In addition to profitability, consumers now expect companies to be socially responsible. The main categories of corporate social responsibility include environmental efforts, philanthropy, ethical labor practices, and volunteerism. Managers who wish to create shared value for stakeholders, and thus make their companies thrive, are socially responsible.
To please consumers, many companies now practice corporate social responsibility. Corporate social responsibility (CSR), also known as corporate citizenship, is a business concept in which social and environmental concerns are integrated into a company’s operations. CSR consists of obligations beyond those required by law or union contract. This definition makes two important points. First, CSR is voluntary. Beneficial action required by law, such as cleaning up factories that are polluting air and water, is not voluntary. Second, the obligations of corporate social responsibility are broad. They extend beyond investors in the company to include workers, suppliers, consumers, communities, and society at large.
The aim of CSR is to increase long-term profits and shareholder trust through positive public relations and high ethical standards to reduce business and legal risk by taking responsibility for corporate actions. It isn’t enough for companies to generate a profit and merely meet the letter of the law in their business operations. Today, many U.S. citizens expect them to generate a profit and conduct themselves in an ethical and socially responsible manner.
CSR strategies encourage the company to make a positive impact on the environment and stakeholders—that is, all of the parties who have a stake in the performance and output of the corporation. Stakeholders include the company’s employees, unions, investors, suppliers, consumers, local and national governments, and communities that may be affected by corporate activities such as construction, manufacturing, and pollution. For some companies, CSR means manufacturing their products in a way that doesn’t harm the environment and protects the consumer from potentially hazardous materials.
Whole Foods Market CEO John Mackey refers to CSR as conscious capitalism, in which businesses “serve the interests of all major stakeholders—customers, employees, investors, communities, suppliers, and the environment.”1Mackey, J., & Sisodia, R. (2014). Conscious capitalism: liberating the heroic spirit of business. Boston, MA: Harvard Business Review Press. Mackey witnessed the benefits of conscious capitalism when a Whole Foods Market store was terribly affected by a flood. Unexpectedly, customers and neighbors helped, employees worked for free, suppliers resupplied products on credit, and its bank loaned it money to restock. The Whole Foods store was able to reopen 28 days after the flood.
Demands for Corporate Social Responsibility
There are several drivers pushing businesses toward corporate social responsibility include the following:
Increased Pressure from Consumers
Consumers are demanding more from the businesses that get their hard-earned money. Businesses that are perceived as valuing more than the “bottom line” are gaining favor with the buying public. Consumers—especially those in North America—are likely to vote with their wallets against companies whose social and environmental performance is poor. Fifty-five percent of North American consumers reported that they would pay more for companies who behaved more responsibly.2Hayzlett, Jeffrey. “Why Should Your Business Care About Social Responsibility?” Entrepreneur. October 10, 2016. Accessed February 27, 2019.
Pressure from Shareholders and Investors
Although not a new concept, Socially Responsible Investing (SRI) has seen increased attention over the last several decades. In fact, investors have become more active in their demands of corporations in which they have holdings. Investor activities to move these organizations to a more responsible position have had fairly good results.
In a 2017 study, Barko, Cremers, and Renneboog measure the effect of investor activism on corporate performance. A global dataset of 660 companies were profiled in the study by market share, analyst coverage, stock returns, and liquidity. Not surprisingly, over the ten-year study the Environmental, Social, and Governance (ESG) rating of the companies targeted by activist investors showed improvement in those ratings after the engagement with those investors, versus non-targeted “matched firms.”3Barko, Tamas, Martijn Cremers, and Luc Renneboog. “Shareholder Engagement on Environmental, Social, and Governance Performance.” Finance Working Paper N° 509/2017, 2017. Accessed June 10, 2019. .
Supply-Chain Pressure
As consumers pay closer attention to the social responsibility of retailers and service providers, visibility into their supply chains has also become a priority. For example, Apple has come under scrutiny and criticism for the poor working conditions and environmental hazards taking place at assembly facilities in China. Even though these facilities are outside of the U.S. and are separate corporate entities, Apple has spent considerable corporate resources defending its reliance on such suppliers. Other companies such as the Swedish international retailer of furniture and household goods are taking a proactive approach to CSR both internally and within the supply chain. A visit to the IKEA website allows consumers and interested parties to view the company’s sustainability reports and their policy on “People and Planet.”
Regardless of where the pressure originates, companies are finding that ignoring their social and environmental responsibility and impact is ultimately bad for business. Not all companies approach CSR in the same way. Their approach depends upon their resources, available assets, and corporate culture. In addition, some companies perceive more benefit from one type of CSR than another. The personal beliefs and priorities of senior management/ownership can also influence the company’s approach to social responsibility. Below are some different approaches to CSR:
Corporate Philanthropy
Corporate philanthropy refers to a corporation’s gifts to charitable organizations. There is an implication that the corporation’s donations have no strings attached, which is probably quite rare. At a minimum, most corporations expect that their donations will be publicly attributed to the corporation, thus generating positive public relations. When corporations make large cash gifts to universities or museums, they are usually rewarded with a plaque or with a building or library named after the donor. Such attributions burnish the corporation’s public image, and in such cases we are not dealing with true corporate philanthropy, strictly speaking, but something more in the nature of marketing or public relations.
