Skeptics have given business leaders plenty of reason not to care about corporate social responsibility (CSR). It’s undemocratic, they say, because it absolves government from defending the welfare of the commons. It’s naive because it fails to recognize that corporate financial self-interest reigns supreme. It’s illegal because the Canada Business Corporations Act requires directors and officers to put the corporation’s best interests before social responsibility. It’s greenwash. It’s yet another management fad that will go the way of the pet rock once business gets back to business.
Put your cynicism down, take a deep breath and back away from the table. Let’s take a second look. If you’ve been taking comfort from the skeptics while you wait for this trend to pass, you’re about to be left in the dust. CSR has been shaping a new business model for decades and promises to be a key platform of 21st-century business.
CSR is not a nebulous feel-good term that can be applied to any corporate act of goodwill. Put simply, it refers to the balanced integration of social and environmental factors in a firm’s operations and strategy.
The B.C. Business Council surveyed its corporate members last spring and found that 83 per cent consider CSR a priority. Most of them also believe it enhances their relationships with their communities, builds trust and improves their reputation, and improves their ability to recruit and retain employees. This interest is matched in the U.S., where over 500 executives surveyed in 2007 said they believe CSR programs have a positive impact on their business and help achieve their strategic goals.
I recently conducted a study for the Conference Board of Canada on the role of directors in considering the CSR performance of their firms. The study reveals that there is a global trend toward CSR integration in the boardroom, driven not only by increasing awareness of the CSR business case but significantly by pressure from institutional investors.
The numbers themselves reveal the merits of managing sources of risk and value that extend beyond the balance sheet: the Dow Jones Sustainability Index outperformed the market by five per cent over the past eight years, as tracked against the MSCI World Index, the benchmark for traditional global stock funds.
An increasing number of businesses are strategically managing their social and environmental performance, but that doesn’t mean that CSR proponents advocate absolving government of its various obligations. On the contrary, government regulation can level the playing field, providing further competitive advantage to leading firms. Indeed, firms often lobby government to resolve uncertainties hindering capital investment, as seen last year when the Canadian Council of Chief Executives called for government action on climate change to advance a stable and predictable policy regime.
Mounting concern over climate change in recent years has prompted unscrupulous companies to make spurious claims about their eco-sensitivity, and unfortunately CSR has been tarred with the same brush as these “greenwashers.” However, discerning customers will pillory firms unable to back up their claims, making empty promises of social responsibility a risky tactic. A key tenet of CSR is accountability and transparency, so while the public will quickly see through empty promises, a genuine commitment to CSR will be easy to verify.
It’s easy to check the facts: look for a firm’s commitment to dedicating resources and accountable staff to CSR. Look for a commitment from the CEO and directors, integration of CSR commitments into business plans and verified disclosure of nonfinancial performance.
Those with a superficial understanding of CSR will wind up skating on very thin objections, as CSR at its root is a new way of doing business. If these cynics are managing a business, they should probably not pursue a CSR program; it is best for serious managers who understand the profound tectonic shifts transforming the consumer and regulatory marketplace.
If the term “CSR” bothers you, drop it. But pay close attention to its fundamentals: it is all about sustainable value – and where corporate value meets social and environmental value, you can be certain it will create lasting economic value. B.C. business take heed.