CSR (also known as corporate social responsibility, corporate citizenship, or building a sustainable corporation) reflects a company’s policies and procedures that respond to the social needs of various stakeholders. The term has become a new corporate disclosure and is showing up in stock indexes, internal and external reports, and community actions. Companies want to tell the world about their good citizenship; they are discussing their responsibility at public forums, on their websites, and in case studies used at major universities. One study showed that the amount of attention given to CSR has increased dramatically in just the last few years. Another study concluded that CSR “is often misguided, or worse. But in practice, few big companies can now afford to ignore it.” In a survey of company leaders, many reported that society now expects businesses to take on more public responsibilities. [1]

Government and quasi-governmental organizations are showing a growing interest in the CSR of companies. Britain passed the UK Companies Act (2006), requiring public companies to report on their social and environmental matters, and the United Nations promotes CSR around the world through its Global Compact (a set of principles defining how companies can be considered high-quality corporate citizens).

There are three primary reasons for the growing interest in CSR. First, scandals and economic turmoil have caused many to question the integrity of some business organizations. Secondly, a proliferation of associated rankings and ratings are putting pressure on companies to report non-financial performances. These assessments are increasingly spotlighting the associated practices that can affect brands and generate increased scrutiny. Lastly, concerns over climate change and environmental degradation have acted as significant drivers in this growing interest.

This increase in interest has caused investors to take note of organizations’ CSR activities. The Dow Jones has developed indexes measuring CSR within and across firms. The Dow Jones Sustainability Group Index serves a resource for potential investors to track the performance of investments in companies with sustainable practices. This index includes around 200 companies and claims to represent the top 10 percent of firms committed to sustainable practices. Additionally, it recognizes the importance of integrating economic, environmental, and social factors into business strategy.

Tools like the Dow Jones Sustainability Index help society and investors assess the sustainability practices of companies and help companies develop ways to assess their own levels of sustainability practices. Many analysts view CSR as a multistage process with escalating commitments. The lowest level is compliance (i.e., determining whether a company meets the legal requirements for reporting and disclosure of information about its impact on the environment and society). The next level is philanthropy (i.e., funding certain community activities with pre-tax profits). A more involved level involves using CSR as a risk-management tool.

Although results show that CSR activities do not destroy value, there is still minimal incentive for firms and investors. This is partially due to the fact that few company executives can determine the full effectiveness of their CSR activities. A review of more than 165 studies over the past 40 years concluded that there is a positive link between companies’ social and financial performance; however, this correlation is weak.

Scholars have argued that enhanced social performance may lead to obtaining better resources, higher-quality employees, better marketing of products and services, and that it may even lead to the creation of unforeseen opportunities. Unfortunately, the gap between scholarship and practice is still wide.

Methods Companies Use to Support CSR

When it comes to implementing CSR, companies focus on two primary activities: measurement and outcomes creation. One major measurement technique is the Global Reporting Initiative (GRI), which is the main format for reporting on environmental sustainability issues within organizations. Philanthropy is a popular method for supporting CSR goals; this method usually takes the form of issuing grants or supporting projects related to a firm’s strategy and/or brand. A few companies go as far as making CSR the core of their business models and strategies, others develop processes to ensure certain social responsibility principles are enforced. Some companies partner with NGOs that develop CSR processes for companies. For example, Starbucks has relied on Conservation International to create more economically, environmentally, and socially sustainable coffee. Another level of CSR involves integrating it into the fabric of the company. Some companies even develop explicit processes to ensure that social issues and emerging social forces are part of their overall strategic conversation. This process includes educating and engaging boards of directors, designing metrics for measuring outcomes, and outlining critical social issues that mesh with company strategy.

In support of their CSR goals, some companies will actively manage their implicit social contracts. Often times this includes transparent reporting, changes in regulatory approaches, and the development of voluntary standards of behavior.

