble into legal troubles, such as mass corruption or accounting fraud scandals.
Quite simply, companies care about CSR because their customers do.
Consumers, by and large, are a self-motivated and self-interested lot.
But numerous studies indicate that a company’s CSR policies increasingly factor into their decisions.
For example, a survey by Landor Associates, the branding company, found that 77% of consumers say it is important for companies to be socially responsible.
“There’s a heightened awareness of the need to be, and to be seen as, a good corporate citizen,” says Robert Grosshandler, CEO of iGive.com, which helps consumers direct a percentage of their online purchases to support charities.
In our always-on world, where information about a given company’s environmental record and labor practices is readily available — and readily tweeted and re-tweeted — companies must pay careful attention to what their customers do and say.
“In the Information Age, customers have more access to information,” says Grosshandler. “They’re more educated. They’re no longer hidden from how their food is produced or how their iPods are made. And, because of things like social media, like-minded people more easily find each other, have their say and effect change. There’s a level of transparency that wasn’t there before.”
Corporate Social Responsibility is also a way to attract and retain talent.
In a global workforce study by Towers Perrin, the professional services firm, CSR is the third most important driver of employee engagement overall.
For North American and European companies, an organization’s stature in the community is the second most important driver of employee engagement, and a firm’s reputation for social responsibility is also among the top 10.
According to a Deloitte survey conducted in 2011, 70% of young Millennials say a company’s commitment to the community has an influence on their decision to work there.
“The Millennial generation has seen a lot of natural disasters, political disasters and corporate disasters. They think the world is screwed up,” says Kellie McElhaney, who is the Faculty Director of Haas’ Center for Responsible Business. “They feel personally responsible, and they feel empowered to create change.”
Recent global financial crisis has not been kind to CSR departments.
While data on precise numbers of Corporate Social Responsibility positions is hard to come by, sustainability practitioners say that many companies have scaled back in recent years (although CSR has not been cut disproportionately to other cost centers).
Partly because of the succession of crisis the world went through in roughly the past ten years, some companies have refined their approach to CSR by more closely relating social causes to their core businesses.
Jerry Wind, a Wharton marketing Professor, interprets CSR as “socially responsible capitalism…. At the company level, the business objectives need to be to both maximize shareholder value in the long term and to address society’s biggest problems.”
Wind, who is also the Director of the school’s SEI Center for Advanced Studies in Management, adds that “this requires having any CSR initiative be an integral part of the business strategy and not a separate department.”
Take Coca-Cola for instance.
They initiated few years ago a program to empower young women entrepreneurs.
The 5×20 program aims at bringing five million women in the developing world into its business by 2020 as local bottlers and distributors of Coca-Cola products.
Research suggests that such an investment in women can have a multiplier effect that leads not only to increased revenues and more workers for businesses, but also to better-educated, healthier families and eventually more prosperous communities.
VISA is another example.
The company has built partnerships with local governments and non-profits organizations focused on financial inclusion.
These alliances are already transforming the economic architecture in parts of the developing world by giving financially undeserved people a way to pay, get paid and save money, sometimes through innovative never-seen-before electronic and mobile payment systems.
Research by the Gates Foundation among others has shown that the usage of these kinds of services enables poor people to better withstand blows to their personal finances, build assets and connect into the wider economy.
Does Coca-Cola benefit from more bottlers?
Does VISA benefit from more people using its services?
But these CSR efforts seek to capitalize on “the fortune at the bottom of the pyramid,” an idea that C.K. Prahalad popularized in his 2006 book of the same name.
Prahalad referred to the largest, but poorest, socio-economic group in emerging economies as seeds for future growth markets.
“There are large numbers of people in the world who have no jobs and who have no hope. They need jobs and more education, better healthcare and food. They need to be self-sufficient, not dependent because some do-gooder gave them a handout,” says Wharton’s MacMillan. “Companies need to start creating markets in these places.”
These new markets represent a long-term investment, he adds:
“It’s a pattern of enlightened self-interest: The company ends up better off with customers they have seeded who are healthier, better nourished and have more education. And [the company] has residual loyalty because [it] was there first.”
Other companies are taking a slightly different approach, viewing Corporate Social Responsibility as a cost-saver.
“The downturn has refocused CSR practitioners,” says Marcus Chung, Vice-President of the CSR and sustainability practice at Fleishman-Hillard and former head of CSR at Talbots, the women’s apparel chain. “There are more CSR practitioners today whose main job is to find ways to support business strategy and save the company money.”
Many CSR professionals serve as internal consultants providing counsel to colleagues and acting as a resource for decisions concerning real estate, supply chain or operations, he adds.
“They are helping other departments understand the financial rewards of more sustainable operations. This approach to CSR has become more key in the last few years.”
“If there is one thing that the financial crisis and stock market crash of 2008 should have taught us, it is that short-run share prices are an unreliable indicator of long-run business sustainability,” concludes Eric Orts.
“The idea that companies don’t have any independent ethical responsibility for the consequences of their actions on the environment and society just doesn’t make sense. It is an outmoded view to say that one must rely only on the government and regulation to police business responsibilities. What we need is re-conception of what the purpose of business is.”
What's you take on it?
If you're a business leader, did you implement Corporate Social Responsibility in your firm's DNA?