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Tuesday, 16 September 2014

Corporate Social Responsibility 2008

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Most people do not derive pleasure from harming those around them. The same is true of most businesses. There are, of course, some that derive their profits directly from morally questionable pursuits, such as arms trading. But many more companies incur the wrath of a new generation of ethically activist investors and consumers for actions that are peripheral to their core business: factories that pollute rivers; manufacturers that employ underage workers or do not provide safe working conditions; or power companies that emit excessive greenhouse gases – or leave a legacy of radioactive waste for future generations to deal with.

This gives some indication of the breadth of issues that make a home under the corporate social responsibility umbrella. As no two moral compasses are the same, neither is there an accepted code of practice constituting good CSR. Inevitably, business practices that are unacceptable to some are entirely justifiable to others.

In the past few years it has become increasingly clear that the market is beginning to attribute a cost to corporate irresponsibility. A small but seemingly growing number of consumers are interested in the behaviour of a company as a factor in the decision as to whether or not to give it their custom. The same is true of investors. If the trend continues on its current trajectory, the market will decide which values constitute good CSR, and companies that are not in compliance will take a hit in their bottom line.

The danger is the scope for spin. Many companies are already spending more time projecting an image of responsibility than they are acting responsibly. What is the point in spending extra money disposing of waste responsibly if nobody hears about it?

Some have concluded that good CSR transcends these decisions and, taken to its logical conclusion, makes for more profitable businesses – though often the view on the P&L needs to be longer term for this to be evident. Therefore, not only are financial and social considerations not necessarily contradictory but, over the mid- to long-term, they are likely to be in alignment: responsible disposal of waste saves later clean-up costs; happier workforces are more productive; and renewable energy, when the infrastructure is in place, should be cheaper and suffer less price volatility.

So goes the argument of CSR’s supporters. Some detractors will argue this is an oversimplification. Certainly, if the financial sense of acting on these concerns was that obvious, it would not take consumer or investor activism to motivate company managers to act.

Many more people will dismiss CSR as a subsidiary concern, for which there is no time in today’s hopeless economic circumstances. Many see recent events as evidence there is something rotten at the heart of consumerist capitalism, and believe now is the perfect time to elevate social considerations in business decisions to avoid repeating the same mistakes. From a populist perspective this can be seen as part of the broader campaign of those who cite executive pay and corporate greed as the chief causes for the current crisis.

Yet this is a more specific issue, and in fact is separate from the issue of retaining the services of the most talented managers. Ultimately it is about whether environmental and humanitarian concerns should be regarded as of equal importance to maximising shareholder value.

There are those who believe the system does not need wholesale changes. Those people might conclude CSR is less important than short term economic survival. In that case, now is not the time to be taking on extra cost for longer term gain.

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