Many companies practice CSR by donating to various charities, starting charitable programs, and offering scholarships to underprivileged students wanting to attend college. Nu Skin, a personal-care company, developed a charity called Nourish the Children, which allows leaders, employees, and customers to donate nutrient-rich meals to children around the world. From 2002, when the program began, to 2017, people had donated more than 500 million meals through the program.4“Why Nourish the Children?” Nu Skin, accessed July 29, 2017,
Cause-Related Marketing
Cause-related marketing (CRM) refers to a corporation’s associating the sales of its products to a program of donations or support for a charitable or civic organization. An example is provided by the famous Red campaign, in which corporations such as Nike and Gap pledged to contribute profits from the sale of certain red-colored products to a program for African development and alleviation of AIDS-related social problems. The basic idea of cause-related marketing is that the corporation markets its brand at the same time that it promotes awareness of the given social problem or civic organization that addresses the social problem. Another well-known example is the pink ribbon symbol that promotes breast-cancer awareness and is used prominently in the marketing of special lines of products by many corporations, such as Estée Lauder, Avon, New Balance, and Self Magazine. In addition to marketing products with the pink-ribbon symbol, Estée Lauder has made support for breast cancer awareness one of the defining features of its corporate philanthropy. Thus, Estée Lauder also frequently refers to such charitable contributions, currently on the order of $150 million, in its corporate communications and public relations documents.
Environment & Sustainability
Sustainability has become such an important concept that it is frequently used interchangeably with CSR. Indeed, for some companies it seems that CSR is sustainability. This is perhaps not surprising, given the growing media attention on issues related to sustainability.
Sustainability is a concept derived from environmentalism; it originally referred to the ability of a society or company to continue to operate without compromising the planet’s environmental condition in the future. In other words, a sustainable corporation is one that can sustain its current activities without adding to the world’s environmental problems. Sustainability is therefore a very challenging goal, and many environmentalists maintain that no corporation today operates sustainably, since all use energy (leading to the gradual depletion of fossil fuels while emitting greenhouse gases) and all produce waste products like garbage and industrial chemicals. Whether or not true sustainability will be attainable anytime in the near future, the development and promotion of sustainability strategies has become virtually an obsession of most large corporations today, as their websites will attest in their inevitable reference to the corporation’s sincere commitment to sustainability and responsible environmental practices.
Companies can have a large carbon footprint on the environment, which is the amount of greenhouse gases, especially carbon dioxide, emitted by an individual, organization, process, event, structure, or product. The carbon footprints of companies vary greatly depending on business operations, their size, and their location. Any action taken to reduce a carbon footprint is considered beneficial for the environment. These efforts have included minimizing the amount of land occupied or used, constructing/occupying energy-efficient buildings, planting trees in the rainforest, and using locally sourced products. For example, the Bingham Hotel outside of London sources as much food as possible from suppliers within a 10-mile radius and the rest of its food from the British Isles.5Manson, E. (2011, September 29). The Benefits of Local Sourcing. Retrieved September 19, 2017, from https://www.thecaterer.com/articles/340407/the-benefits-of-local-sourcing Purchasing locally sourced products supports local employment and reduces pollution by limiting the distances products must be transported.
Social Marketing
Social marketing refers to the use of business marketing techniques in the pursuit of social goals. Often, governments and nonprofit organizations make use of social marketing to make their points more forcefully and effectively to a wide audience. Classic examples are the extremely powerful TV commercials warning of the dangers of unsafe driving or of failing to use seat belts. Cinematic techniques are employed to portray dramatic, arresting images of crumpled cars and bodies, children and mothers crying. The source of social marketing advertisements is usually a local government or nonprofit organization. Social marketing is usually used to try to convince citizens to drive more safely, eat better, report child and domestic abuse, and avoid various forms of criminality and drug use.
Volunteerism
Many companies are encouraging volunteerism by incorporating it into their policies and establishing employee volunteer programs. For example, some companies make a donation to the charities their employees volunteer at, in the amount equivalent to the employees’ regular pay for the same number of hours volunteered. Other companies offer gift cards to employees who volunteer. Companies are finding creative ways to encourage and reward the volunteerism of employees not only to help society and the environment but also so that consumers and stakeholders will perceive them as socially responsible.
CSR and Economic Performance
While CSR is positive for companies, there’s no guarantee that a company will see an increase in profits due to CSR. More important than profitability, consumers and stakeholders expect the triple bottom line—profit, people, planet—of companies to improve and be set high. Companies that meet these expectations can reap the benefits of a positive reputation. Their positive reputation cycles back to improve their triple bottom line. Engaging in socially responsible activities is a win-win-win situation for stakeholders, the environment, and companies.
Research on the relationship between firm value and CSR presents strong evidence that CSR activities enhance a firm’s value. Various studies have found benefits in operating efficiency, product market gains, attracting highly qualified personnel, employee productivity, capital market execution, risk management, and earnings quality. In aggregate, the studies recommend strategic CSR, not just doing good. Strategic CSR means activities that support company goals or enhance the company’s reputation.6Malik, Mahfuja. “Value-Enhancing Capabilities of CSR: A Brief Review of Contemporary Literature.” Journal of Business Ethics (Jan. 2014) 127: 419-438; Hernández-Murillo, Rubén & J. Martinek, Christopher. “Corporate Social Responsibility Can Be Profitable.” The Regional Economist (2009) 4-5. Retrieved August 28, 2017, from https://www.stlouisfed.org/publications/regional-economist/april-2009/corporate-social-responsibility-can-be-profitable.
Management 2020 text remixed from multiple sources under a CC Attribution-NonCommercial-ShareAlike 4.0 International License. View a complete list of original sources.
