Business Case for Corporate Social Responsibility

Transcription

1 Business Case for Corporate Social Responsibility Introduction Companies engage in Corporate Social Responsibility (CSR) for a number of reasons. Some companies believe CSR activities will improve employee satisfaction and attract good quality workers. Other companies trust that consumer loyalty will increase by positively impacting the surrounding community and society as a whole. Others insist that CSR activities will improve brand awareness and recognition while positively influencing the company s overall reputation. Regardless of the fundamental reason for engaging in CSR activities, companies mutually agree that engaging in CSR is good for their revenue and profit margins. Conversely, there can also be negative impacts from engaging in CSR activities. CSR activities cost a considerable amount of money, time, and dedication. While some members of society may embrace the company s stance on an issue, others may oppose the viewpoint, ultimately pushing consumers away. Companies must walk a fine line when engaging in CSR activities. Publicly announcing their values and beliefs to the world can alienate people and cause them to aggressively boycott the company. In order to understand the business case for CSR, you must first realize how CSR activities influence company operations. Let us take a closer look at the impact CSR can have on a company s reputation, employee management, investor relations, risk management, competitiveness, and profit margins. Company Reputation One of the most easily identifiable reasons for a company to engage in CSR activities is to improve its reputation. More and more, a company s products and services are sold based on the company s reputation and brand value. Consumers and businesses are making purchasing decisions by aligning their values with a company s reputation and goodwill. These intangibles influence how people view the company and where they choose to spend their money, ultimately affecting a company s bottom line. For instance, McDonald s has been a long-time supporter of the Ronald McDonald House Foundation. McDonald s has engaged in these CSR activities to demonstrate its commitment to helping children while building a kid-friendly, caring reputation. On the other hand, avoiding CSR activities can also have negative consequences. The Coca-Cola Company has been publicly scrutinized for using child labor in its overseas manufacturing facilities. While employing children in these foreign countries was not Page 1 of 5

2 illegal, it went against American labor age standards by engaging in child labor practices. In this scenario, Coca Cola s reputation and its bottom line was negatively impacted, because many consumers banned the Coca-Cola brand. Employee Management Many companies choose to be socially responsible to attract and retain high quality employees. More than ever, employees are choosing to work for organizations whose values are similar to their own values. This is especially true for white-collar workers or high skilled laborers in North America. Companies will go to great measures to attract and retain these highly competent and talented workers. For instance, Target donates 5% of its income to support education initiatives, sponsor activities promoting the arts, and improve community safety. Due to Target s aggressive CSR initiatives, satisfaction is high among employees and they are never in short supply of drawing valuable workers. Just as constructive CSR activities can allow companies to attract and retain employees, not acting socially responsible can increase employee turnover and make it difficult to attract good workers. For instance, Wal-Mart has consistently struggled to attract workers after being publicly scrutinized for paying their workers low wages and putting small retailers out of business. Good employees often avoid employment opportunities at Wal-Mart, leaving the company with less talented individuals to fill the positions. Investor Relations CSR activities can also have a huge impact on investor relations and the access to capital. Investors choose to invest in companies that have demonstrated social responsibility, believing these efforts make the companies less risky and more secure. In addition, investors portfolios are also being held to similar CSR standards, making socially responsible companies appealing to these investors. IBM s history of helping communities around the globe through education and community service CSR projects has provided investors with confidence in the company s reliability and integrity. On the other hand, not participating in CSR activities can prohibit a company from accessing capital once investors lose trust in the company. Qwest is a great example of a company that lost access to investment capital after the CEO, Joe Nacchio, was accused of corporate fraud from illegal stock sales. The stock price fell from $60/share Page 2 of 5

3 in 2000 to just $2/share in 2002 as a result of the fraud. (Shore, 2007) Investors lost millions of dollars, sabotaging the trust between Qwest and its investors. Risk Management Along the same lines as investor relations, CSR initiatives enable a company to manage its risk and promote a risk level acceptable for investors, associations, competitors, and consumers. Companies need to be aware of current issues that could cause them to be scrutinized for their actions. For instance, The Gap was one of the first retailers in its class to provide an annual CSR report to stakeholders. They donated irregular garments and left over clothing remnants to less fortunate women in South Africa, who were trying to escape the Apartheid. The Gap s CSR efforts allowed the company to manage its risks by helping to clothe women in poverty and to stay ahead of other retail competitors. On the other hand, BP oil giant experienced a catastrophic oil spill in the Gulf of Mexico in After this disaster, BP has tried to recover its reputation and get a handle on risky actions by supporting alternative fuel sources. BP has invested in solar, wind, and biofuel initiatives to demonstrate its commitment to preserving the environment and becoming energy conscious. However, only time will tell if its reactive CSR efforts will allow the company to fully recover. Competitiveness With companies trying to differentiate their products in the marketplace, CSR efforts can often be the answer to achieving company uniqueness. CSR actions can build consumer loyalty through ethical and moral responsiveness, positioning a company as a market leader. The Body Shop is a great example of a company that has established itself as going well beyond the required law to be environmentally friendly and to engage in ethical practices. The Body Shop s CSR efforts have proved to be a unique selling strategy for environmentally health conscious consumers, setting this company apart from its competitors. However, not participating in CSR efforts can also harm a company s competitiveness. For instance, many US cosmetic companies including L Oreal, Mary Kay, and Johnson and Johnson, have embraced animal testing in order to sell their products in China, which was declared illegal for companies operating in the US. These animal testing efforts may provide short-term gains by securing the Chinese cosmetic market, but could also result in US consumers banning their products and affecting their bottom line. Page 3 of 5

4 Profit Margins Most research indicates that companies that choose to adopt CSR achieve aboveaverage profit margins. In light of this notion, many companies have adopted CSR principles as part of their fundamental business strategy. When managed appropriately, CSR efforts can enable a company to gain market share and increase profits. On the other hand, if CSR efforts are viewed as an afterthought with little strategic direction, then these actions can be harmful to a company s future and profitability. CSR activities do not guarantee an increase in profit margins, but when CSR activities are profitable, it is a result of investing a significant amount of time, money, and dedication to making CSR a part of the core business model. Summary: When considering whether to adopt CSR activities into its business strategy, a company must understand both the positive influence of adopting CSR activities and the negative consequences associated with not participating in CSR activities. Most companies agree that adopting CSR activities is a good business practice; however, choosing to avoid CSR activities can have huge ramifications for the business. More than ever, consumers are purchasing products and services by aligning their values with a company s reputation and goodwill. If a company s reputation is tarnished, so is its market share and bottom line. In order to attract and retain high quality employees, companies must be socially responsible. However, companies who do not participate in CSR activities can experience increased employee turnover and the inability to attract good workers. Investors choose to invest in companies that have demonstrated social responsibility, believing these efforts make them less risky and more secure. On the flip side, not acting socially responsible can prohibit a company from accessing capital once investors lose trust in the company. CSR initiatives enable a company to manage a risk level acceptable for investors, associations, competitors, and consumers. Risky behaviors can result in a damaged reputation. Consumer loyalty and product differentiation is often based on CSR activities. From the opposite perspective, avoiding CSR activities can tarnish a company s reputation and prohibit a company s competitiveness. Page 4 of 5

5 Most research indicates that companies that choose to adopt CSR achieve above-average profit margins. However, profits can be negatively impacted if CSR initiatives are an after-thought. References: Shore, S. (2007). Ex-Qwest boss Nacchio gets six years in prison. Retrieved from nacchio_n.htm Page 5 of 5