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Home > Business Ethics Best Practice > CSR: More than PR, Pursuing Competitive Advantage in the Long Run

Business Ethics Best Practice

CSR: More than PR, Pursuing Competitive Advantage in the Long Run

by John Surdyk

Executive Summary

  • Consumers increasingly expect companies to act in “responsible” ways.

  • Because of their scale and reach, companies have unusual opportunities to address social concerns in innovative and productive ways.

  • Evidence suggests that corporate social responsibility (CSR) practices produce long-term benefits with financial performance gains.

  • Advancing CSR is made easier with modern risk management tools, reporting guidelines, and committed leadership and employees.

The Emergence of Corporate Social Responsibility

Global greenhouse gas emissions continue to rise. Diseases wreak havoc across entire continents. An entire host of seemingly intractable issues confront governments throughout the world, which are sometimes unable to effect positive changes. With the emergence of companies as some of the most powerful institutions for innovation and social change, more shareholders, regulators, customers, and corporate partners are increasingly interested in understanding the impact of these organizations’ regular activities upon the community and its natural resources. With the world’s largest 800 nonfinancial companies accounting for as much economic output as the world’s poorest 144 countries, the importance of these organizations in addressing trade imbalances, income inequality, resource degradation, and other issues is clear. While companies are not tasked with the responsibilities of governments, their scale and their ability to influence these issues necessitate their involvement and create opportunities for forward-looking organizations to exercise great leadership.

In public opinion surveys, consumers admit that they prefer to buy products and services from companies they feel are socially responsible (72%) and that they sell shares of those companies they feel don’t pass muster (27%). Challenging Nobel laureate Milton Friedman’s notion that companies’ only responsibility is to make profit, executives are increasingly seeking ways to combine economic gain with social well-being in ways that will produce more customer loyalty, better relationships with regulators, and a host of other advantages. CSR practices may, in fact, prove pivotal to the success of a company.

Sometimes described simply as “doing well by doing good,” corporate social responsibility initiatives gained traction in the 1990s as consumer interest in management practices erupted in the wake of several substantial incidences of executive malfeasance and of escalating environmental challenges. While originally focused on environmental factors, CSR reports increasingly include social measures. Likewise, company leaders today express interest in business models that weave together explicit goals for profit, environmental performance, and social factors, at the same time recognizing that these efforts will likely yield no short-term financial benefits but rather long-term performance improvements.

A Cloudy Concept Begins to Crystallize

The phrase “corporate social responsibility” (CSR) describes both:

  • A social movement;

  • A collection of specific management practices and initiatives.

Business leaders, government professionals, and others use these principles and tools to assess and report on organizations’ impact on society.

Globally, CSR is an evolving concept without a clear definition, yet it describes a set of corporate obligations and practices somewhere on the spectrum between traditional charitable giving on the one hand and merely strict compliance with laws on the other.

While operating definitions remain elusive, the term “CSR” generally refers to a company’s efforts to include social and environmental concerns explicitly in its decision-making along with a commitment to increasing the organization’s positive impact on society. Beneath these efforts is a realization that improved CSR reporting and better risk-management systems generally promote the transparency and accountability essential to good company governance and improved financial performance. These systems, in effect, enable a company to anticipate and respond to opportunities when it senses that society’s expectations aren’t being met by its performance.

Benefits from CSR

The benefits of corporate social performance reporting spread over an entire organization.

Benefits of CSR

Business Area Reduce Costs Create Value
License to Operate More favorable government relations; reduced shareholder activism; reduced risk of lawsuits Increased community support for the company’s operations (“a bank account of goodwill”)
Reputational Capital Reduced negative consumer activism/boycotts; positive media coverage/“free advertising”; positive “word-of-mouth” advertising Increased customer attraction; increased customer retention
Human Resources Increased employee retention and morale Enhanced recruitment; increased productivity
Finance Social screens and investment funds are attracted to companies perceived as good social performers

Areas of greatest gain for a company’s market value, operational efficiency, access to capital, and brand value typically come from:

  • Establishing ethics, values and principles for the organization;

  • Improving environmental processes or reducing environmental impact;

  • Improving workplace conditions.

Other efforts, such as better governance measures, also tend to yield positive benefits for companies.

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Further reading

Book:

  • United Nations Conference on Trade and Development. Disclosure of the Impact of Corporations on Society: Current Trends and Issues. New York: United Nations, 2004. Online at: www.unctad.org/en/docs/iteteb20037_en.pdf

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