Corporate social responsibility: what’s it worth?

Although corporate social responsibility (CSR) is often seen simply as philanthropy by a different name, it is more broadly defined as how companies manage their business processes to produce a positive impact on society.

Once the preserve of do-gooders such as ice-cream makers Ben and Jerry and ethical toiletries pioneer The Body Shop, CSR has made it into the mainstream. But while many companies – and their HR departments – have been quick to jump on to the CSR bandwagon, questions remain about how and why they are using it; whether it is an outdated feel-good concept that shouldn’t survive the recession.

The cynics among us will argue that CSR has been hijacked by the corporates.

Marketing tool

Anja Schaefer, senior lecturer in management at the Open University Business School, highlights a particularly cynical viewpoint. “Unfortunately for many big commercial organisations CSR has become just another marketing tactic, making many people wary of the genuineness of it,” she says.

As she explains, CSR can easily be used as a way of deflecting criticisms. Consider British American Tobacco, which was attacked after it won a United Nations Environment Programme/Sustainability reporting award for its annual social report in 2004.

“A sceptic might question why a tobacco company, given the massive damage its products inflict, should be rewarded for its otherwise socially responsible behaviour,” says Deborah Doane, campaigner on CSR and global sustainability, guest lecturer on CSR at the London School of Economics, and author of The Myth of CSR.

And there are reasons for questioning the value of CSR. Often, for example, the unintended consequences of good behaviour are negative. McDonald’s’ decision to sell apples (designed to tackle obesity challenges back in 2005) actually led to a loss of biodiversity in apple production, according to Guardian journalist Gary Younge, because the corporation insisted on uniformity and longevity in the type of apple they buy – hardly a positive outcome for sustainability.

The bottom line

Meanwhile, others argue that CSR is a weak, misguided and ineffective concept simply because companies’ primary purpose is to make money. So unless an organisation’s socially responsible efforts are a genuine attempt to create more profit (for example, Toyota is pushing the market towards more efficient cars) they will be of little value to anyone.

According to this argument, if you suggest that companies should focus on more than just profit and should care about things like the community and the environment, you are as good as admitting that these extra things don’t generate profit, which almost certainly means they’ll be the first ideas dropped when the going gets tough.

“When you observe the speed and scale of the reductions in corporate giving since the beginning of the credit crunch, you can draw your own conclusions about how seriously some companies take it,” says Adam Nichols, chief executive of young people’s charity Changemakers.

Downturn in volunteering

Caroline Clark, assistant director at Spitalfield Crypt Trust – which, because of where it’s based, tends to attract interest from many City firms – has seen a drop in the number of volunteers since the recession kicked in.

Clark points out a further sticky area for CSR – the fact that corporate involvement can be more trouble than its worth for charities. “You have to make it a positive experience for the volunteers: they need to enjoy their day and feel they are needed. It takes people with certain skills to manage that and if they don’t exist within your charity the project can wind up a failure – especially if this is coupled with a badly organised CSR initiative from the company’s end”.

Even when CSR appears to be a success all round, many claim there’s little, if any, empirical evidence that it actually benefits companies. “It’s not an easy thing to measure,” admits Ben Davies, director of membership relations at CSR Europe. “That has been the perennial problem with CSR. Simplistically, you can look at things like the cost of recycling, but beyond that it can be difficult.”

Faith rewarded

Yet most large companies, and many smaller ones, claim to be firmly committed to CSR.

An increasing number produce a social and environmental report alongside their annual financial report, and the amount of money ploughed into socially responsible initiatives has been growing exponentially. Furthermore, a number of studies suggest that the recession may not have put a stop to it, as the cynics claim.

The Kenexa Green Business Study recently found that UK companies are continuing to practice eco-friendly behaviour. Meanwhile, the latest Towers Perrin Global Workforce Study found that the economic downturn has not shifted CSR from the business agenda.

So why do companies bother with CSR, and is it really of any value?

Management consultancy Krauthammer has just published a survey on CSR, which argues that it is valuable, not least because employees demand it.

“Sixty-four per cent said they recycle at home, for example, and they expect the workplace to be a natural extension of that,” says Steffi Gande, who heads Krauthammer’s research department. She adds that consumers, clients and investors feel the same. “There are purchasing shifts towards products and services whose supply chains measure up.”

