Corporate Social Responsibility

Whats in it for business?

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Sensitivity to communities and their rights, public dialogue and enhanced transparency,
commitment to addressing the issues of social justice in the global economy, bringing the
dynamic skills of business to social needs: all of these are increasingly required to address
the shifting expectations, opportunities and challenges brought at the beginning of the 21st
century. he private sector has a central role to play, and individual business leaders can
translate this potential into genuinely sustainable gro!th, coupled !ith long"term corporate
success.
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Can corporate social responsibility, as exemplified above, be reconciled with the pursuit of
profit? How is it possible to meet these wider goals of social justice and still achieve long-term
corporate success? This case study assesses whether corporate social responsibility pays, and,
if it does pay, in what ways do businesses benefit from it
The importance of corporate social responsibility as a business goal
Corporate social responsibility can be defined as where a business attempts to meet certain
ethical, legal and commercial expectations as set by society !s a business goal, corporate
social responsibility has grown in importance over recent years The reasons for such growth
have been diverse
Changing social expectations regarding business behaviour
Heightened consumer awareness concerning the activities of business can be attributed to a
number of factors "or example, high-profile cases concerning companies such as #i$e and
%uma and their use of cheap labour in production sites in south-east !sia have attracted
considerable media attention &n addition, activist groups, which see$ to name and shame and
bring to the public's attention bad business practices, have become increasingly vocal and
successful in placing issues of social responsibility high up on the business agenda
The reduced role of the state in regulating business actions
!s government regulation over business activities has diminished, business has had to ta$e
increasing responsibility for identifying consumer and social concerns and acting upon them
(uch concerns, in days when government regulation was more prominent, used to be reflected
in government policy initiatives to constrain business activity
Today, due to the complex networ$ of suppliers that many businesses deal with, it is
increasingly the case that such suppliers are being subject to the same responsibility codes as
the businesses they supply ! business's image may be damaged just as much by a supplier
conducting irresponsible business practices as the business itself There is thus pressure from
one firm to another to behave responsibly
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Consumer concerns over business behaviour
The willingness of customers to act on the identification of irresponsible business
practices is a big motivating factor in encouraging businesses to adopt a more
socially responsible position ! 1*** survey by +nvironics and the %rince of ,ales
-usiness .eadership "orum surveyed )/ 000 citi1ens in )2 countries &t found 13 per
cent of those surveyed have consciously avoided buying products from firms that
had been shown to be socially irresponsible
Changing patterns of investment and the growth of socially responsible
investing
&n 1***, the (ocial &nvestment "orum found that, since 1**/, assets in funds that
were classified as socially responsible rose from 452* billion to 4)15 trillion, an
increase of )26 per cent This clearly shows the growing attractiveness of socially
responsible investment, whether this is motivated by ethical concerns, or a realisation
that a business delivering socially responsible business practices is more li$ely to be
profitable and to attract investment
The effects on business performance
&f corporate social responsibility has grown as a business objective, has this in any
way impinged upon business performance? (tudies, empirical and otherwise, suggest
that rather than detracting from business performance and harming shareholder
value, in fact the opposite appears to be the case Corporate social responsibility
appears to offer a positive contribution to business performance, especially over the
longer term
The following factors have been identified as some of the positive economic
benefits that businesses have gained from adopting a more socially responsible
position
Improved economic performance
! large number of studies have attempted to identify and evaluate the economic
returns from social responsibility "actors that have been considered include business
growth rates, stoc$ prices and sales and revenue ! 1*** survey by 7oman, Hayibor
and !gle evaluated the findings of /) studies that considered the lin$ between
business ethics and enhanced profits They concluded that 22 studies showed a
positive lin$, 18 suggested neutral effects or were inconclusive, and the remaining /
suggested that there was in fact a negative relationship
!lthough this evidence would on balance favour an argument that corporate
social responsibility is good business practice, the whole area of lin$ing ethics and
responsibility to profit is a contentious one ,hen considering ethics and social
responsibility, what are we including within this definition? &s the business merely
complying with a business code, either developed within the business or by a third
party (uch codes essentially state what is not acceptable business behaviour, such as
ta$ing bribes or pursuing anti-competitive behaviour 9r does the understanding of
an :ethical business' go further and entail positive social actions, ranging from giving
money to good causes, to contributing to particular programmes in which the
business has competency "or example, a pharmaceutical company might develop a
drug that might benefit the populations of the world's poorest countries, with no
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possibility of profit (o at what level do we identify an ethical business, and to what
degree might this level of responsibility influence profitability?
