Corporate America's Latest Act

by Melanie Merrifield

Today's companies juggle a seemingly endless stream of performance criteria. One of the slipperiest, and arguably one of the most challenging, is Corporate Social Responsibility, or "CSR."

It's a concept known by a parade of aliases: corporate citizenship, corporate social involvement, community responsibility and sustainability. Yet whatever the moniker, the underlying principle remains the same. Businesses, like individuals, have a serious charge to conduct themselves not just profitably, but honorably - in a way that respects or even improves the communities to which they belong.

There's nothing new about companies wanting to give back to their communities through philanthropic support for schools, child-based initiatives, drug-education, meals on wheels or services for their employees. What is new, however, is the expectation that companies must also have a "conscience" when making key decisions directly affecting core business operations.

Instead of simply expecting companies to return profit to shareholders, CSR demands that a company serve a much broader audience that includes all its stakeholders - not just investors, but customers, employees and neighbors, including those who live in the communities in which the company operates. In fact, from a global standpoint, all mankind and the planet itself may be expected to be added to the constituency of operational impact.

Noting the CSR trend, Hankamer School of Business Associate Dean Elizabeth Davis explains, "The emergence of CSR as an important governance objective gives business people greater opportunity to tie corporate culture and vision to his or her own personal commitments. Some business people believe that corporations have no 'business' being involved in citizenry and that is up to individuals to do good. Others believe they can't, in good conscience, make business decisions, without considering the affects those decisions have on society. The issue of CSR can create great discussion in class. I believe we have a responsibility as professors to challenge students to think about these issues now and to draw their own conclusions so that they can react to such issues from a point of conviction, not in the heat of the moment."

Dr. Kellie McElhaney, John C. Whitehead Distinguished Faculty Fellow in Corporate Responsibility at University of California Berkeley's Haas Business School, adds that student interest in CSR is strong "CSR is absolutely a subject students are interested in; it ties into their goals. This next generation doesn't want to be Ivan Bosky, but they don't want to be Mother Theresa either. They're not as interested in extremes. They're interested in marrying social impact or mission with financial gain."

The Company As Eagle Scout

Consider that age-old icon of childhood endeavors: the lemonade stand. Within a CSR context, it's as if today's thirsty public wants much more than a cool, refreshing drink for a quarter. They're demanding said beverage be made of juice squeezed from lemons not sprayed with insecticides toxic to the environment, prepared by persons of appropriate age in kitchen conditions which pose no hazard to those workers. It must be offered in biodegradable paper cups and sold at a price which generates a fair, livable wage to the workers - who, some might argue, are far too young to be toiling away making lemonade for profit anyway. It's enough to drive young entrepreneurs - even those with the morals of an Eagle Scout -- straight back to the sandbox.

Luckily, many of today's most forward-thinking companies have the foresight to navigate these issues and are leveraging them with bold new policies. For many this means taking a more holistic inventory of everything the organization is doing: from PR to volunteer efforts, labor negotiations, recycling and carpool programs. In essence, taking filmmaker Spike Lee's advice to "Do The Right Thing."

CSR initiatives are sprouting up in every business sector, in every sized company In a recent survey published by The Center for Corporate Citizenship at Boston College, "61 percent of managers from 700 companies interviewed worldwide indicate that their companies produce a contribution/philanthropic report or a social/citizenship report." What's more, 68 percent of large companies in Western Europe and 41 percent of large companies in the U.S. now report on "triple bottom line" information. 1

The big four professional services firms are responding to business's growing CSR interest. Deloitte Touche Tohmatsu is forming a full time global practice around CSR. "We've watched the CSR and sustainability area closely for some time. We've certainly had people working in that area," observes Stephanie Emry, Director of External Affairs for Deloitte Consulting. "DTT was a founding member of the United Nations Global Compact Initiative. But lately we're seeing more requests for CSR-type services, especially out of the European markets. So we're responding with a dedicated practice.

"We feel CSR will always be a relatively small practice. But it's an area of service our clients clearly want," states Emry. "Our focus will be the creation of sustainable social governance systems for corporations."

Deloitte Consulting promotes CSR internally with policies that allow employees to volunteer for 20 hours per year on company time, provide preferred parking for carpools, and reward recycling. "As a professional services firm, we feel these are small but important ways to incent our associates," Emry concludes. "Efforts like these really add up to build support for these causes. Every company can help make a difference. The key is doing what you can."