Krauthammer’s survey also found that CSR can attract and retain talent, with new entrants to the workforce and younger people being particularly positively influenced. And perhaps most interestingly, the survey concludes that CSR holds the key to the current economic crisis.

“The focus on financial incentives for consumers and corporates alike, a lack of regulation in many markets, and a general ‘shortermism’ are at the root of much of our current problems. Longer-term systematic approaches to CSR – involving all relevant actors – will be vital,” says Gande.

Supporting statistics

Research by Business in the Community (BITC) suggests there is a clear statistical link between effective management and governance of environmental and social issues and financial performance. Indeed, it revealed that FTSE companies that actively managed and measured CSR issues outperformed the FTSE 350 on total shareholder return by between 3.3% and 7.7% throughout the period from 2002 to 2007. “The evidence that companies with CSR performed better is compelling,” says BITC’s chief executive Steven Howard.

Rosanna Farrar, who responsible for CSR at insurance company Mondial, has no doubt about its impact on the bottom line.

“Annualised short-term absence dropped from 3.76 days in 2007 to 3.17 days in 2008. Meanwhile, annualised staff turnover dropped from 22.68% to 17.6%. We’ve also found our CSR has had an effect on morale, particularly at the moment,” she says.

Measurable effects

BT, which has also had a longstanding CSR programme, agrees the impact of CSR is measurable, with its latest survey showing that 66% of BT people say they feel proud to work for BT as a result of CSR activities. The company also claims CSR has measurable benefits in terms of investor confidence and operational efficiencies. From 2004 to 2008, for example, BT says it avoided costs totalling £365m as a result of environmental programmes.

Then there’s the upskilling of staff, says Isabel Naidoo, who is responsible for talent and citizenship at consultants Accenture – whose CSR programme includes a close partnership with the Prince’s Trust. “Embedding CSR into our career development, which we do hand-in-hand with HR, really pays off for us,” she says.

Naidoo makes no apology for the fact that part of Accenture’s motive for pursuing CSR is improving its brand image. “I feel CSR should benefit your brand, alongside all the other benefits,” she says.

Nicely Nike

In fact, while it would be easy to be cynical about how companies like Nike turned to CSR as a brand-improvement strategy to deal with the boycott threats they faced in the 1990s, its CSR strategies actually wound up provoking impressive changes.

“Nike is now considered by many to be the global leader when it comes to improving labour standards in developing-country factories. The company now leads the way in transparency too,” says Doane.

Many charities also claim to benefit enormously from CSR. “At Macmillan, we have a dedicated corporate partnerships team who work to develop our partnerships,” says Eve Bazely, corporate account management leader at the cancer charity. “As well as delivering essential income, our corporate partnerships often provide us with a cost-free presence on the high street as well as access to huge audiences through staff and customer communications, which help to raise awareness of Macmillan and signpost to services.”

Louise Parkes, Age Concern and Help the Aged head of corporate, events, trusts and statutory, agrees, although she adds: “We have found that CSR policies among companies vary considerably. The relationships that work the best are those where a company and a charity can strategically align their aims and objectives for a mutually beneficial partnership.”

Mutual benefits

Despite Spitalfield Crypt Trust’s difficulties in forging corporate relationships, Clark agrees that when the partnerships work well, they are invaluable. “Through experience, we’ve created partnerships with City firms that are incredibly mutually beneficial. We would not be without them,” she says.

Nevertheless, says Schaefer, “One thing is certain – if there ever came a point when the general business consensus was that CSR must come before everything else, this would automatically breed resistance. First and foremost businesses need to make money. If businesses are overloaded with all these additional obligations and didn’t make money, the common voice would chant that this is no way to run an economy.”

CSR: The legal position

While there is no strict legal requirement for companies to get involved in CSR, Clare Grayston, partner at Nabarro LLP, points out that under the Companies Act 2006, directors have to have regard not only to the interests of the stakeholders, but the likely consequences of any decision in the long-term; the interests of the company’s employees; the need to foster the company’s relationship with suppliers, customers and others; and the impact of the company’s operations on the community and the environment.

“It definitely picks up on the core strands of CSR,” she says.

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