“Shareholder value is a result, not a strategy.”
Jack Welch, Former Chairman and CEO of General Electric (2009)
“Don’t be evil. We believe strongly that in the long term, we will be better served – as shareholders and in all other ways – by a company that does good things for the world even if we forget some short term gains.”
Google (2004)
To seek approval from customers, employees and their peers and businesses cannot ignore this topic. Whatever sector they are engaged in (and especially in controversial ones such as oil and gas, fast food, autos, mining or tech) they are expected to lay out and comply with a set of specific guidelines that will satisfy the increasing demands of the market-place. This latter component embraces consumers, employees (do I want to work for you?) and crucially investors who provide the funding without which large companies cannot expand and allows small companies to exist. Corporate social responsibility (CSR) has thus passed a key test for its survival – from being an ‘optional’ extra embraced by a few far-sighted companies during the 1950s influenced by this trend in management thinking, to the present and becoming an essential part of corporate life.
But what is CSR and how does it work? The driest description describes CSR as when ‘a business does more for the wellbeing of others than required in an economic (make a profit) and legal (obey the law) sense’. It further classifies different types of CSR, such as the Environmental, Community, HR and Philanthropic strands. An element to CSR not often discussed is its long-term vision, at odds with much of corporate culture, when management is subjected to investor pressure every quarterly reporting period. The UK cell-phone giant Vodafone describes its CSR vision to “deliver a sustainable society in which business and its stakeholders can prosper in the long term”.
Yet underpinning the motives for Vodafone and other companies is an acknowledgement that CSR often boosts profitability (the most important measure for companies). This is achieved by:
- Boosting respect for the company among consumers, which helps to drive sales.
- Fostering a cohesiveness and loyalty among employees, reducing turnover and attracting higher quality staff.
- Allowing sustainability focused CSR to help lower costs, improve margins and increase profitability.
How can the marketplace be so sure of the linkage between CSR and (additional) profitability? This is a problem to answer but in much the same way it is difficult to establish the incremental value that marketing brings to a business, CSR is now reaching such a degree of prominence that companies effectively have little choice but to sign up.
McDonald’s – Lasting Change in Corporate Sustainability
For companies in industries historically viewed as ‘bad’ by campaigners and altruistic consumers, such as the fast food, the oil sector or more topically the auto industry (think GM, Toyota and VW), the best form of defense is attack. McDonald’s has been at the forefront of using CSR to instill greater compatibility with consumers. It can’t be accused of jumping the gun; it introduced a ‘rainforest beef policy’ in 1989, which meant that it wouldn’t buy South American beef sourced from rainforest-cleared grazing land. Sustainable sourcing of products is now a major part of its CSR model. A further range of initiatives underway is an attempt to reposition the company as a ‘modern, progressive burger company’. Many of these have a strong CSR flavor and come at a time when the company is under significant pressure to revive sales growth and improve profitability. The moves include raising chickens without dual use antibiotics, switching to cage free eggs and raising the wages of restaurant workers. By themselves these moves may seem slight and incidental. Yet combined these reflect the type of adjustments that are necessary because the broader market expects it, and McDonald’s cheerfully admits that it expects to reap the benefits.
Yet there are dangers with throwing around the CSR label. If everybody has it, how can companies continue to differentiate themselves? VW was rated the 7th highest company globally for its CSR reputation in 2014, according to the Global CSR RepTrak ranking based on a range of emotional and rational responses, including trust, admiration, leadership, and governance. All these issues have fallen by the wayside for the company as its material and reputation damages soar and as its market value plummets.
CSR is not a static process and in essence, much of it is clear business sense. Yet like any other part of business it cannot and should not be static; it needs to adapt to changes in the marketplace.