Another business stalwart, PricewaterhouseCoopers, recognized the coming CSR trend and launched its Sustainability Practice 2001. Since then, interest has blossomed considerably. In PwC's latest global CEO attitudes survey, 79 percent of CEOs agreed that sustainability is vital to the profitability of their company. 2 Sunny Misser, global and US leader of PricewaterhouseCoopers' sustainability practice is convinced CSR will continue to gain strong support and very soon will no longer be discretionary. "It will become a competitive necessity," Misser cautions.

Reputation Economics

Just how seriously are companies taking CSR? Seriously enough that many have adapted the "triple bottom line" approach to their annual reports. The new measure includes social and environmental updates along with a company's performance in dollars and cents.

Another trend is for companies to spend increasingly more time integrating their core values into the ways they do business. Years ago, companies had one clear, simple objective: to operate in a way that would generate profit. Those profits lined the pockets of company employees and share-holders alike, who in turn spent, invested, volunteered and donated those profits as they saw fit. Globalization and the information age have reshaped those expectations.

More about accountability than accounting, CSR encompasses a myriad of factors that don't always fall neatly into a company's financial records. These include environmental policies, labor relations, working conditions, anti-discrimination policies, employee support services - virtually anything and everything within a company's power to screen, shape or affect. But today, strong CSR equals strong, favorable public opinion that translates, however indirectly, into stronger reputation and a halo effect for the company.

Jim Roberts, professor of Marketing at Hankamer School of Business, agrees, "I like to think of corporate social responsibility as doing well by doing good. Doning what's in the best long-term interest of the customer is ultimately doing what's best for the company. Doing good for the customer is just good business.

"Look at the tobacco industry, serving only the short-term desires of their customers have led to government intervention and a multi-billion dollar lawsuit against the industry because of the industry's denial of the consequences of smoking. On the other hand, alcohol manufacturers realized that by at least showing an interest in their consumers' well-being ('Don't drink and drive', 'Drink responsibly', 'Choose a designated driver') they have been able to excape much of the wrath felt by the tobacco industry. It pays to take a long-term perspective."

Watchdog Groups Raising Awareness

The concept of Corporate Social Responsibility first surfaced in the 1980s. But at that time only "fringe" organizations led the charge. The public noticed, responding positively to these socially oriented messages. Now larger, old-school businesses are having to ante up the same way.

CSR has become such a phenomenon, in fact, that there are numerous web sites dedicated expressly to promoting top performers and exposing companies that come up lacking. www.Idealswork.com, for instance, rates companies online in terms of their environmental, hiring, discriminatory policies and a host of other factors. It then allows visitors to shop at rated companies' websites and direct 10 percent of their purchases to not-for-profit charities at no cost to the consumer.

A leading CSR resource, Business for Social Responsibility, states on its web site that today's companies are challenged not only to be financially successful, but to achieve that success "in ways that honor ethical values and respect people, communities and the natural environment."

The CSR area has spawned a rash of professional and watchdog organizations (see sidebar.) A simple search on Yahoo.com for "corporate social responsibility" yielded 1,200,000 results. One such listing led this writer to the corporate social responsibility newswire www.CSRwire.com - the self-proclaimed leading source of corporate responsibility and sustainability, press releases, reports and news. The site is a goldmine of information issued by leading U.S. businesses on all aspects of CSR, as well as general overviews that help frame the CSR phenomenon.

Business for Social Responsibility Director of Member Services Doug Bannerman explains the role BSR hopes to play in the coming age of CSR. "Our organization is a clearinghouse, a network, a way for everyone involved in CSR to see the benefits of their efforts - and how our collective work can reap huge rewards for mankind."

Indeed, the BSR web site makes a fairly compelling case for CSR, claiming benefits of improved financial performance, reduced operating costs, enhanced brand image and reputation, increased sales and customer loyalty increased productivity and quality, increased ability to attract and retain employees.

