Corporate social responsibility (CSR) helps organisations to conduct their business in a way that brings them benefits while also benefiting those who are affected by their activities – their many "stakeholders".
CSR has a number of strands: economic, environmental and ethical as well as social. The word "social" is sometimes dropped, leading to CR for corporate responsibility, but the scope remains the same. There are other terms too; all imply a duty or compliance focus. But corporate social responsibility is also about creating opportunities for business in new socially aware markets.
A business needs to satisfy investors of capital, but companies are not just profit-making vessels for shareholders. They have other responsibilities. These include treating employees with respect, limiting damage to the environment, and acting with integrity towards customers. This formula is good for the business and its investors, as well as for society.
Who are the stakeholders?
Stakeholders are any interest group with a direct or indirect stake in the business. They may affect, or be affected by, business operations – i.e. they may either contribute to the success of the business or be impacted (often negatively) by the way the business conducts its trade. The basic list of stakeholders includes:
- investors
- employees
- customers
- suppliers
- the wider community.
Beyond this core group, any particular business will have a wider list of stakeholders. They might include:
- industry regulators
- local media
- retired staff in receipt of a company pension.
All have an interest in how the company behaves. The needs and the potential contribution of such groups are worthy of a company's thoughtful analysis and engagement. Some stakeholders may have their interests represented by pressure groups or other representatives.
Is corporate social responsibility a new idea?
The term is relatively new in management circles, but many of the underpinning ideas and elements have been around for a long time without being called CSR. Making philanthropic donations to charitable causes, for example, has a long tradition. Other elements, such as employee health and safety and fully transparent financial reporting, are well understood and enshrined in law, if not always practised.
What is new is a shift away from a narrow focus on how a company spends its money for social benefit (e.g. making donations) in favour of how a company earns its money (e.g. not exploiting the planet's scarce resources). This switch places greater emphasis on the quality of all the relationships that are relevant to how you do business, and highlights shared interests. Hence CSR talks about stakeholders, "win-win" and "inclusive" relationships.
What are the social and environmental issues?
Examples of social issues are:
- caring for employees' wellbeing
- having equitable pay differentials
- using clear food labelling
- paying suppliers on time
- not using "sweat shops" (directly or in the supply chain)
- not exploiting indigenous peoples when operating overseas
- respecting human rights
- generally behaving honourably.
Environmental issues include concern for the polluting effect of business on the surrounding community, business's contribution to global warming, and the need to use nature's finite resources with care.
Is this agenda good for business?
Most observers believe the CSR trend is inevitable and in the long-term interest of a secure and sustainable planet. Indeed, there is the suggestion that companies that do not operate responsibly will not only find it difficult to recruit employees and gain new customers, but may also lose their informal "licence to operate". Certainly the tide of social conscience, business ethics and company law and regulation is running powerfully in a direction that embraces CSR as a modern business imperative.
How does this relate to corporate governance?
Corporate governance is a closely related concept that has also been undergoing redefinition and renaissance. Once regarded as a narrow discipline concerned with esoteric constitutional processes at board level, this term has now broadened to embrace the corporate responsibility agenda. This includes the view that the modern board is responsible for a "triple bottom line", managing the business in a way that is mindful of environmental sustainability and social justice while pursuing economic prosperity.
How does CSR link to sustainable development?
Sustainable development is a phrase that is frequently associated with corporate social responsibility. The two terms share many similar objectives; both seek to integrate and balance economic, environmental, ethical and social considerations in decision making and promote good governance and accountability structures.
However, CSR is particularly concerned with encouraging responsible behaviour in all aspects of business practice, while sustainable development particularly focuses on "meeting the needs of the present without compromising the ability of future generations to meet their own needs". Such sustainable practices should, at the same time, enable the business to sustain itself.
What are the potential benefits of CSR?
- Reputation. A well-regarded business benefits
from the goodwill generated in those with whom it interacts and on
whom it depends – present and potential customers,
employees and suppliers, local neighbourhood, planning authorities,
etc. A positive and trustful image helps to keep critics at bay,
supports a business's implicit "licence to operate",
and makes it easier to find sources of funding. This is an
inexpensive form of advertising.
- Gaining and retaining customers. Socially
aware and concerned customers are increasingly attracted by the
ethical reputation of the company at local, national and
international level. For example, the behaviour of companies in
relation to the sourcing of goods can influence their purchasing
decisions. There is an expanding market for products and services
run by socially and ethically responsible companies.
- Cost savings. Companies can cut costs and make
savings from reduced use of heating, lighting, transport, paper and
photocopying, and more efficient production methods.
The reputation of an ethical culture can reduce staff turnover and cut the cost of staff recruitment and retraining. It makes it easier to attract candidates when there are vacancies.
A strong ethos of honesty and integrity can reduce insurance premiums, employee theft, absenteeism and a host of bad practices that cut into the company's bottom line.
- Innovation in products and operations. Meeting
with the wider community, including schoolchildren, can bring new
energy and freshness and provide the company with valuable new
product ideas and suggestions for improving efficiency.
- Staff development. Work with a local school or
community centre can provide many opportunities –
typically at low cost – for an organisation to develop
staff's business and personal skills such as creativity,
problem solving, communication and project management. Encouraging
staff to work with people outside the organisation can help build
their self-confidence and their capacity to act innovatively, as
well as demonstrate their future potential to undertake more senior
leadership roles.
- Energy, enthusiasm and openness. A positive
company culture is an important asset for any company. It helps
determine the general morale of the workplace, how customers are
looked after and the way staff respond to pressure for change. A
concern for all stakeholders and ethical conduct can bring
openness, energy and excitement to the workplace and build
cooperation and team working.
- Supplier contracts. Adopting CSR policies and practices can enable potential supplier companies to satisfy the increasingly stringent terms and conditions specified for tendering for public sector contracts.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
