Everybody wins when it comes to corporate social responsibility
Corporate. Social. Responsibility. Three words that, each on their own, are perfectly intelligible but, until recently, when placed together as a phrase became like something from a Lewis Carroll poem: nonsense. “Corporate social responsibility” as a phrase has been as oxymoronic as “gourmet cheese in a can”, “wise lycra fashion choices” or “must-see reality TV”. Today, however, corporate social responsibility (CSR) not only makes perfect sense, it is imperative to our way forward as a society.
What is it?
In truth, corporate social responsibility is about engaging with reality, the reality of the nature of a corporation. Dr Attracta Lagan is a leading Australian business ethicist who has advised boards and CEOs in both the corporate and not-for-profit sectors. Lagan says, “Businesses have powerful impacts, social and environmental, beyond financial results, and must design their organisations to deliver better societal social and ecological effects. In fact, this has now become embedded in new reporting guidelines for all publicly listed companies called ESG reporting — environmental, social and governance.”
The underlying principle of corporate social responsibility is the recognition that organisations must focus on stakeholders, as much as or more than they focus on shareholders. Stakeholders are the employees of the business, the clients of the business, the suppliers of the business, and the overall environment in which the business operates. That environment is not just the natural environment but also the social environment in which the business functions. An organisation that is socially responsible will have a positive social impact by holding at its core aims of inclusive and sustainable growth. In essence corporate social responsibility is about the balancing of purpose and profit.
CSR isn’t necessarily easy. It requires seeing the organisation as an ecosystem that operates within a wider ecosystem, which means it is at the centre of a complex web of relationships. To fulfil that role responsibly the organisation needs to be open, honest and willing to change.
Sandja Brügmann is a sustainable business and communication strategist and thought leader based in Denmark. She is the founder and managing partner of the Passion Institute. According to Brügmann, “If you look at the old business model, the purpose of business is to make profit for its shareholders. The new model of business is to benefit all stakeholders.”
In case you are thinking this might just be fringe thinking, consider the Business Roundtable in the US. This gathering of CEOs from the major corporations has periodically issued Principles of Corporate Governance. Each version of those principles since 1997 has put the shareholder at the centre of business … until 2019. In August 2019 a Statement on the Purpose of a Corporation issued by the Business Roundtable was signed by CEOs from the likes of Apple, Walmart, Amazon and JP Morgan Chase & Co. It said, “With today’s announcement the new Statement supersedes previous standards and outlines a modern standard for corporate responsibility. Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term … It affirms the essential role corporations can play in improving our society when CEOs are truly committed to meeting the needs of all stakeholders.” This is an immensely encouraging step, but what took them so long?
The greedy past
If the principles of corporate social responsibility are transparency, care for employees and concern for society and the environment, it leaves you asking the question as to why CSR hasn’t always been at the centre of business practice?
Dr Ioannis Ioannou is Associate Professor of Business Strategy at London Business School and holds a BA from Yale and a PhD from Harvard. Iannou’s research has found that in the early 1990s investment analysts thought that responsible companies were significantly destroying shareholder wealth and would recommend selling shares in those companies. The belief at the time was that companies acted responsibly at the expense of economic returns.
By contrast, Ioannou has found that today, companies with a superior focus on sustainability have better access to finance. The reason for this is that investment analysts recognise that organisations that are ethically driven are more transparent and have more stable relationships with their stakeholders.
Like it or loathe it, corporations have no choice but to get on board with CSR lest they be left spluttering in the wake, because that social ship has well and truly sailed. As Brügmann observes, “You can be at the forefront leading this change or you can be anywhere along the spectrum, but you need to be moving in the direction of corporate social responsibility or you are going to be out of business pretty quickly.”
The choice we must make
In 2019 HSBC’s Made for the Future report surveyed 2500 organisations and found that 69 per cent would be making their manufacturing more sustainable, 66 per cent would be improving internal practices and 63 per cent would be updating buildings and equipment. Organisations realise that sustainability and social responsibility must become their focus and there are some very good reasons why.
A new world
A world without sustainable business is an unsustainable world because, based on research released from the University of Amsterdam in 2018, businesses make up 71 of the world’s 100 largest economies. The research compared revenue and found that the top nine revenue-raising entities were countries, but coming in at number 10 was Walmart, and 70 of the remaining 90 positions were filled by corporations. Based on this you could argue that the effects of business are becoming potentially more far-reaching than that of governments. We have an inversion happening: where countless Western governments have been trying to treat their country simply as a market-driven business, now business must see itself as a societal influencer. For business it’s not just about the deal any more, it’s about getting real.
At a very basic, primal level, CSR is essential because companies that implement it do better. A 2011 study conducted by the National Bureau of Economic Research and published by the Harvard Economic Review found that corporations that adopt environmental and social polices outperform those that do not in the long term. Lagan points out, “Consumers want to identify with CSR companies because by doing so they can become part of their story and the tribe they belong to.” This principle can be appreciated best if we look at a case study such as that of US-based manufacturer of upmarket outdoor clothing, Patagonia.
Patagonia prides itself on producing quality clothing and also having a focus on environmental sustainability. Perhaps its most famous effort has been an advertising campaign which featured one of its bestselling fleece tops under the heading “Don’t Buy This Jacket”. The ad talked about the cost to the environment of buying the jacket and asked consumers to reconsider before buying the product and instead choose a used Patagonia product. Patagonia has sent environmentally sound trucks across the US inviting consumers to sell used Patagonia clothing back to the company. Additionally, Patagonia uses organic fair trade materials and solar energy at its company headquarters, and is one of the founders of the Sustainable Apparel Coalition. Despite asking consumers not to buy its bestselling jacket in 2011, revenues grew by 30 per cent to US$534 million in 2012 and in 2018 reached about US$1 billion. Clearly, Patagonia is a corporation with a purpose beyond profit, and consumers have resonated with that purpose.
