Why Should We Value Corporate Social Responsibility?
Corporate social responsibility; The Debate
Corporate Social Responsibility (CSR) has recently become a strongly debated topic. Are businesses responsible for solving societal ills? Or should businesses merely maximize shareholder wealth? And what of government involvement? Should the free market reign free and unhindered? Or should there be legislative encouragement for social responsible practices? There is a lot of theory behind both sides of the argument, and thankfully today we have a lot of practical examples to pick on as well.
The concept of the Invisible Hand
The simplest argument for social responsibility is that it is the right thing to do. If corporations play a direct hand in many social ills such as pollution and poverty-level wages, then it is the ethical responsibility of business to correct these wrongs.
However, not all experts agree. Milton Friedman, an Economic Nobel Prize recipient, claimed that free markets should decide what is best for the world rather than companies. Friedman believed that a focus on discretionary social investments was improper for corporations. The goal of the corporation is solely to provide a return to shareholders. By focusing on external social responsibilities, the corporation is distracted from its sole purpose.
The concept of shareholder wealth maximization was introduced by Scottish philosopher Adam Smith, hailed as the Father of Economics. Adam Smith argued that the pursuit of profit ultimately promotes social welfare through the “invisible hand.” Smith illustrated that human nature made it far more likely for individuals to act out of self-interest than out of pure benevolence, and that self-interested actions ultimately benefit society.
Individual shareholders may freely give of their money to benefit society. Similarly, mission-driven firms, sole proprietorships, and partnerships are free to support social actions. However, using the money that shareholders have invested in a corporation to support unprofitable causes is clearly wrong. Therefore, businesses should make a profit, obey the law, act according to an ethical standard, and only pursue CSR activities that improve long-term shareholder wealth.
Smith reasoned that the firm helps society more when they further their own interest (profit) than when they deliberately seek society’s benefit. The steel magnate Andrew Carnegie said it best; ‘Do well in order to do good’.
Moral Credit, Cost saving and Recruitment Incentives
So what if a social responsibility becomes a marketable branding tool instead? There are many companies who claim to be eco-friendly, organic, or animal-testing free and have made CSR the focus of their overall business strategy. For instance, Ben and Jerry’s, who’s name is celebrated as essentially another synonym for ice cream, serve nothing but fair trade, GMO-free ingredients and were the first major employer in the State of Vermont to offer health insurance to employee’s domestic partners. By the way, that includes same-sex couples. They also developed a dairy farm sustainability program in their home state of Vermont. None of these initiatives have disadvantaged the company; in 2019 Ben and Jerry’s was the top selling ice cream brand in the United States with a revenue of $681.5 million.
This is just one example, but it proves the point that consumers who are passionate about environmentally responsible business practices are becoming more and more common.
Being socially responsible is believed by some to damage a company in the global marketplace. Cleaning up the environment, ensuring product safety, and donating money or time for welfare issues all raise company costs. In the end, this cost will be passed on to the consumer through the final prices of the product or service. Indeed, this is the argument Amazon makes when faced with controversy on its back-breaking, low wages. While some customers may be willing to pay more for a product from a company that is socially responsible, others might not be. This can place a company at an economic disadvantage. For a corporation like Amazon, where profit margins for each product can be very low, having a high volume of sales can be paramount.
Companies should become aware that any CSR contribution is not an automatic loss. It doesn’t just build up moral credit with your target audience, it can also aid your own organization to save money by challenging growth through innovation. For example, in 2011, General Mills released a CSR report that showed their plan to reduce its energy by 20% by 2015. They planned to install energy monitoring meters on several pieces of equipment at its Covington, Ga. Plant. This resulted in a $600,000 save on energy costs, on top of an increased brand perception.
Furthermore, according to calculations by Carbon Trust, that when you save £1 on energy it is equal to £10 worth of sales to generate the same £1 of profit. This means that if your business is wasting £1,000 due to poor energy management, you would need to make £10,000 in sales to earn the equivalent £1,000 in profit. The benefit of proper energy management is not only the you money will save on your actual energy bill, but your business may also be eligible for policy-related deductions if you are shown to be taking steps to use energy more efficiently, such as reduced Climate Change Levy (CCL) fees.
However, corporations are not the only ones who lead the change, and we shouldn’t put the onus solely on them. It is also up to governments to create new enforceable regulations which set the playing field for all businesses. Good regulations can act as a catalyst for change by encouraging innovation and actively discouraging damaging business practices. This has especially been the case for regulation in the energy and automobile sectors. Many countries in Europe are on their way to a completely renewable electric grid while also offering interest-free loans to buyers of electric or hybrid cars.
CSR can be a great way for a company to build positive public relations and attract top talent in the industry. The best way for companies to demonstrate such impact is by showing their support for initiatives that put workers front and centre. Some CSR approaches that re driven by employee and worker rights include; the Accord on Fire and Building Safety in Bangladesh or the Coalition of Immokalee Workers’ Fair Food Program These approaches have had a demonstrated track record of delivering results for both workers and brands. Moreover, such worker led initiatives boost employee satisfaction within the organisation, and this can have knock-on effects for creating a better company culture and increasing performance.
CSR- What keeps us Human
More often than not, the apt motto, penned by Charles Dickens, of ‘a little goes a long way’ fits perfectly. It does not take much to make improvements, small steps lead to big victories, especially in the arena of public opinion.
A fine example of this is how Tesco recently raised their esteem in the public eye, with a simple addition of a hidden message on their receipts. They publicly endorsed the fight against domestic violence by leaving the contact details of the National Domestic Abuse helpline and apps. Domestic Abuse affects the lives of one in three women and one in six men during their lifetime. This approach cost Tesco nothing, but showed a huge positive outcome in raising their brand image and gained them the approval of the social media netizens.
Now, more than ever, to be seen standing in support by your fellow man is crucial, but to take action and show real effort to change the world for the better? That is doing your duty to your fellow human. A duty that often gets put aside in the corporate game of wealth maximizations and profit margins.
In that respect, CSR strategies help companies fulfil their duties. Scientist claim that in 12 short years we will face a global warming crisis, that we are currently unprepared for. Yet waste management, energy costs and utility are all things within a company’s control. The social change that a company invests in comes around by benefiting society as a whole, and thus raising customer buying power. There are many cost-effective and even profitable systems of change that founders and their companies can incorporate in order to contribute to the betterment of the society. Through your actions, you build the world you want to see. So go out there and shop from responsible organisation, encourage CSR initiatives within your organisation, and lets all benefit from a more humane world.
Written by Waad Asker
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Web energy management software that connects with smart meters, sensors, and business data to provide needed analytics so your business is energy efficient.
Analytical engineering solution company specializing in the simulation, design, monitoring, control, operator training, optimizing, and automating power systems. They offer an intelligent energy management software control system is designed to reduce energy consumption, improve the utilization of the system, increase reliability, predict electrical system performance, and optimize energy usage to reduce cost.
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