Values for money: the rise of CSR

In the past, the notion of corporate social responsibility was seen as irrelevant to the imperatives of big business. Today, it is vital to the operations of any forward-thinking company, as Vision finds out

Should companies have any role in protecting people and the planet? Today, corporate social responsibility (CSR) is considered to be a vital function of any major company and is becoming an essential element of their value proposition. Milton Friedman was, on a fundamental level, right: businesses must act in their own self-interest to maximise profits. But what he missed was that societal benefits are a central aspect of a company’s self-interest.

The young talent and future leaders on which every business depends have deeply rooted social and environmental values and they demand these values be a part of their careers

The pivotal 2011 article Creating Shared Value by Michael E Porter and Mark R Kramer of Harvard University clearly articulates this paradigm shift: “Companies remain trapped in an outdated approach to value creation that has emerged over the past few decades. They continue to view value creation narrowly, optimising short-term financial performance in a bubble while missing the most important customer needs and ignoring the broader influences that determine their longer-term success. How else could companies overlook the well-being of their customers, the depletion of natural resources vital to their businesses, the viability of key suppliers, or the economic distress of the communities in which they produce and sell?”

CSR and profit

Most companies have yet to reach the enlightened perspective of merging CSR and the profit motive. The majority of today’s CSR programmes are focused on protecting and enhancing corporate reputation. But even in this nascent state, CSR has the potential to create substantial business value that is worthy of healthy competition. The Reputation Institute studied the aspects that make up a company’s reputation and concluded that 43 per cent is based on issues within the scope of CSR (citizenship, governance and workplace).

While monetising corporate reputation can be tricky, the valuation of a company’s brand is a good place to start. The global research company Millward Brown estimated the valuation of the world’s top brands in 2011, including Apple (US$153m), Google (US$111.5m), IBM (US$101m) and Microsoft (US$78.2m). If 43 per cent of a company’s reputation is based on CSR, and the top corporate brands are valued in the US$100bn range, then it is easy to see why companies compete over it.

Another major incentive is the changing values of the workforce. In 2009, PricewaterhouseCoopers published the results of a key global survey, Managing Tomorrow’s People: Millennials at Work – Perspectives of a New Generation. It looked at the issues that motivate the millennial generation (defined as those who entered the workforce after 1 July 2000) – in essence, the young talent and future leaders on which every business depends.

The study showed that this demographic has deeply rooted social and environmental values and that they demand these values be a part of their careers. According to the survey: “CSR is very important to millennials, with 88 per cent stating that they seek employers with social responsibility values that reflect their own, suggesting perhaps the growing importance of the issue. What is interesting is the very high number (86 per cent) who say they would consider leaving an employer whose social responsibility values no longer reflected their own.”

Net Impact published a more recent study called Talent Report: What Workers Want in 2012, which arrived at a similar conclusion: “Most people say that having a job that makes a social impact on the world is an important life goal. In fact, students say it is more important than having children, a prestigious career, being wealthy, or being a community leader, ranking only below financial security and marriage.”

Collaboration

These are all good reasons for companies to compete over and differentiate their CSR programmes, but there are also compelling motives for companies to collaborate over it. Take, for example, the Electronic Industry Citizenship Coalition (EICC), a coalition of the world’s leading electronics companies working together to improve efficiency and social, ethical, and environmental responsibility in the global supply chain.

When the initial group of companies that became the EICC was forming, the coalition looked at the exponential growth in the number of surveys and audits on CSR issues that were being conducted up and down the electronics value chain. It concluded that by collaborating over CSR, it could simplify the process and achieve goals more efficiently and effectively. It started by agreeing on a code of conduct, then added a suite of standardised tools and processes for implementing this code that are shared among all members. Companies in the Middle East have also started to collaborate over CSR.

“In 2005, CSR was mainly understood as community initiatives,” says Dr Fatih Mehmet Gul, Founding Director of CSR Middle East. “Today, we can see a wider approach in the market.”

A good example of this is the memorandum of cooperation signed this year between the Swedish Business Council (SBC) and the UAE-based Arabia CSR Network, which encourages both parties to “promote sustainability best practices in the region” and conduct initiatives and training around “corporate governance, transparency, sustainability reporting, CSR impact measurement, business ethics and environmental management”.

Torbjörn Bodin, the President of the SBC, commented on the importance of collaborating on CSR in the UAE. “The UAE ranks among the top business powers, particularly in the Arab world, which means a serious responsibility,” he said. “By sharing our experiences and knowledge, we are aiming to increase the awareness of CSR both as a normative concept and as a business strategy as well as a long-term sustainable economic growth plan.”

Whether companies compete, collaborate or a mix of both, the outcome is always the same: substantial benefits for society. And as companies get larger and their global reach expands, the benefits of “collaboration” on CSR will grow.

Instead of the drag on free enterprise that was forecast by Milton Friedman in 1970, competition and collaboration in CSR creates substantial returns for both business and society.