Having said all of this, if a company is only employing corporate social responsibility because it knows it will ultimately generate a return for shareholders, then that comes under the heading of “enlightened self-interest” and it will be too one-dimensional in its application to drive stakeholder engagement. If, as a company, your purpose is only created with a view to increasing profits for shareholders then you’ve missed the point and your results will show it.
Twenty twenty is very firmly the age of the internet and social media. This means that any company can be exposed at any time if it engages in unethical practices. There doesn’t have to be an investigative journalist or a deep-throat whistleblower involved. Consumers can voice dissatisfaction and hold a flame to the feet of any organisation that acts to harm society or the environment. Companies cannot get away with acting irresponsibly in the digital age.
Equally, employees have expectations of their employer too. According to Lagan, “Price Waterhouse Cooper’s Workforce of the Future report has found that 88 per cent of millennials want to work for an employer whose values reflect their own and it is this generation that will comprise three quarters of the world’s workforce by 2025.” As a Gen Xer this writer can confirm that it isn’t just the millennials who want to work in a values-driven environment. As we enter the 2020s there is an overwhelming pressure from the workforce for purpose-driven organisations, and “old business” is sure to wither on the vine.
CSR is an inevitable part of present and future business and there are three keys to unlocking it: purpose, leadership and membership.
The power of purpose
The real key to CSR is to have a purpose beyond profit for your business. “A good business these days is made up of people who are gathered together around a common goal,” observes Brügmann. “If that is more than making profit, if that is really a deeper purpose, then your employees will be engaged and you will create a culture that is attracting the best talent.”
Apple makes technology, but its purpose is to “Think Differently”. According to Lagan, “This aspirational purpose speaks to our social needs and serves as a call to action enabling Apple to create value for both its employees and its customers.” Brügmann points to the Danish firm Grundfos which makes water pumps, but its purpose is to create sustainable and safe infrastructure so that everyone has access to clean water. To this end Grundfos has partnered with C40 in the City Solutions Platform involving mayors from around the world collaborating on how to create sustainable cities.
It’s one thing to have a purpose, but how do you make that purpose part of the everyday life of your organisation? Lagan says, “Once you’ve articulated your purpose be prepared to talk about it daily, link all significant decisions to it and reward behaviour that aligns with it while also ensuring consequences for the sort of behaviours that might undermine your purpose. If it’s not in evidence every day as a source of continual inspiration to organisation members, it will inspire cynicism rather than trust.”
Business leaders, especially the CEO, play a crucial role in implementing CSR in a business. Lagan observes, “What leaders do is the loudest message about what is important in any organisation.” Brügmann agrees, “The vision holder is the CEO. The CEO has to carry a deep sense of purpose and has to inspire the rest of the company to engage and see and feel and understand that purpose. When you have a CEO that can do that, the whole organisation works towards that purpose. When that happens, you have a culture that becomes magnetising, meaning that you draw customers, partnerships, opportunities and collaborations to you because you stand so clearly for your values.”
To be handed a social “licence”, corporations must be trusted by stakeholders. In turn, for stakeholders to trust it, an organisation must proactively listen to the stakeholders. The voice of stakeholders must be built into the processes of the organisation.
Ultimately an organisation is the sum of its parts, and the members of an organisation determine its relationship to stakeholders because they are where interactions take place. According to Lagan, “Organisations are collections of people gathered together to achieve a common purpose. The success of that purpose depends on every individual playing their part. Employees, for example, are the biggest ambassadors for their organisations; what they say and do shapes how other people perceive the organisation and how they do their jobs contributes to the quality, or not, of its products and services. It is this interdependency that is the ethical dimension of business, and everyone shares in that ethical accountability to some extent.”
The face of corporate social responsibility
If CSR is a necessary and achievable goal, it is worth considering what a corporation that practises it will look like.
As far as its employees go, a responsible corporation will be what Harvard researcher Robert Keegan describes as a deliberately developmental organisation (DDO). A DDO is based on the idea that organisations will prosper when they are deeply aligned with people’s strongest motive, which is to grow. This is about more than training sessions or once-a-year retreats where you play paintball and storytelling games. It is about creating an organisational culture in which support of people’s ongoing development is woven into the daily fabric of working life and is visible in the company’s daily routines. The result is a work environment where people can overcome their own internal barriers to change, transcend their blind spots and see errors and weaknesses as wonderful opportunities for personal growth.
As far as its decision-making goes, a business focused on CSR will make every decision regarding stakeholders based on its core values. As Brügmann says, “As a business you have to see the implications of all your actions, that means where you allocate budgets, how you communicate with your employees, how teams operate together, and what kind of partners you sign on in your supply chain.”
The short-term benefits of CSR are seen in outcomes for the planet, happier employees and contented suppliers. In the long term though, CSR yields brand loyalty from consumers.
The endgame of corporate social responsibility is that business will be an integral part of the solution to things like climate change and social inequality. Organisations will be purpose-driven and will seek to be the best they can be for the sake of their entire environment, their clients and their employees. As a result, they will prosper, but that prosperity won’t be their “why” — it will be a consequence of their “why”.
We are at a point in human history with the impact of COVID-19 where we are examining the old structures that have been laid bare. Through the rise and rise of corporate social responsibility we have the capacity to build a future prosperity that is both shared and enduring. You vote for the world we live in via the organisations you support. Cast your vote wisely.
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