Industry Market Trends

Promoting Corporate Social Responsibility

Aug 04, 2009

Many leading businesses no longer debate the legitimacy and benefits of corporate social responsibility. Yet those devoting more resources to it face a new set of challenges.

If ever there was a time to get serious about responsible business practices and regaining consumer and employee trust, it is now.

Corporate social responsibility is often thought of as altruism or public relations, and many companies pay lip service to the notion by funding development projects in the areas in which they operate.

Proponents seek to move beyond this approach, viewing corporate social responsibility as companies considering the social and environmental impact of their policies alongside profit when determining investment strategy and management practices.

Although companies are primarily business organizations run for the purpose of making money off of their product or service, they have a wide-ranging set of responsibilities to their own suppliers, customers and employees, to the communities in which they are located and to society at large. Recent McKinsey Quarterly surveys reveal that today's business leaders are called upon to play an increasingly significant role in helping to resolve some of our most pressing social issues, from health care to the environment.

There are plenty of valid arguments against corporate social responsibility, perhaps the biggest being the lack of tangible economical benefits. Opinion and research has been divided regarding the relationship between corporate social responsibility and financial performance.

"The belief that corporate responsibility 'pays' is a seductive one: Who would not want to live in a world in which corporate virtue is rewarded and corporate irresponsibility punished? Unfortunately, the evidence for these rewards and punishment is rather weak," David Vogel, author of The Market for Virtue: The Potential and Limits of Corporate Social Responsibility, wrote in a Forbes special report last October.

Yet businesses are demonstrating that well-managed, strategic corporate responsibility actually supports business objectives and that it does have benefits, intangible though they may be: attracting and retaining valuable talent, increasing brand awareness and improving relations with compliance regulators are a few.

A Hill & Knowlton report released last year indicated that almost three-quarters of 530 MBA candidates surveyed worldwide said reputation plays an extremely important or a very important role when considering where to work after graduating. Factors that drive reputation included social responsibility in addition to management quality, product quality and use of corporate assets.

Moreover, Edelman's 10th Trust Barometer concludes that 77 percent of respondents refuse to buy from companies they distrust.

McKinsey and others have found that, due to increasing pressure from consumers and employees, companies are responding to the demand for more ethical business processes and actions.

According to Grant Thornton's International Business Report on corporate social responsibility last year:

Four of the top five [corporate social responsibility] initiatives were directly associated with people and their workplace — active promotion of workforce health and well-being (71 percent of respondents); provision of apprenticeships and work experience (67 percent); promotion of diversity/equality in the workplace (64 percent) and allowing flexible working (62 percent). In many countries [...] a large proportion of respondents say they have taken action on waste management and have also acted to improve energy efficiency.

Other notable areas that companies are emphasizing when deciding on a path to corporate social responsibility are strategic sourcing and procurement; continuous process improvement; logistics; and product life-cycle management.

"Whether changes are made to be more attractive employers, a more appealing supplier to a large multinational or simply because of the ethical desire of the owner," all the evidence in Grant Thornton's survey findings points to businesses becoming more socially responsible.

"Today, more than ever, organizations are focused on environmental and social responsibility as a strategic objective," the 2009 IBM Institute for Business Value study finds. The recent survey of 224 business leaders worldwide shows that "60 percent believe corporate social responsibility has increased in importance over the past year." Only 6 percent consider it a lower priority.

Nearly all said they remain committed to incorporating principles of corporate social responsibility into their business strategies — despite the global recession — to improve business performance, societal contribution and reputation.

Increasingly more organizations are holding themselves to a higher ethical standard considering the overall interests of society in the operations of their day-to-day business, but many of them don't know how to actually make changes that would improve both business performance and societal impact.

"Corporate social responsibility (policy, program or process) is strategic when it yields substantial business-related benefits to the firm, in particular by supporting core business activities and thus contributing to the firm's effectiveness in accomplishing its mission," according to Lee Burke and Jeanne Logsdon in How Corporate Social Responsibility Pays Off.

It does so by emphasizing the new idea that the purpose of corporate social responsibility within firms is for value creation. "The question that is addressed here is: under what conditions does a firm jointly serve its own strategic business interests and the societal interests of its stakeholders," Burke and Logsdon wrote. In their study, value creation is most prevalent when the following factors are considered:

  • Centrality — closeness of fit to the firm's mission and objectives;
  • Specificity — ability to capture private benefits by firm;
  • Pro-activity — degree to which the program is planned in anticipation of emerging social trends and in the absence of crises;
  • Voluntarism — the scope for discretionary decision-making and the lack of externally imposed compliance requirements;
  • Visibility — observable, recognizable credit by internal and/or external stakeholders for the firm; and
  • Value creation — identifiable, measurable economic benefits that the firm expects to receive.

(More on this at CulturalShifts.com)

Recognizing these areas is important for businesses if they wish to garner the most positive benefits: more efficient operations and better balance with diverse social and environmental ecosystems.

With companies facing increasing pressure from investors, governments, prospective employees and consumers to make their operations, products and services more socially responsible, it's no surprise that Grant Thornton asserts that corporate social responsibility is "now a necessity rather than a choice."

Resources

CEOs on Strategy and Social Issues

by Debby Bielak, Sheila M. J. Bonini and Jeremy M. Oppenheim

McKinsey Quarterly, October 2007

Assessing the Impact of Societal Issues

McKinsey Quarterly, November 2007

Arguments Against Corporate Social Responsibility

by Mallen Baker

mallenbaker.net

CSR Doesn't Pay

by David Vogel

Forbes, Oct. 16, 2008

Global Study of Elite MBA Students Reveals Winners and Losers in the War for Top Talent

Hill & Knowlton, Jan. 16, 2008

Corporate Social Responsibility: A Necessity Not a Choice

by Alex MacBeath

Grant Thornton, 2008

Companies Have Introduced More Environmentally Conscious Programs and Jobs over the Last Year

CareerBuilder.com, April 21, 2009

IBM Institute for Business Value: Leading a Sustainable Enterprise

IBM Global Business Services, 2009

How Corporate Social Responsibility Pays Off

by Lee Burke and Jeanne M. Logsdon

Long Range Planning (Vol. 29, Is. 4), August 1996

Making the Case for Corporate Social Responsibility

by David Cavett-Goodwin

Cultural Shifts, December 2007

Only 42% of Employees Believe their Organisations to be Trustworthy

Krauthammer, Oct. 12, 2007

Six Technology Tactics to Promote Corporate Social Responsibility

Epicor, Dec. 8, 2008