Corporate responsibility is power

Charles Handy, co-founder of the London Business School and a respected social philosopher, uses an analogy about corporations and profits: a profit to corporations is like breathing oxygen to humans. You can’t live without it, but you don’t live for it.

If corporations are to become sustainable, in that they outlive a generation, they need to focus on more than the bottom line. This does not mean the bottom line is not important. But if corporate leaders are interested in sustaining the bottom line beyond their own tenure, they will have to look beyond the profitability of their business, just as humans look beyond oxygen.

This truth is becoming more of a reality in the corporate world as there is a growing pressure from all sides for greater community and social awareness beyond a simple profit motive. This awareness is widely referred to as corporate social responsibility (CSR). CSR, for the purposes of this article, is defined as the awareness organizations have of their impact on the environment and the contribution they make to social issues. It is imperative that organizations be aware of
their impact on the planet, as this can affect all aspects of their business. It is important for all levels of management to be aware of, and work toward, greater social responsibility, as it will have an effect on the daily operation of a business, and therefore on profit margins.

This is not about doing something out of the goodness of your heart; it is becoming a successful corporation’s license to operate. CSR encompasses a myriad of external and internal issues, so when a corporation develops its corporate strategy it must make CSR a fundamental consideration – because the collective corporate thinking affects staff, consumers, suppliers, investors, governments and the public.

Happy employees are productive employees
Good firms, in terms of overall performance, are typically distinguished by the quality, dedication and talent of their people. A common cry from many managers is how to recruit and retain talented staff. It is for many a given that employees want to work in a ‘good’ workplace. Survey after survey confirms that in workplaces where the employees are proud of their organization and leadership, output and performance increase remarkably. The employee brand is very important.

Young people want to work for an organization where they enjoy spending time. If they aren’t enjoying their time, they will leave – or at least begin to look for new employment that upholds their CSR values. And if they can’t leave because of a shortage of jobs, you can be sure their productivity will be way down.

CSR issues are generally thought to be solely about dealing with the public, but internal considerations are just as important. Being a responsible organization from the inside out sets you apart from other bodies and ensures you attract and retain talented staff. To do this, it is vital to understand the needs of potential employees.

Generation Y people, particularly those with a college education, have been taught throughout their lives to think globally. They are imbued with feelings of being a world citizen. This is particularly compounded by technology such as the internet, social networking and increased global mobility. Since international travel is no longer a crippling expense, more than any before, this generation sees itself as being part of the big picture of the planet, and is more likely to be concerned about its impact on the Earth.

Employers must find ways to connect their employees to making a difference in their community
and the world. According to a March 2010 survey conducted by Landor Associates, Penn Schoen Berland and Burson-
Marsteller, nearly half of 18 to 34-year-olds are more likely to take a pay cut to work for a socially responsible firm –a much higher percentage than any other age group.

Internal issues also extend to the fair and just treatment of employees. Internal operations and leadership can no longer just be about position and power; they are increasingly about the integrity of an individual. Classical hierarchy is becoming less prevalent. We live in an age of transparency, where power and knowledge are no longer in one person’s hands, but rather at everyone’s fingertips. Knowledge is still power, but it is easier to access and more widely distributed.

Reputation is everything
Consumers are more critical of big business than they are of themselves and often hold corporations to higher standards. It is interesting to note the public response to the oil spill in the Gulf of Mexico and the anger toward BP. It indicates how social and environmental irresponsibility can have serious financial and image consequences: at time of writing, the company’s stock was down approximately 20 percent since the initial explosion. CSR is not just a nice tag to have; it must be part of the mainstream strategy of the corporation.

Everyday brands like Cadbury and Starbucks are advertising their products as being Fair Trade not because of some benevolent marketing purpose but because they believe it sets them above competitors and will ultimately lead to increased profitability. There is a belief, not just in the US but also internationally, that when a company is transparent, responsive, tells the truth, and makes social, environmental and financial commitments and endeavors to live up to them, it stands out from other companies, and people notice and respond.

Brand perception – and, by extension, CSR – is becoming even more important in the face of the global economic slowdown. Attention is more focused on corporate actions and corporate citizenship as people continue to feel the pressure and look to companies for a solution.

