Ever since the beginning of the concept of Corporate Social Responsibility (CSR), there has been a subtle (or not so subtle) power struggle between the profiteers and ethical regulators. According to an article published in The Economist (2009), the conflict between the ethical and commercial considerations of a company has always existed. However, before we further our understanding of the importance of CSR for the stakeholders and its impact on company's profitability, it is very important to understand what exactly CSR is.
Unlike the common misconception that CSR is all about shelving out doles for philanthropic purposes, CSR is not only that. While philanthropy is one of the small parts of CSR, CSR in actuality includes everything that benefits it stakeholders. So let us identify the stakeholders here. According to Waldman, Kenett, and Zilberg (n.d.), for any company, the stakeholders would be "any individual or group, that might affect or be affected by the organization's activities." Therefore, the employees, contractors, suppliers, government, leaders, shareholders, clients etc are all the stakeholders for any company. In this light, we continue forward to understanding what CSR is all about. So any company that takes care of its employees' rights, provides them with a clean and habitable working environment is the one practicing CSR. Any company ensuring that the customers get a good end product and after sale services is practicing CSR. On similar lines, companies that are ensuring that the waste is properly and safely dispensed off or is helping the local community grow are working towards CSR.
Over the past several years, more and more companies and executives are becoming aware of the importance of CSR for the company growth and employee retention. According to a study published by McKinsey in 2010 (as quoted by Torelli, Monga and Kaikati, n.d.), 76% executives these days believe that CSR actually aides long-term shareholder value, while 55% agree that CSR helps build a reputation for their company. While several economists in the past have admonished the companies practicing CSR, calling such companies philanthropists giving away the shareholder's money, several examples can be cited of late that prove that companies NOT practicing CSR actually stand to lose in the long run. For example, Enron faces bankruptcy now; Shell is involved in an internal turmoil even as it also faces strong opposition in Nigeria; Beyond Petroleum (BP) faces huge penalties and immense stock market losses -- all because these companies were more focussed on increasing the profits, even at the cost of sustainability, thus inducing irresponsible corporate behaviour (Rang, 2013).
Unlike the common misconception that companies voluntarily opt for CSR, the fact is that they are being forced to follow CSR in order to prosper and grow. It has been found by the Grant Thornton International Business Report that for almost 65% of the private firms, recruitment and retention pressure make them adopt the CSR policies. The chart (a) below explains the key drivers that make any company adopt CSR.
Similarly, according to Jeanne Meister (2012), recruitments make for a very important facet of CSR. The author opines that more and more employees these days are becoming aware of the CSR and want to associate themselves with companies practising CSR as these companies "offer more than pay checks." As mentioned in the chart (b) below (sourced from forbes.com), more and more young stars wanted to take positions in organisations offering them scope for making an impact.
With down-sizing and the need for employees to multi-task efficiently, companies are now realising that recruiting and retaining brightest of employees is extremely important. In such a scenario, therefore, the CSR policies of the company become the attraction for such bright recruits (Hindle, et al., 2009).
In the beginning of the recession, economists, guffawing the idea of CSR, predicted that companies will now cut down on their spending for CSR marginally. Even though some cuts were made indeed, what came out was surprising for these economists. Most companies actually found that going the CSR way helped them cut down their costs of operation. Referring back to chart (a), one can find that 63% of the companies find cost management as the key driver for adopting CSR services. For example, Gap decided to hold tele-meetings across the world instead of having executives from 20 nations travel to the headquarters and hence saving on the carbon footprint that would have otherwise spent in flying these executives (The Economist, 2009). Apart from the environmental factor, this step also saved them money.
The scope for CSR has been highlighted by the fact that companies are now actually starting to advertise on the lines of CSR. It is now a common belief within the business community that CSR adds the firm's value and hence including the scope of CSR in the advertising campaign helps enhance the company's sales (Servaes and Tamayo, 2013). One of the most recent examples of this is that of Levis Strauss. Its new ad campaign titled: "8 bottles. 1 jean. Waste<Less" -- has been creating waves amongst the consumers (Levis.com, 2013). According to an interview given by Jonathan Kirby, Levi's VP, to The Guardian (2013), "Waste<Less is an attempt to begin a conversation by reducing waste." The ad created a furore in the market with everyone applauding Levis for making an effort towards sustainability. Such is the power of CSR in the world today.
While all of this looks good, we cannot neglect to say nothing about the scope of shareholders with respect to CSR. It has been a common thought that shareholders are the people who make it most difficult, in order to maximise profits, for the managers to implement social responsibilities. Nevertheless, recent studies have brought to light that most proposals submitted by the shareholders to the management actually constitute social issues (Glac, 2010). Further, according to Hillman and Keim (2001), "stakeholder management may be complementary to shareholder value creation and may indeed provide a basis for competitive advantage as important resources and capabilities may be created that differentiate a firm from competitors." Thus, it may suffice to say that shareholders do not, necessarily, lose out on their share of profits if the firm indulges in active CSR.
Reference List
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Grant Thornton, 2008. Corporate Social Responsibility- a necessity, not a choice. [Press Release] February 2009. Available at:< https://www.gti.org/Press-releases/IBR-CSR.asp> [Accessed 17 April 2014].
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