The concept of profitability is also contentious, most crucially so in respect
to the time frame over which the assessment ta$es place .in$ing long-run
profitability with an ethical or socially responsible programme is fraught with
difficulties How are all the other factors that influence business performance over
the longer term accounted for? How do you attribute a given percentage or
contribution to profit to the adoption of a more socially responsible business
position? Can it ever be this precise, or are we merely left with intimating that a lin$
exists, and is this good enough?
To answer these ;uestions would ta$e us far beyond the goal of this case
study They do, however, suggest that the lin$ between profitability and socially
responsible business behaviour is incredibly complex and difficult to prove
Enhancing the brand
7elated to profitability is the issue as to how far corporate social responsibility
enhances brand image and the firm's reputation #ot only would this strengthen
consumer loyalty but also aid the firm in raising finance and attracting trading
partners !n increasing number of studies have identified that value-based criteria
are becoming increasingly important in consumer buying decisions ! 1**3 study by
,al$er 7esearch found that, given two products with similar ;uality and price
criteria, 35 per cent of those surveyed stated they would purchase the product
produced by the company most associated with good causes "actors such as
environmental responsibility and active participation in the community were most
often cited as those factors most li$ely to affect consumer purchasing behaviour
-usiness may be further encouraged to develop the social image of their
brand with the increasing number of awards given to recognise and promote
corporate social responsibility <ost !dmired Companies .ists, such as that
presented by <anagement Today in the => and "ortune in !merica, are based
around an assessment of corporate social responsibility criteria, such as reputation
for ethics and honesty, use of corporate assets and community and environmental
responsibility The public relations and mar$eting potential that might be gained
from such awards would go a long way in helping the business to further strengthen
its socially responsible brand image
Attracting and retaining employees
&t increasingly appears to be the case that companies with clear ethical and social
positions find it easier, to not only recruit but to hold on to their employees &n a
number of surveys of graduate employment intentions, students have claimed that
they would be prepared to ta$e a lower salary in order to wor$ for a business with
high ethical standards and a commitment to socially responsible business practices
! survey conducted in ?une )000 by -urson <arsteller and the %rince of
,ales -usiness .eaders "orum found that when employees were as$ed to ran$ the
reason for admiring certain companies, )8 per cent identified respect for their
employees, and a further )1 per cent identified environmental responsibility The
survey concluded that the reputation of the employer was crucial in the recruitment
and retention of staff !s ?ohn -rowne the chairman of -% !moco has remar$ed,
#hen !e are competing for the brains and energy of the brightest and best
against the fashionable and apparently lucrative !orld of the dotcoms !e do not
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ignore the values of the society and particularly of the ne! generation. $eople
!ant to !ork for something they believe in and to make a contribution to the
progress of the !orld in !hich they live. %nd if the business is to succeed, it has
to offer them the opportunity to do that.
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Access to capital
!s mentioned previously, the growth in ethically screened investment funds has
grown by over )26 per cent since 1**/ This phenomenal growth is driven not only
by the demands from shareholders for ethical funds, but also by a realisation from
investors generally, that socially responsible business has the potential to be hugely
profitable
! recent survey by the +thical &nvestment 7esearch (ervice has revealed that
33 per cent of members of pension schemes wanted their pension funds to adhere to
some form of socially responsible investment, so long as it did not impinge upon
their returns
The li$elihood of returns being lower in ethically screened funds has been
;uestioned by the findings of two recent reports &nnovest (trategic @alue !dvisors
and the !lliance for +nvironmental &nnovations, both concluded that, in respect to
environmental responsibility in particular, those companies that exhibit superior
environmental performance over their peers achieve better financial performance in
the stoc$ mar$et &t is suggested that the reason for this is that environmental
performance is a good indicator of general management ;uality, which is the main
determinant of stoc$ price !s "ran$ Aixon of &nnovest statesB
&nvironment issues in certain industries are some of the most complex
challenges facing management because of all the stakeholders, different
regulations, many things to measure, and a high degree of uncertainty. 'oing a
good job of managing that high degree of complexity should be transferable to
other areas of business, and that(s !hy you see good environmental companies
consistently outperforming bad ones.
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The benefits from being socially responsible appear not only to be diverse, but from
an economic point of view, worth having #ot only is business performance li$ely to
be enhanced, but brand image will be strengthened, employee turnover minimised
and access to stoc$ mar$et funds readily available The next step for research is to
attempt to ;uantify the benefits, and try to relate the economic advantages directly
to the level of social responsibility a business adopts
Question
Using reference sources with which you are familiar, such as the Internet, find either a
business or industry code of conduct currently being used to establish socially
responsible business practice. Do you feel that if such a code of conduct was adopted by
a business, the code by itself would be sufficient to identify a socially responsible
business?
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7esponsible -usiness "inancial Times Cuide #ovember 6 )000
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ibid
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The Creening of Corporate !merica ?ournal of -usiness (trategy ?anuaryD"ebruary )000