Global Trend

Corporate Social Responsibility: Big Bucks, Little Bang

It’s hard to argue with an idea that sounds as positive as “corporate social responsibility.” After all, corporations should make a positive impact on the world, and the scandals at Enron, Tyco, and WorldCom demonstrate what can happen when unscrupulous CEOs put profits ahead of every other goal. But some theorists and some executives seem to be carrying the idea too far.

According to Patricia Aburdene, in her new book Megatrends 2010, corporate social responsibility, or CSR, is the next big thing in business. She points to the growing participation of companies in groups that promote what she calls “conscious capitalism.” Consider these examples:

Roughly half of the Fortune 500 corporations now belong to a non-profit organization called Business for Social Responsibility, or BSR. Companies that belong to BSR are expected to stop focusing solely on the single bottom line of profitability and instead be concerned with a “triple bottom line” of economics, society, and the environment. When BSR was started in 1992, only a few companies were members; now about 400 companies have joined the group.

More than 70 companies have adopted the principles of CERES, or Coalition for Environmentally Responsible Companies. Sunoco was the first Fortune 500 company to embrace these principles in 1993. Now Coca-Cola, Nike, Bank of America, and other corporations have done the same. The CERES principles include protecting the biosphere, reducing waste, conserving energy, reducing risks, restoring the environment, and informing the public.

More than 700 companies have agreed to follow the guidelines created by the Global Reporting Initiative, or GRI, for reporting on how their operations affect the economy, society, and the environment.

According to surveys, most senior executives assume there’s a connection between corporate social responsibility and business performance. For example, a PricewaterhouseCoopers poll found that 70 percent of CEOs believe that CSR is vital to their firms’ profitability.

Moreover, a recent survey by The McKinsey Quarterly revealed that more than 80 percent of 4,238 executives across 116 countries believe that companies should be “socially responsible.” According to the executives, corporations should contribute to the public good by going above and beyond what is legally required to minimize pollution and other negative effects of their operations. Only 17 percent of executives believe that generating returns for investors should be the sole focus of a business.

According to the McKinsey survey, the new priorities for corporations, are: increasing transparency about risks, developing and implementing policies on ethics and other issues such as human rights and the environment, engaging stakeholders, improving compliance, and using industry coalitions to develop common responses to social and political issues.

But how do those priorities translate into better returns for shareholders? According to the BSR Web site, corporate social responsibility provides competitive advantage by helping companies to:

? Improve financial performance and access to capital.
? Enhance brand image and sales. Attract and retain a quality workforce.
? Improve decision-making on critical issues.
? Manage risk more efficiently. Reduce long-term costs.

However, none of these claims can actually be quantified, and there doesn’t appear to be any clear link between CSR and creating value for shareholders. In a recent California Management Review article titled “Is There a Market for Virtue? The Business Case for Corporate Social Responsibility,” David J. Vogel confirms this. He writes, “Unfortunately, there is no evidence that behaving more virtuously makes firms more profitable.”

And while CSR might not keep a strong company from being profitable, Vogel’s review of several studies leads him to conclude that some of those companies could be even more profitable if they were less responsible.

This is not to say that companies should not behave morally. Obviously, senior executives must make decisions that enhance rather than harm their employees, investors, customers, and the environment.

And there’s no question that, all other things being equal, companies that pursue genuine moral values and purpose contribute more to society than companies that focus only on profits. However, moralizing as window-dressing ? which may be the reality behind many of the companies that hype CSR ? is a poor use of the shareholder’s money.

This is particularly true when it comes to “societal marketing programs,” a trend with growing popularity that is closely related to CSR. Societal marketing programs are campaigns in which companies give money, resources, or publicity to socially popular causes while trying to create a link in the minds of consumers between the cause and the company’s brand.

According to an article in the most recent issue of MIT Sloan Management Review, the various types of societal marketing programs include:

Cause-related marketing, in which the company donates a share of the profits from a product to a cause.

Green marketing, in which the company promotes its concern for the environment as a way of setting itself apart from its competitors.

Cause sponsorship, in which the company promotes its brand as a supporter of a specific cause.

Social advertising, in which the brand’s advertising campaign also promotes a social cause.

Supposedly, these efforts have helped companies to establish a unique brand identity in consumers’ minds, charge higher prices, build greater market share, and earn more profits. And in some cases, this may be true. However, just as often, these campaigns are merely a way to get funding for causes some executive backs, but very few employees or shareholders would choose to fund themselves. And, worse yet, today’s savvy and cynical consumers are seeing right through marketing campaigns that try to increase a product’s sales by linking it to a worthy cause.

Looking ahead, we foresee three developments emerging that will transform the CSR trend:

First, most of the companies that use societal marketing programs will not achieve the results they expected. The problem is that so many companies are now identifying themselves with causes that it is no longer an effective way to differentiate a brand. Furthermore, many different marketers are often affiliated with the same cause. For example, the partial list of sponsors on the Web site of the National Breast Cancer Foundation includes 36 companies; it’s hard to believe that any of these companies benefit materially when all of them can claim the same association.

Second, despite the hype behind corporate social responsibility, it will become increasingly obvious that society benefits most when companies are healthy and profitable. As noted economist Arthur Laffer has pointed out, “CSR doesn’t raise profits; profits cause CSR.” When corporations focus on making profits, they are more likely to provide secure jobs and high wages for employees, large salaries and bonuses for executives, and rich profits for shareholders. Then each individual investor, executive, and employee can make his or her own decisions about which private charities really deserve to be supported.

Third, there will always be room in the market for both so-called responsible companies and rival firms driven solely by profits. As a recent article in The Financial Times reminds us, “Do not expect market forces to make all companies more ethical through a process of Darwinian selection.” In other words, CSR might be beneficial to certain companies in certain industries, but it is wrong to expect every firm to adopt it. In fact, some competitors will always differentiate themselves by offering low prices, and their business models may clash with CSR’s ideals; but they contribute to society by keeping prices low for consumers of limited means, and by providing jobs that would not exist if they were not in business.

References List :
1. MEGATRENDS 2010: THE RISE OF CONSCIOUS CAPITALISM by Patricia Aburdene is published by Hampton Roads Publishing Company. ⓒ Copyright 2005 by Patricia Aburdene. All rights reserved.2. To find out more about Business for Social Responsibility, visit their website at: www.bsr.org3. To find out more about the Coalition for Environmentally Responsible Companies, visit their website at: www.ceres.org4. To find out more about Global Reporting Initiative, visit their website at: www.globalreporting.org5. To access the McKinsey Global Survey of Business Executives, visit their website at: www.mckinseyquarterly.com/article_abstract.aspx?ar=1740&L2=7&L3=106. CALIFORNIA MANAGEMENT REVIEW, Summer 2005, “Is There a Market for Virtue? The Business Case for Corporate Social Responsibility,” David J. Vogel. ⓒ Copyright 2005 The Regents of the University of California. All rights reserved.7. MIT SLOAN MANAGEMENT REVIEW, Winter 2006, “How Social-Cause Marketing Affects Consumer Perceptions,” by Paul N. Bloom, Steve Hoeffler, Kevin Lane Keller, and Carlos E. Basurto Meza. ⓒ Copyright 2006 by the Massachusetts Institute of Technology. All rights reserved.8. THE FINANCIAL TIMES, November 27, 2005, “Gulf News: The Place for Corporate Responsibility in a Market Economy,” by Simon London. ⓒ Copyright 2005 by The Financial Times Limited. All rights reserved.