Unilever has gained visibility through its CSR program and especially for its focus on sustainability. The company has refocused its 400+ brands “on the good the product can do.” However, the counter argument to these efforts comes from their investors who saw their returns drop over several years.

Another example is the carpet industry’s development of environmental standards. A few companies are working to create products that are healthier for consumers and the environment. Best-in-class companies shape debates on social issues. CEOs are storytellers on behalf of their companies; their role in society is to set standards, not only for themselves, but also for other companies. For example, Whole Foods CEO Walter Robb regularly discusses the actions his company is taking and actively engages in conversations with industry participants and consumers about healthful food. Companies, like Whole Foods, do not just create CSR strategies, they pave the way to better living.

Arguments against CSR

Some company managers argue that CSR should not exist. They believe that CSR encroaches on what should be the proper work of governments and that CSR is simply a public relations (PR) ploy that takes away money from shareholder returns and diverts attention from establishing enforceable rules that advance the common good (e.g., laws that help prevent oil spills or protect humans around the world). This argument centers around the claim that companies are repackaging work they do anyway, but in ways that are more socially acceptable.

Nike is often cited as an example of this argument. A flurry of news stories in the mid-1990s described labor abuses (i.e., underage workers, safety violations, forced overtime, and generally poor conditions) in independently owned factories in China and Indonesia producing apparel and shoes for the Nike Corporation while Nike concurrently claimed that it was socially responsible. Nike, at first, argued it had no responsibility for the labor conditions in its supply chain; they were not alone in their attitude among apparel retailers and brand name companies. However, Nike changed as a result of their missteps and the resulting attention. Now, Nike has one of world’s the most advanced and admired CSR departments and CSR practices. Morgan Stanley rated Nike best-in-class for its environmental, social, and governance behavior among all other apparel companies. This rating was part of their Sole Responsibility Index.

Over the next several years, companies’ attitudes toward their suppliers changed radically. Levi Strauss & Co. became the first U.S. apparel company to create and enforce a code of conduct for its suppliers. Under extreme consumer and social pressure, other companies followed their lead and required their suppliers to commit to various fair labor practices.

These actions can be viewed as purely PR ploys to gain good favor with the media and consumers. After all, as U.S economist, professor, and author Milton Friedman famously declared, the sole business of managers of publicly held companies is to maximize the value of outstanding shares. For him, any effort to use corporate resources for purely altruistic purposes is a misuse of fiduciary responsibility. While this free market attitude may be compelling, companies are being pressured to engage in CSR and demonstrate CSR behaviors in their actions and annual reports.

Former U.S. Labor Secretary Robert Reich argues that companies that focus on CSR divert their attention from their primary responsibility– return to shareholders. Why do we want companies to make moral decisions by allocating shareholder money to social causes? Reich argues that companies should provide maximum returns to shareholders and then let shareholders allocate their money to these causes. If society wants companies to act in a certain manner then they need to enact legislation and capital incentives to do so.

Politicians and advocates praise companies for acting “responsibly,” and they condemn them when they fail to do so. However, the praise and blame are often disconnected from laws and rules defining responsible behaviors. Their messages (that companies are “moral beings” with social responsibilities) divert public attention away from their tasks of establishing laws and rules to protect citizens, consumers, and the environment; they are also generally soon forgotten, barely affect the behavior of consumers or investors, and leave the real democratic process to companies and industries seeking competitive advantages.

Yet, despite Friedman’s and Reich’s comments, many companies appear to be changing their behaviors regardless of cost. Ultimately, as societal attitudes are increasingly favoring a more socially responsible business world, companies are increasingly being forced to participate in CSR. This is especially true when consumers begin demanding certain types of products. For example, the conversation about free trade versus fair trade has become particularly important and instructive for understanding an organization’s behavior.

[1] Daniel S. Fogel, CEO SP3, dan@spthree.com, 1-704-604-0085.  Adapted from Daniel S. Fogel (2016).  Strategic Sustainability:  A Natural Environmental Lens on Organizations and Management.  New York, New York: Routledge:  36-39.

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