Corporate Social Responsibility Efforts: Succor or Sucker?

Stephen DeAngelis

October 29, 2020

One of the characteristics associated with members of younger generations is their commitment to social causes. Journalist Nicole Schuman (@Buffalogal) reports, “Consumer loyalty could shift if brands do not honor their social justice commitments and promises. Forty-two percent of consumers say they would start buying from competitors if brands don’t stay true to their word, according to a new survey from Sprout Social. And it’s not just words that shoppers are looking at. They expect brands to follow up with action.”[1] She continues, “Fifty-five percent of 1,000 consumers surveyed said they ‘expect brands to take a stance that goes beyond corporate statements and monetary donations, such as new corporate initiatives, or commitments to specific goals.’ These expectations increase to 65 percent among millennials.”[1] Members of Generation Z are deemed to be even more committed.

 

Is doing good a sucker’s game?

 

Fifty years ago, the economist Milton Friedman wrote, “When I hear businessmen speak eloquently about the ‘social responsibilities of business in a free-enterprise system,’ I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free enterprise when they declaim that business is not concerned ‘merely’ with profit but also with promoting desirable ‘social’ ends; that business has a ‘social conscience’ and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are — or would be if they or anyone else took them seriously — preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.”[2] Journalist Taylor Tepper (@TaylorTepper) writes, “The piece remains as polarizing today as it was five decades ago.”[3] He continues:

 

For some, Friedman’s provocative theory augured a new phase in American economic life where ‘Greed is Good’ and profits are the only real goal of business. Yet many others saw in it a timely capitalist manifesto that clearly outlined the proper role that executives should play in our free market system. Commentators on Friedman are generally polarized between those who believe that businesses have a greater ‘social responsibility,’ and those who feel the social mission of business is making profits, period, with other social goals best left to politics. But both sides would probably agree that the world has become a more complex place over the last 50 years, and businesses have become ever more complicated enterprises that need to balance many different priorities. Moreover, the rise of socially responsible approaches to business and investing has refocused the priorities of both corporate leadership and many investors, whether they truly believe in broader social aims for business or not.”

 

Even people deeply involved in corporate social responsibility have their doubts about its efficacy. For example, Gary Shaw, a Corporate Social Responsibility Manager for the adventure brand Kathmandu, writes, “Corporate Social Responsibility is an attempt by a private company or publicly listed corporation to take some responsibility for the wider social and environmental issues within which it does business. I believe CSR is a completely ineffective, inauthentic and outdated paradigm.”[4] His criticism of corporate social responsibility is not with its goals, but with its methods. He explains, “Most CSR is focused on ‘social compliance’ and ‘auditing’. Audits and compliance have their place and are an important part of ethical sourcing. But audits are limited and are typically not designed to assess or measure many of the social challenges that threaten the wellbeing of workers in vulnerable circumstances — such as bullying and abuse, sexual harassment, forced labor and other forms of modern slavery. … Auditing and compliance has not ensured ethical and sustainable sourcing or facilitated genuine improvements in the protection and wellbeing of those workers who are the most vulnerable part of our businesses and brands. A new model is necessary as we seek to find solutions to challenges that our old mindset created.”

 

Profits and CSR are not mutually exclusive activities

 

The simple truth is that unprofitable businesses are in no position to do good; therefore, the first thing a socially responsible business needs to do is become and remain profitable. At the same time, more and more businesses are discovering that issues like climate change can have a significant and negative impact on their bottom line. Fortunately, in today’s business environment, doing good is good for business. Rhonda Evans and Tony Siesfeld, from the Monitor Institute by Deloitte, explain, “Today, leaders increasingly are recognizing the business value of corporate social impact. In fact, CEOs named social impact as the top success factor for annual performance in Deloitte’s 2019 Global Human Capital Trends survey — the first time chief executives ranked that factor highest in the survey’s 10-year history.”[5] They go on to explain how businesses can measure the business value of their CSR efforts. Wendy Woods, a Managing Director and Senior Partner at Boston Consulting Group, insists, “The only way we’re going to make substantial progress on the challenging problems of our time is for business to drive the solutions.”[6]

 

Woods agrees with Shaw, however, that CSR activities are largely ineffective. She explains, “CSR is the norm today, and it’s very useful. It provides a route for corporate generosity and that generosity is important to many corporations’ employees and customers. But you know what? It’s just not big enough, or strong enough, or durable enough to drive solutions to the biggest problems in our world today because it’s incremental cost. Even when business is booming, CSR just isn’t designed to scale. And then of course in a downturn, it’s one of the first programs to be cut. So no, CSR — corporate social responsibility — isn’t the answer, but TSI — total societal impact, is.” So what is TSI? Woods explains, “TSI is the sum of all of the ways business can affect society by doing the real work: thinking about their supply chains, working on their product design and manufacturing processes and their distribution. The real work of business, when done with innovation, can actually create core business benefits for the company and it can solve the meaningful problems in our world today.” To watch Woods’ TED talk about TSI, click on this link.

 

Is doing good, good for business? According to Woods, the numbers tell the tale. She states, “Now, what about those consumer goods companies — the ones who make those products we love like coffee and chocolate? Consumer goods companies that perform best on total societal impact see an 11 percent valuation premium. And then if they do those smart things with their supply chain — inclusive and responsibly sourcing their product — they see a 4.8 percentage point premium on their gross margins. These numbers are significant. We’ve long known that things like fundamental financials, growth rates and financial risks are key drivers of valuation, but this rigorous analysis shows that social and environmental factors — total societal impact measures — are also linked to valuations and margins. … All else being equal, companies that perform strongly on social and environmental areas achieve higher margins and higher valuations.”

 

Tepper agrees. He writes, “Activist, socially responsible capitalism has gained much ground over much of the past decade. Take the en vogue acronym ESG — environmental, social and governance — an approach to business and investing that aims to encourage more socially responsible behavior in boardrooms and on investment committees. The number of conventional funds that consider ESG factors, which include issues like carbon emissions, employee diversity and executive pay, has grown from 81 in 2018 to 564 just a year later, according to Morningstar research. … In today’s market, a corporate executive who ignores ESG factors may miss out on billions of dollars from the largest institutional investors in the world.” Until the world’s governments get smart and begin collaborating in a serious way, businesses, for their own good, need to do what they can to address global challenges that will inevitably affect their bottom lines.

 

Footnotes
[1] Nicole Schuman, “Survey Reaffirms Consumers are Serious About Brands Taking Stands,” PR News, 19 August 2020.
[2] Milton Friedman, “The Social Responsibility of Business is to Increase its Profits,” The New York Times Magazine, 13 September 1970.
[3] Taylor Tepper, “Milton Friedman On The Social Responsibility of Business, 50 Years Later,” Forbes, 16 September 2020.
[4] Gary Shaw, “Calling Bullshit on Corporate Social Responsibility,” Medium, 9 September 2020.
[5] Rhonda Evans and Tony Siesfeld, “Measuring the Business Value of Social Impact Efforts,” The Wall Street Journal, 21 September 2020.
[6] Wendy Woods, “The business benefits of doing good,” TED.com, October 2017.