Edition No. 8

People, Planet, Profit: The Value of Corporate Social Responsibility

Corporate Social Responsibility (CSR), also referred to as corporate stewardship or corporate citizenship, has become increasingly important to companies competing in today’s business climate. Commonly spoken business terms like triple bottom line and balanced scorecard have become synonymous with the philosophy and goals espoused through CSR. Companies focusing on the ideals of people, planet, and profit and the three pillars of responsible business further bolster the notion that addressing social and environmental issues supports the attainment of financial goals and can be critical to long-term corporate success.

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But the biggest question surrounding corporate social responsibility is not “Is this the right thing to do?” but a more in-depth, succinct, “Why should we do this?” Good, profitable business and CSR are not mutually exclusive. There are many solid reasons and proven arguments as to why CSR is good business; this article highlights five key drivers.

Branding

The market has become oversaturated with the glut of company messages touting the newest, hottest, or cheapest. This has lessened the effectiveness of traditional marketing efforts and jaded the audiences they are aimed at. Relationship and cause marketing are two avenues in which companies can realize the value of their brand, build good will, and establish lasting impressions with their stakeholders. Brands like Avon, The Body Shop, Tom’s of Maine, Ben & Jerry’s, Timberland, and Target have made their social commitments a fundamental component of their corporate mission, personality, organizational identity, and reputation. This attitude is reflected in their marketing efforts and has resulted in a stronger brand reputation, a universal sense of corporate good will, and increased revenues. People generally want to align themselves with companies they admire and respect.

Conversely, companies that have tarnished their brands by not acting responsibly in regard to their stakeholders, employees, or customers have discovered that ignoring social responsibility has, in many cases, irreparably damaged their brand image as well as their bottom line. Enron and WorldCom are two well-known and highly publicized examples of companies who put profitability ahead of responsibility. As a result, the glare of the media is aimed directly at corporations nowadays; any small glitch in a company’s reputation could dramatically impact their revenues both long- and short-term.

Socially Responsible Investment Institutions (SRI's)

Socially responsible investment funds (SRI’s) offer perhaps the most direct financial link to CSR. The growth and influence of SRI’s internationally can be seen in the hundreds of funds, the trillions of dollars invested, the number of shareholder resolutions filed, and the overall financial performance of companies associated with SRI’s.

Globally, this group of funds has tremendous financial leverage and corporate influence. While each fund offers a unique perspective, common themes include their social responsibility criteria used for company selection and evaluation. Equally, companies not meeting a minimum threshold of social performance are those typically targeted for shareholder resolutions and stakeholder activity.

Building a business case for CSR is strengthened by the performance of SRI-based companies. The Dow Jones Sustainability Index (DJSI) has historically tracked the performance of companies with active CSR initiatives, measuring them against companies not aligned with CSR principles. Companies with CSR programs have consistently outperformed those without CSR over the past five years.

Legislation and Litigation.

Generally, a company’s actions are governed by its adherence to laws and compliance with business regulations. Historically, it has been assumed that corporate leaders are guided by their own moral compass. Using this model, values and ethics influence decisions and legislation is not required to govern morality and behavior. Unfortunately, several high-profile corporations have not adhered to the model and thus, sullied the reputation of corporations in general. As a result, during the past few decades, we have seen a rise in legislation (most recently, the Sarbanes Oxley Act of 2002), fines, and litigation surrounding corporate responsibility. To be in compliance with current laws, avoid penalties, sanctions, and litigation, adopting a philosophy of CSR makes good business sense.

In addition to complying with legislation, avoidance of litigation is another business motivator for companies to adopt socially responsible practices. Increasingly, activist and non-governmental organization (NGO) groups are using litigation in an attempt to change corporate behavior. Previously, efforts by these groups included shaming a company to change behavior through adverse media and filing shareholder resolutions to demand change. These same groups are now filing lawsuits in their attempts to force companies to embrace socially responsible practices. (See the Priority Press 6 article entitled Truth or Consequences…Facts About the Sarbanes Oxley Act.)

Employees and Customers.

Employee recruitment, retention, and morale are among the strongest business reasons for corporations to embrace and integrate CSR into their organizations. Numerous research studies that evaluate the impact that CSR has on employee recruitment and retention offer the following data.

Companies demonstrating strong CSR commitments find it easier to recruit employees, particularly in tight labor markets.
A 1997 study of 2,100 MBA students conducted by Net Impact found that slightly more than half said they would accept a lower salary to work for a socially responsible company.
Employer of choice research indicates that CSR efforts strengthen a company’s position as an employer of choice. Furthermore, it indicates that gen X-ers are very concerned about social and environmental issues-- factors which should be taken into consideration in campaigns to attract top talent.
Morale, motivation, innovation, and creativity are all improved, as are productivity and satisfaction levels, by providing the opportunity for people to work for organizations that not only support their career or professional interests but also provide for much deeper meaning in their life.
Integrity at work relates to employee loyalty. Nationally, 40 percent of employees who say their senior leaders have high personal integrity are also truly loyal to their organization. That number drops to only six percent when employees do not believe their senior leaders have integrity.

Just as CSR helps attract and retain employees, numerous studies have shown that there is a direct correlation between CSR and the ability to attract and retain customers. Customer choice has traditionally been driven by price, quality, appearance, safety, convenience, and accessibility. However, increasingly other value-based criteria are influencing purchasing decisions.

Product Improvement / Cost Reduction

Lower recruiting costs, larger market share, fewer regulatory fines, waste reduction, cost savings through recycling, and increased stock price and shareholder value are all tangible metrics for CSR.

Studies also suggest that reduced regulatory costs, reduced re-work/rejects and customer complaints are additional financial benefits realized after the implementation of a CSR program. However, there is even more research that supports a more direct cost/benefit of CSR efforts and provides a more tangible outcome. Intel provides a good case study of specifically measuring and quantifying their CSR improvement and associated financial benefit.

Intel has a system of assessments and audits that yields hard data regarding the social and environmental performance of its suppliers. This data allows Intel to do a better job managing its supply chain. Or, in Intel's language, the data enables the suppliers to become part of the company's continuous improvement process. This process of assessing and auditing its supply chain has been integral in drawing a correlation between Intel’s CSR efforts and their business implications.

EORM consultants have developed a CSR self-assessment tool and process as the first step in establishing the foundation of a comprehensive CSR program. This process identifies strengths, weaknesses, and gaps on which to build and develop future CSR efforts. After the process is determined, EORM works with clients to benchmark, prioritize, communicate, train, and further develop and implement their CSR program.