Primary navigation:

QFINANCE Quick Links
QFINANCE Topics
QFINANCE Reference

Home > Business Ethics Best Practice > Best Practices in Corporate Social Responsibility

Business Ethics Best Practice

Best Practices in Corporate Social Responsibility

by Alison Kemper and Roger Martin

Table of contents

Executive Summary

  • Business leaders throughout the world are under increasing pressure to make socially responsible decisions even as they comply with legal requirements and generate sufficient profits.

  • Corporate social responsibility (CSR) decisions demand new skills: managers must understand not only the responsibilities demanded of all firms, but also the opportunities they introduce.

  • While the marketplace does not reward all good deeds, thoughtful strategies can increase the likelihood that firms increase their value while creating positive outcomes for society.

  • In this essay, we review the complexity of the issue, the opportunities CSR presents, and one approach to identifying CSR opportunities.

Managing in Complexity—Civil vs Strategic

As business has become increasingly global, the values and principles that guide managers are no longer local. Raw materials from Canada and Indonesia are transformed by manufacturers in India and Brazil under contract to firms in the United States and Germany. Social activists, investors, accountants, workers, politicians, environmentalists, regulators, and customers in each and every location work to influence management’s decisions. Normal business practices in one location can be objectionable to customers and investors in other areas, while labor and environmental principles in one region appear to be protectionist to businesses in other regions.1 Companies would like to do the right thing but seldom have reliable means to choose a direction or level of investment.

For most companies, CSR presents complex problems and great opportunities. CSR allows companies to engage in sophisticated nonmarket strategies that can influence customers, regulators, and employees. It also can reveal firm weaknesses. There are no global laws. There is no single right way. Firms must distinguish the legitimate demands of multiple governments, assess the claims of diverse groups, and identify the significant problems they can best resolve.

What Works?

Many researchers have looked for the elusive factor that will turn a firm’s good deeds into profits, searching in vain for missing magic. The right answer to the question “Does doing result in doing well?” is “It depends.” Firms that select a specific type of social or environmental opportunity consistent with their identity and strategy will reap rewards. Firms which make choices based on the most recent request for help or on a particular manager’s enthusiasm will likely not.

The most critical factors in the success of any firm’s CSR strategy are not about CSR. A successful CSR strategy builds on basics. First, a firm must be viable in order to create an effective, valuable approach to society and the environment. It is unlikely that a good CSR strategy will reverse bad business decisions. Second, firms must meet their legal and regulatory commitments. Compliance is essential. Enron’s ethics policies were widely admired, but the company was nevertheless in violation of the law. Third, firms must meet basic expectations of their industry and the communities in which they operate. A company known for spilling toxic effluent is unlikely to make gains from sponsoring a children’s sports team. This sequence of responsibility is illustrated in the CSR value curve IBM has described (Figure 1).

IBM recommends that firms ask their employees, suppliers, and customers what kind of CSR strategy would be optimal. Engagement with these groups helps managers identify their best strategies in many settings. The IBM report suggests that consulting these groups will also help identify good CSR strategies. This is consistent with recent economic theory that makes the case for strategic approaches not only to financial gains, but also to social output.2

Meeting the demands of disparate social agents disperses the energy and creativity of the firm. Deliberate, strategic choices maximize social effectiveness and firm opportunities.

The Role of Financial Firms

Financial institutions can choose to play another, powerful role: increasingly often, they determine whether new initiatives carry more social and environmental risks than potential economic benefits.3 Good analysts will be able to see the ways in which future growth prospects are enhanced or reduced by the social and environmental characteristics of the firms and projects they finance.

Financial analysts and investors now recognize that a firm’s ability to work with indigenous people and their property rights is critical to the success of new mineral extraction projects. Corporate finance professionals in companies like Procter & Gamble know that their sustainability principles must be factored into their investment decisions and growth forecasts.4

The special role of the financial industry is apparent in the appearance of two CSR codes focused solely on finance. The Equator Principles and Principles for Responsible Investment both offer guidance to finance professionals who are faced with projects of great potential value and risk. Financial professionals who identify a broader set of risks and rewards will be more effective.

Back to Table of contents

Further reading

Books:

  • Crane, Andrew, Abagail McWilliams, Dirk Matten, Jeremy Moon, and Donald S. Siegel (eds). The Oxford Handbook of Corporate Social Responsibility. Oxford: Oxford University Press, 2008.
  • Kline, John M. Ethics for International Business: Decision Making in a Global Political Economy. London: Routledge, 2005.
  • Prahalad, C. K., Michael E. Porter, and Charles Handy (eds). Harvard Business Review on Corporate Responsibility. Boston, MA: Harvard Business School Press, 2003.
  • Vogel, David. The Market for Virtue: The Potential and Limits of Corporate Social Responsibility. Washington, DC: Brookings Institution, 2005.

Websites:

    Global organizations

    • International Finance Corporation: www.ifc.org and www.ifc.org/sustainability
    • Organisation for Economic Co-operation and Development (OECD): www.oecd.org
    • United Nations. See especially the United Nations Global Compact, starting here: www.un.org/partners
    • United Nations Conference on Trade and Development (UNCTAD); search on “ISAR” to find the webpages of the Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting: www.unctad.org
    • World Bank. The bank’s website has many useful resources, including CSR links and information on the Inclusive and Sustainable Business Program and Business Fighting Corruption. Search from the home page: www.worldbank.org

    Accounting and reporting standards

    Other sources

    Back to top

    Share this page

    • Facebook
    • Twitter
    • LinkedIn
    • Bookmark and Share