Who wins when CSR is superficial?

by Imran Aijazuddin

 

We see corporate social responsibility (CSR) everywhere.  Prominent organizations ranging from General Electric to the National Basketball Association advertise missions that claim to better society and/or the environment.  Companies worldwide feel the need to turn toward sustainability.  After all, the public expects a high degree of social responsibility from the nation’s largest businesses.  Why?  Simply because we think these businesses have the power and influence to make a difference in the world and to serve as role models for other organizations and everyday citizens.

We are not stupid; we realize that the world is in bad shape, from a societal perspective and an environmental one.  And as public concern increases, so does demand for socially responsible organizations.  However, both citizens and businesses forget the importance of effective CSR.  Businesses address any generic social issue just to please us.  The result is painful to watch.  Most businesses exaggerate their accomplishments to garner favorable public opinion.  They succeed in winning support from most citizens who do not have enough counter-evidence to reject their claims.  Consequently, CSR initiatives are often just costly advertisements that produce little, if any, actual results.  Unfortunately for companies, they usually lose money from their CSR advertising expenses and harm their bottom lines.

Businesses today dread CSR.  Unrealistic expectations from the public are a major reason why.  We encourage our businesses to fight generic world issues far beyond their control.  Consider the hypothetical car company Automaker X to illustrate.  Automaker X. is an American automobile manufacturer that wants to impress the public by addressing a social problem.  Market surveys show that citizens place the AIDS pandemic in Africa atop our list of problems.  Thus, Automaker X invests time, personnel, and funds into sponsoring health education and medical relief for impoverished African countries.  It then uses exaggerated local advertisements to tell us about its successes in fighting AIDS, attracting a larger audience.  The trouble with this is that Automaker X can do very little to provide AIDS relief.  Its competence lies in producing quality vehicles, not in providing medical relief or healthy lifestyle education.  Organizations such as Beaumont Hospital and the AIDS Relief Fund for China have the resources and knowledge to actually make a difference in African countries.  Automaker X, on the other hand, does not.  As a result, it has wasted its money trying to address an issue that it understands little about.  The auto company can do very little to benefit Africans besides writing a check – which will only harm its profits.

Effective CSR is different.  Businesses can use CSR to benefit themselves and society simultaneously – the opposite of what Automaker X did in the previous example.  Now suppose that the company addresses a specific issue that it has some control over: poor fuel economy.  The automaker invests in research and development for a hybrid vehicle that offers great gas mileage and reduces harmful carbon emissions.  Within three years, Automaker X releases a new model that averages over 40 miles per gallon and is available for less than $20,000.  As expected, the new model is an instant hit.  Sales skyrocket and the new vehicle quickly replaces old cars with low gas mileage and notoriously high carbon emissions.  Americans slowly grow independent of gasoline and fewer toxic chemicals harm the ozone layer.  Automaker X, meanwhile, enjoys the financial rewards and gains a larger share of the market as competitors scramble to manufacture their own vehicles.

In the previous example, both our society and the company benefit from the specific CSR initiative, a win-win scenario.  If businesses realize that they can profit from CSR, they will approach it without hesitation.  And we need them to approach CSR in a proactive manner, not a reactive one.   But businesses can only profit if they pursue social issues that they understand.  For a CSR campaign to be effective:

1. the campaign should address a specific issue within the company’s control as opposed to a generic issue, and
2. the company should approach the campaign willingly and take a proactive stance as opposed to a reactive one.

Bear in mind that businesses ultimately benefit society by making money.  Successful businesses create millions of jobs that help lift citizens out of poverty, while educating them in marketable trades and providing them with self-gratification.  Americans have seen what a slow economy and rising unemployment can do to a nation and understand the importance of a powerful economy to society.  So we shouldn’t expect organizations to incur losses just to undertake a social mission.  Instead, we should expect them to channel their strengths in a particular area to benefit society and themselves simultaneously.  After all, what can be better than a victory on both sides?

“Managers should try to act more responsibly. But they should not expect the market to necessarily reward them–or punish their less responsible competitors,” stated a 2008 Forbes article. While many have claimed that a socially responsible company will do better in business there has been little evidence to support this across the economy.  ““Part of the reason why CSR does not necessarily pay is that only a handful or consumers know or care about the environmental or social records of more than a handful of firms,” said David Vogel, a professor at U.C. Berkley’s business school. The public is more concerned with price, convenience and quality when purchasing products.

Even those who are aware of the impact a company has on the world will find it extremely difficult to find a completely responsible or irresponsible supplier of their needed wares. An example given by Vogel was Merck. The pharmaceutical giant “has been widely applauded for its development and free distribution of a drug to cure river-blindness, a dreadful disease which affects tens of millions of the world’s poorest people. Yet this same company withheld important information regarding the safety of its highly profitable drug Vioxx.”

While it’s always nice to hear about a company building green or donating to charities for many corporate social responsibility is more about what the company does not do. Betsy Atkins , CEO of Baja Ventures highlighted what CSR should focus on:

–Transparency in financial reporting
–A quality product, not misrepresented through marketing
–If something about the product endangers the consumer, be forthright and let the public know
–Do not use predatory practices in offshore manufacturing, such as child labor.
–Do not pollute your environment or other environments, and adhere to laws and regulations.
–Be respectful, fair and open in your employment practices.

There are also misconceptions surrounding corporate social responsibility.  Deborah Doane, the chair of the Britain organization CORE Coalition listed four common myths of CSR.

1. The market can deliver both short-term financial returns and long-term social benefits – the interests of businesses are often at odds and responsible investment is unlikely to pay off as quickly as the stock market requires
2. The ethical consumer will drive change – again, consumers are looking for price and convenience, just look at Wal-Mart
3. There will be a competition to be the most ethical business – often CSR is just good PR without any incentive for changes in behavior
4. Countries will compete to have the best ethical practices – competitive pressure for foreign investment has created a system where less stringent for human rights standards or environmental regulations attract more investors.

What do you think? Yell it out at SocialYell.com! Or in the comments below.

Elizabeth Ulion is a graduate student at Northwestern University.

Photo courtesy of Office Now/Flickr.