Forces Driving CSR

Perhaps the strongest motivation business has for embracing CSR is its distaste for regulation. Recent business scandals and public outcries for protection threaten to result in governmental oversights many executives find intrusive. But there are other serious circumstances that have set the stage for the new passion for CSR. In a piece published on CSRWire, Joseph F. Keefe of NewCircle Communications, asserts there are five major trends behind the CSR phenomenon.4

1. Transparency. We live in an information-driven economy where business practices have become increasingly transparent. Companies can no longer sweep things under the rug - whatever they do (for good or for ill) will be known, almost immediately, around the world. Rosabeth Moss Kanter recently posited a "new law of physics for the Internet Age: bad news travels faster and generalizes further than good news." 4
2. Knowledge. The transition to an information-based economy also means that consumers and investors have more information at their disposal than at any time in history. They can be more discerning, and can wield more influence. Consumers visiting a clothing store can now choose one brand over another based upon those companies' respective environmental records or involvement in sweatshop practices overseas
3. Sustainability. The earth's natural systems are in serious and accelerating decline, while global population is rising precipitously. In the last thirty years alone, one-third of the planet's resources - the earth's "natural" wealth - have been consumed. . . .We are fast approaching or have already crossed the sustainable yield thresholds of many natural systems (fresh water, oceanic fisheries, forests, rangelands), which cannot keep pace with projected population growth. . . As a result, corporations are under increasing pressure from diverse stakeholder constituencies to demonstrate that business plans and strategies are environmentally sound and contribute to sustainable development.
4. Globalization. The great periods of reform in US history (Populism, the Progressive Era, the New Deal, the Great Society) produced child labor laws, the minimum wage, the eight-hour day, workers compensation laws, unemployment insurance, Antitrust and Securities regulations, Social Security, Medicare, the Community Reinvestment Act, the Clean Air Act, Clean Water Act, Environmental Protection Agency, and so forth. All of these reforms constituted governmental efforts to intervene in the economy in order to ameliorate the worst excesses of market capitalism. Globalization represents a new stage of capitalist development, this time without countervailing public institutions to protect society by balancing private corporate interests against broader public interests.
5. The Failure of the Public Sector. Many if not most developing countries are governed by dysfunctional regimes ranging from the hapless and disorganized to the brutal and corrupt. Yet it is not developing countries alone that suffer from moribund public sectors. In the United States and other developed nations, citizens arguably expect less of government than they used to, having lost confidence in the public sector as the best or most appropriate venue for addressing a growing list of social problems. 3

Evaluating A CSR Program

Despite the maze of terminology and vast scope of CSR, Dr. Kellie McElhaney offers students a systematic way to evaluate the strength of any CSR program. McElhaney believes efforts can be measured against three main criteria.

1. It should be central to day-to-day business operations. In other words, CSR should be evident in key operational decisions, not tacked on as an afterthought.
2. It should align with the company's business objectives. Long-term, CSR can absolutely support business objectives.
3. Leverage the company's core competencies. Companies can do a lot with what they know how to do well. I get nervous when a program has no logical link with an organization's strengths.

"Ben and Jerry's is a company I frequently use as an example of what not to do," McElhaney offers. "Which isn't to say that Ben and Jerry's has not done a lot of good; they certainly have. But many of their efforts and causes reach far beyond their core business expertise. That borders on simply advancing pet causes at the company's expense.

"There's nothing wrong with CSR efforts enhancing the public's perception of your organization. But in my opinion, It's not enough to support a good cause. The cause needs also to benefit the company. That's when corporate citizenship becomes good business."

The New Math

The future of CSR will likely be determined not exclusively by its virtue. The mesaurement of return on investment is proving central to making a strong business case for the concept. So critical is quantifying CSR, in fact, that there's an entire web site devoted just to this purpose, www.bc.com, called Conversations with Disbelievers. A spinoff of a collaborative work published in 2000, the site is a joint initiative of The Center for Corporate Citizenship at Boston College and AccountAbility, a London-based CSR member organization. This web site has been developed to capture new information as it becomes available. At the site, managers, nonprofits and researchers from around the world are encouraged to contribute their material to the growing dialogue demonstrating the business case for corporate citizenship.

One thing is clear: Social Responsibility in the corporate environment is no longer an option, and being versed in its developing protocols is an essential new skill. Happily, that's one business act well worth applauding, wherever it headlines.

Footnotes

1. Social reporting: Transparency and Accounting, p. 1. The Center for Corporate Citizenship at Boston College.
2. Dan Keeler, Corporate Social Responsiblity: Shaping Up. Global Finance, July/August 2003.
3. The State of Corporate Citizenship in the United States: 2003, p. 8. The Center for Corporate Citizenship at Boston College.
4. Five Trends: The Rise of Corporate Reputation and CSR by Joseph F. Keefe, NewCircle Communications