Idea 11 - Corporate Social Responsibility
Economist Milton
Friedman and “The Economist” news magazine are only two of the parties who have
taken a dim view of 'corporate social responsibility' (CSR). Friedman said in
1970 that the social responsibility of business was to increase its profits.
The Economist called it woolly and dangerous thinking and published a
two-by-two matrix to explain what that meant. Yet even companies that agree may
eventually have to come to terms with it.
The Economist plotted CSR's effect on profits against its
effect on social welfare. If CSR raised social welfare while reducing profits,
it was nothing but 'borrowed virtue', the magazine welfare, it was pernicious and if it reduced
both, it was nothing short of delusional. If, however, CSR produced a win-win
increase in social welfare and profits at the same time, well, that wasn't CSR
- it was simply good management.
The magazine argued that business should not try to do the
work of governments, and vice versa, which is a fair point. But given the
preoccupations of a growing slice of society, 'social welfare' is a rather
narrow proxy for CSR which, by any current definition, now embraces sustainable
development and environmental responsibility.
The view in an old-fashioned boardroom, echoing The
Economist, may well be that CSR is little more than a begging bowl, to be fed,
at best, by sponsoring the chairman's hobbies or his wife's charities. But the
times are changing. In the wake of recurring accounting scandals and
environmental disasters, the public mood is demanding more of corporate
standards of behaviour, and mood can have a hard edge. Whether managers believe
CSR is within their jurisdiction or not, they have to make decisions based on
the facts and, as Alfred P. Sloan would say, opinions in the marketplace are
facts.
What exactly is CSR? There is no single definition. The
World Business Council for Sustainable Development says it's 'the continuing
commitment by business to behave ethically and contribute to economic
development while improving the quality of life of the workforce and their
families as well as of the local community and society at large.' More
succinctly, Mallen Baker of the UK's Business in the Community says it's 'about
how companies manage the business processes to produce an overall positive
impact on society'.
Europe vs
US CSR's cheerleaders are not helped by it meaning one
thing in the UK and Europe, and another in the US. The European perception is
more inclusive, seeing CSR as honest and considerate behaviour that makes a
positive attempt to leave the world a better place. In America, the idea of the
'good corporate citizen' is split in two. The closest equivalent to Europe's
CSR is 'business ethics', which is more about keeping your nose clean and
upholding moral standards. CSR is straight charity or philanthropy.a way of
saying thank you for the profits without expecting anything in return - if you
did, it wouldn't be philanthropic.
Taking the broader view, CSR covers a multitude of sins,
literally. The Global Reporting Initiative, which provides a framework for
companies to report on their CSR compliance, has 32 different performance
indicators, ranging from customer privacy and anti-competitive behaviour to
child labour and indigenous rights. The prospect of adding to their existing
compliance reporting burden - groan - still blunts some companies' enthusiasm for
CSR. Institutional investors are increasingly alert to the issue, however, and
more are asking companies to prove their CSR credentials. Ethical investment is
showing that it can outperform more general benchmarks, and it is the effect on
the share price that may eventually win over the Friedmanite camp.
Licence to
operate CSR proponents argue that this is not about giving away
money that rightfully belongs to the shareholders. They say it is about
sustaining a business's licence to operate, by managing its relationships with
influential constituencies - customers, staff, the community at large. CSR
means managing your risk and your reputation There are statistics that purport
to show the beneficial impact of CSR on a company's bottom line, but they are not
yet overwhelmingly convincing. It's easier to prove the cost of neglect, with
mounting examples of the cost of reputational damage from negative CSR. Most
quoted is Brent Spar, a North Sea oil platform that had reached the end of its
life. Owner Shell decided that sinking it at sea was the most environmentally
responsible option and perhaps it was. But the public, orchestrated by
Greenpeace activists, decided otherwise. The outcry and ensuing boycott of
Shell products forced the company to back down. Shell, past masters of thinking
about the future, had science on its side, but Greenpeace armed itself with
values. Values won Footwear mogul Nike is still dealing with the backlash of a
UK-instigated campaign that accused it of employing child labour in developing
countries. It responded proactively with a rigorous CSR initiative, including
the appointment of a director of sustainable development. In many markets, its
reputation has been restored. In a recent survey of most 'ethical' brands by
country, however, Nike did not appear anywhere in the UK ranking.
Climate change is the issue du jour in many Western markets,
and could drive home the power of public sentiment. The largest UK advertising
agencies predict a wave of green marketing campaigns as businesses rush to
brandish their environmental credentials. They believe consumers will punish
companies not seen to be green.
Tomorrow's World, a pro-CSR business lobby, fears that CSR
could go one of two ways. In one future, it would be an expression of values,
with companies free to say they cared only for shareholders, but with the
market seeing clearly where organizations stood. That would be 'conviction CSR'
. In the other, social pressures would force compliance and companies would win
applause for saying the right things in their reports - 'compliance CSR'. The
consumer would surely be able to sniff out which was which.
Reference: 50 Management Ideas You Really Need to Know
Book by Edward Russell-Walling
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