According to the Landor et al survey, transparency and corporate responsibility have become more important to consumers. The survey measured consumer perceptions of CSR practices and ranked companies that are the most responsible. It finds that, despite the recession, 75 percent of consumers believe social responsibility is important, and 55 percent of consumers say they would choose a product that supports a particular cause over similar products that don’t.

Additionally, the survey finds that 70 percent of consumers are willing to pay a premium for products from socially responsible companies. In fact, 28 percent are willing to pay at least $10 more. That means companies have an opportunity to differentiate themselves if they can communicate clearly how they give back to their employees, communities and the environment.

A full 60 percent of US adults say ‘knowing a company is mindful of its impact on the environment and society makes me more likely to buy its products and services’, according to findings in the Lifestyles of Health & Sustainability (LOHAS) Consumer Trends Database released in late May by the Natural Marketing Institute (NMI). The company surveyed 2,000 adults via the web to gauge their perception of how companies are dealing with social and environmental issues, as well as
how those perceptions affect their buying decisions. More than half (57 percent) feel more loyal to companies that are socially responsible. More than a third (38 percent) are willing to pay extra for products produced by socially responsible companies, and 35 percent are more likely to buy stock in such corporations.

Despite all this, the study finds that many companies that do good do a bad job of promoting the fact. ‘There’s a big disconnect between what companies are doing and consumer perception,’ says Steven French, managing director at NMI.

The institute combined its findings with investment analyst rankings, provided by investment research firm KLD, to create the inaugural LOHAS Index of top 50 companies that are both socially responsible and do a good job communicating it. Of the companies on the list, 50 percent of consumers surveyed aren’t aware of their social or environmental practices. Wal-Mart fares the worst, as 62 percent of respondents are unaware of its recent green initiatives. The retail giant, which comes in at number 40 on the list, has done a poor job touting its green efforts while also battling past workplace diversity and human rights issues, French tells Brandweek.

The rise of the ethical investor
Across the world, investors are increasingly putting their money behind organizations that participate in responsible business practices. This ethical investing attracts people who favor corporations that promote environmental stewardship, consumer protection, human rights and diversity. Many avoid businesses involved in alcohol, tobacco, gambling or weapons manufacturing and distribution, for example. Of course, many corporations in these industries are now formulating their own CSR programs, in order to make them more appealing to such investors.

It is becoming clear that positive corporate behavior can have a beneficial impact on sales and share price performance while perceived or real negative behavior has the opposite effect. For decades, international organizations have understood the value of CSR, and the most successful multinational corporations have clear and distinct projects or programs that address social injustices. Conversely, problems occur with public perception when organizations ignore major areas of social responsibility.

Consumers often point to the practices of Nike, the athletic apparel corporation that was exposed in the 1990s for its sweatshop labor conditions in the low-wage countries that produced its sneakers. For a long time the company’s response took the form of angry denials before sending someone to the offending factory to deal with the situation, or at least cover it up. By the mid-2000s the company had completely changed its attitude and now has a respected program that monitors conditions in the more than 900 factories in which its shoes are made (none of which the company actually
owns) and works with owners to improve labor standards. To this end, it employs approximately 100 people full time to personally inspect properties producing goods for Nike. This approach has helped rebuild the Nike brand.

In another example, PepsiCo is one of the world’s largest food and beverage companies, with 2008 annual revenues of more than $43 billion. Its portfolio includes 17 brands that generate $1 billion or more each in annual sales. The company has long been a proponent of CSR, so much so that it was short-listed in Corporate Secretary’s 2009 Corporate Governance Awards. Its most recent endeavor is the Pepsi Refresh Project: the basic premise is that Pepsi is awarding grants to regular people with big ideas to make a positive impact on their community. If you’re older than 13 years of age, you can submit any idea for voting online, and Pepsi will award grants of various sizes throughout 2010.

For the most successful and effective corporations, CSR is now a major consideration of overall strategic planning. It affects many aspects of the corporation’s life: its people, consumers, suppliers and investors – as has been witnessed in the BP oil spill involving opinions of the US president and the public. As many organizations do not yet get this concept, implementing these practices will ensure responsible and socially aware corporations are ahead of the curve and will be around for the long haul. Knowledge is no longer power; responsibility is.