By Business & Finance 
Brian O’Neill shares his thoughts on why CSR is more than a fashionable marketing support and why it can create long-term value for an organisation.
Brian O’Neill
In 1970, the famous economist Milton Friedman argued in The New York Times that the sole responsibility of business is to increase profits and shareholder value. In the period since then, the developed world has witnessed an increased level and degree of economic volatility. So meeting these narrow objectives on a long-term sustainable basis has become more challenging for companies, or if achievable has led to compromises in business or ethical standards in order to do so.
Since the 1980s companies have embraced the necessity to broaden their range of strategic objectives but still include profit and shareholder value. All forms of organisations are now trying to ensure that they meet the requirements of the full range of their stakeholders, and are declaring publicly that they are accountable for delivering on broader social responsibilities.
Corporate Social Responsibility (CSR) and sustainability are concepts that have become more familiar within all organisations over the last 30 years. But the profile and importance attached to these concepts has risen significantly in the last five years due to the impact of the global financial crisis. In particular, the severe financial difficulties experienced as a result of the banks and other financial services providers, raised questions about the viability of business models focused exclusively on short-term profit and shareholder value.
Critics of the corporate capitalist model promoted by Friedman highlighted that a focus on delivering short-term shareholder value to the exclusion of all other stakeholders interests was a catalyst for the excessive risks taken by some banks in the period leading up to 2007. This was considered to have exacerbated the difficulties encountered by banks and financial services providers from 2007 on. The outcome was a significant loss of trust in financial services providers, who were not perceived to be acting in the best interests of all stakeholders.
CSR is here to stay not as a label or management phrase but as an improved set of principles and practices.”
Embracing CSR
The adoption of CSR and sustainable principles by organisations since 2008 was seen as an obvious way of restoring this lost trust and reorientating organisations in difficulty to ensure they were demonstrably meeting the requirements of all stakeholders. Those who have fully embraced CSR in recent years argue that it was an opportunity to create a more sustainable business model by focusing on long-term value creation – both financial and non-financial. Many proponents also argue that short-term financial performance does not have to be compromised to deliver on their broader long-term objectives. Proponents also contend that socially responsible and sustainability programmes can deliver commercial benefits in addition to reputational and brand benefits. They argue that to do so, social responsibility and sustainability needs to be fully embedded into a company’s value and service proposition. This is required to meet the greater demands of consumers who have become more discerning as to who they are going to buy from and why. The negative publicity surrounding certain clothes retailers who sourced products from factories employing underage workers in third world countries is one example where consumers have demonstrated that these issues do matter. Marks & Spencer has been able to establish its ethical sourcing and manufacturing policies as competitive advantages for its target customers.
Social metrics
On the other hand, critics of CSR contend that its adoption by organisations or the current increase in prominence accorded to it is simply an expedient tactical measure to improve their corporate reputation and brand image. Critics support this view by contending that the majority of CSR programmes produce little if any commercial values.
They further argue that even where commercial and non-financial value is generated it is difficult to measure and quantify. This they argue undermines the investment case for allocating financial and human resources in an organisation to CSR programmes. Critics assert that CSR and sustainable programmes should at best be considered as a form of marketing, like sponsorship, that enhances brand awareness and corporate reputation.
The case against CSR is that the value created is too long-term or indirect to measure, and that the metrics available to measure value creation are not robust. The case against is assisted by a wide divergence in the definition and application of the terms ‘social responsibility’ and ‘sustainability’. This leads to a broad interpretation as to what falls within the scope of CSR and sustainability programmes. This can lead to challenges in agreeing how value is created or how to benchmark CSR-related value creation across different sectors and companies which is a pre requisite for all organisations.
Dual objectives
Arriving at a working practical definition of CSR can be achieved by thinking about its dual objectives which are not mutually exclusive —benefiting business and society which should and can be mutually beneficial.
For organisations taking CSR and sustainability principles seriously, activities involve far more than discreet philanthropic, charitable or environmental activities. CSR and sustainability should be at heart of the way a company does business – how it procures, manufactures, sells, how it treats its customers, staff and society as a whole – CSR and sustainability activities need to be integrated across all parts of the business.
Value added
Long-term value encompasses financial and non-financial value. Developing metrics and measurement processes can be achieved by using a balanced scorecard framework, a concept which has been used by businesses for over 30 years.
This includes profitability and other non-financial metrics including service, customer brand and reputational metrics. Non financial metrics are important to provide a more holistic measurement of the contribution of a company and its role in developing long and short-term value.
A fully integrated and effective CSR programme should contribute to the delivery of enhanced long-term financial shareholder value which may come at the expense of short-term financial value but this can demonstrate that an organisation has a sustainable long-term business model that is best positioned to survive cyclical recessions and downturns.
This means offering relevant products and services but ensuring there are no social or ethical compromises in sourcing, manufacturing, selling or servicing to customers and so minimal adverse societal impacts from products or services. The last point differs across sectors and different types of companies. Commercial success, including satisfied customers and an acknowledgment from society about the positive values and aims and contribution of the organisation are key. Consumers increasingly want to be associated with ethical and sustainable brands. The expectations from all types of organisations has also increased driven by the increased demands of governments, regulators and the media. The role of conventional media allied to the evolution of online channels – especially social media – has enabled consumers to scrutinise a company in much greater detail than before and to share their thoughts and concerns with the general publicly rapidly.
There are many examples of online campaigns successfully launched by consumers against companies whom they have perceived to have failed to deliver on their commitments. A cynical or tactical approach to CSR will be seen through and could backfire. Such is the power of social media and lack of regulation that false accusations can also rapidly gain traction. So organisations must ensure their approach to CSR is sincere and fully aligned across the business.
At the heart of business
CSR is not a convenient label for social principles – it is a policy and set of practices and that should be implemented fully across all parts of the business and should be explicitly recognised by suppliers, customers, distributors, customers, staff and society in their engagement with the company.
I believe CSR is here to stay not as a label or management phrase but as an improved set of principles and practices companies should adhere to for the benefit of all stakeholders and which should assist long-term value creation if adhered to in a successful business. That is why CSR is now at the heart of everything we now do in Friends First. We are still at an early stage of the process of implementing our programmes and activities and have some way to go to attain best practice and stay there, but we are very clear that there is no going back or alternative.
