Corporate Social Responsibility is here to stay
What is Corporate Social Responsibility ?
You have heard about companies making huge profits while hiding their assets in some fiscal paradise, profiting from child labour, bribery, knowingly endangering their employees, the environment, and ultimately the society at large with harmful pesticides or other chemicals.
Corporate Social responsibility, often abbreviated as CSR, is the obligation of an organisation to make profit following sustainable development principles.
This involves:
· social responsibility (i.e. having a positive impact on the society),
· economic sustainability (i.e. making profit in an ethical way), and
· environmental sustainability (i.e. minimising the impact on the environment).
How does it work?
The first question to ask yourself is:
Why does a company exist?
· To make profit, i.e. create wealth for shareholders
· To bring good to the society
The second question is:
Are the two mutually exclusive?
A little bit of history
An important figure of the free market is Milton Friedman.
In 1970, he preached in the New York times that
“the business of business is business”,
by which he meant that the only responsibility that business had to society was making profit and respect the laws of the country where it operates.
Howard Bowen, however, an American Economist described today as the “father of CSR” was the first to talk about the social responsibility of corporations in his book “Social Responsibilities of the Businessman”, written in 1953.
In our opinion, one thing is sure:
To earn profit, a company must care about society.
· Products of high quality ensure that people go on buying products of that brand.
· If the employees are not treated well, they are not engaged, do not work at their best and leave.
· A company cannot pollute the environment any more as the resulting repercussions are more and more deleterious to their profit, and their brand due to the bad press it generates.
The 1 Million € question is: What does motivate companies to invest in CSR?
The first thing to know is that maximising profit in a non-responsible way and then donating some of those profits to associations or organisations doing some good has nothing to do with CSR.
As honourable as the cause of these beneficiaries may be, it has more to do with maximising profits by fiscal optimisation than with the donating companies honouring their CSR.
CSR pertains to how profits are generated, not to how they are spent.
That means that companies need to do business in an ethical and responsible way.
An example:
Let’s talk about Marks & Spencer, the British retail store.
It was created in 1884 by Michael Marks, who went into partnership with Thomas Spencer in 1894.
In 1930, The Chairman Simon Marks, son of Michael Marks, implemented an internal rule, whereby all managers should leave their office once in a while, go to the store and see how costumers and workers were being treated.
One day during a visit, Simon Marks saw a shop assistant faint. After discussing with her, he learnt that she has fainted because she was starving. As a matter of fact, her husband had no job and she wanted her children to have enough to eat.
So shortly after that visit, he created a staff welfare services including subsidised staff canteens, but also health & dental services, hairdressers and even camping holidays! [1]
How would you analyse this?
- In one hand, if you think that companies exist solely to increase shareholders’ wealth, you might consider that if employees are in better physical condition, they will work better and with more enthusiasm, so you will increase the company’s profits.
- On the other hand, you might also do this just because you care about your workers and you think that this is the right thing to do.
In the first case, you see profit as the end goal.
In the second case, you see profit as a by-product of your social responsibility.
Simon Marks cared about his employees and perpetuated this view over the years.
Because of this, M&S nowadays enjoys a reputation for high quality products and as one of first companies to have incorporated “sustainable development” in the long-term growth strategy. [2]
Today, they investigate their effects, on climate change, waste production and management, sustainability of raw materials, fair partnerships including fair-trade, and health, set targets with respect to these aspects and monitor their achievements.
In so doing, M&S has effectively struck a right balance between these by sourcing products like cotton, sugar, and coffee from developing countries under fair-trade terms and sourcing most dairy and meat products from local producers.
The future of CSR
Historically, implementing any kind of CSR was a voluntary act.
But scandals regarding workers’ conditions, environment pollution, and other non-ethical business practices have made companies focus more and more on their impact on society.
So today CSR is not a “nice to do” thing any more.
It has become a “must”.
After the Covid-19 crisis, the global footprint of companies, environmental and climate changes will continue to be major concerns but companies will have to take measures to promote safe working environment to their employees, and that will be one of their main focus.
Companies will have to rethink their value chain, in order to maintain and transform infrastructures to be able to deliver key supplies & services in sustainable ways (that Covid-19 highlighted as lacking), such as medical supplies, healthcare, food, energy etc.
For example, in France, because of the Covid-19 pandemic, many farmers have seen a brutal plunge in their revenues because of orders cancellations as restaurants and schools were shutting down.
Nevertheless, some of them have been able to take advantage of the recession by reinventing their business models. As consumer buying habits were disrupted, they developed their online presence, which in many cases was zero before the pandemic, to attract new clients, contacted individual consumers and delivered at their doors. [3]
Going back, thinking that CSR is just the “cherry on the cake” is not on the table.
As all indicators show:
The world’s most socially responsible companies do better! [4]
- These companies try to minimise carbon footprint, water shortage, energy usage, etc.
- They treat their employees better, i.e maximise protection of their employees across the supply chain, pay higher salaries, provide healthcare, aim to achieve gender equality, etc.
- They try to eradicate modern slavery, corruption, wherever they operate.
And most importantly:
Executive compensation is linked to targets related to the 17 UN sustainable Development Goals (SDG).
These companies outperform competitors on profit, long term growth, risk management, etc.
They use CSR as differentiation, a driver for success.
They understand that companies are also there to create a lasting impact on people and the planet.
When that is your driver, profits follow.
Conclusion
In the words of Henrick Poulsen, the CEO of Orsted A/S, ‘The world’s most sustainable company’, based in Denmark:
”Running the company just for profit doesn’t make sense but running it just for a bigger purpose is also not sustainable in the long term. Doing good and doing well must go together.”
References
[1] International Entrepreneurship: A Comparative Analysis by Susan Freeman, Ying Zhu, Malcolm Warner
[2] https://www.tf1.fr/tf1/jt-we/videos/le-20-heures-du-samedi-30-mai-2020-00113224.html [Last accessed on May 31th, 2020]
[3] https://www.tf1.fr/tf1/jt-we/videos/le-20-heures-du-samedi-30-mai-2020-00113224.html [Last accessed on May 31th, 2020]
[4] https://www.corporateknights.com/reports/2020-global-100/2020-global-100-ranking-15795648/ [Last accessed on May 31th, 2020]
