In my last post ExxonMobil and the true value of CSR I introduced the opinion of Milton Friedman as well as David Vogel, two well-respected economists, who both sharply criticize Corporate Social Responsibility. Friedman refers to CSR as “hypocritical window-dressing” and Vogel claims that the financial benefit for companies generated by CSR are doubtful.
These beliefs are still widespread in our society and express the general skepticism and disdain with which many business people still view CSR.
After writing my last post I could not get Vogel’s claim out of my head.
“The evidence for these rewards and punishment is rather weak. … For most firms, most of the time, CSR is largely irrelevant to their financial performance.”
Therefore I decided to further investigate and try to find out if he speaks truthfully or if contrary to his assertion firms that do good also do well.
Since Friedmans article over four decades have passed and yet CSR is still around. This is evidence of the fact that times have changed. Many more companies have now started to incorporate CSR into their business strategy. Around 7700 companies in over 130 countries have signed the UN Global Compact assuring to infuse their operations strategy with the ten principles in the areas of human rights, labour, the environment and anti-corruption. But CSR is not only further spread. Economists nowadays tend to belive that CSR can create many positive outcomes for a company such as
- greater attraction and retainment of talent
- teamwork and improved productivity
- leadership development
- increased shareholder value as well as stakeholder loyalty
- superior performance
- reduction of costs
Greater attraction and retainment of talent
According to “the Millennial Generation: Pro-Social and Empowered to Change the World” by Cone Inc. 79 percent of the Millenial Generation assure they want to work for a company, which cares about how it affects or contributes to society. Furthermore around 69 percent report that their company’s CSR efforts play a major role in how pleased they are to work there.
“The Millennial generation has seen a lot of natural disasters, political disasters and corporate disasters. They think the world is screwed up. They feel personally responsible, and they feel empowered to create change,”
explains Kellie McElhaney, who is the faculty director of Haas’ Center for Responsible Business.
Teamwork and improved productivity
Moreover 64 percent of the Millenial Generation continue to say that their company’s CSR activities make them not only feel proud but also loyal to the company. CSR is a way of stimulating and educating employees, in addition to presenting them with the opportunity to improve their skills. Moreover CSR was named as the third most important factor of employee engagement, as revealed by a universal workforce study by Towers Watson, a leading global professional service firm. According to the study how employers behave in public and how a company is noticed by stakeholders as well as society has become increasingly significant to today’s workers.
According to data by Net Impact, a nonprofit organization that hopes to help enterprises progress and spread sustainability
“65% of MBAs surveyed say they want to make a social or environmental difference through their jobs.”
Besides our generation of developing managers is even more likely to value CSR higher. In addition Forbes Insights asserts that CSR helps employees to “take on new roles, develop new skills and assume leadership positions.”
Increased shareholder value as well as stakeholder loyalty
As stated by Harvard Business School
“Companies with high levels of CSR have higher stock values and corporate valuations than similar companies without such strategies”
Forbes Insights insists that 93 % of companies surveyed by them believe that economic value is created by investing and engaging in CSR.
Some economists report that CSR leads to the superior performance of companies by increased sales. For whatever the specific reason (superior performance, better reputation, greater attraction and retainment of talent) the value of the enterprise seems to be increased by CSR and along with that goes a greater loyalty of the stakeholders.
One of the more disillusioned reason of why companies care for CSR is simply because their customers do.
A survey by Landor Associates, a company that supports the world’s best brands set themselves apart, found that 77% of consumers say it is important for companies to be socially responsible.
“There’s a heightened awareness of the need to be, and to be seen as, a good corporate citizen,” says Robert Grosshandler, CEO of iGive.com.
You can argue, that CSR active firms have a higher performance, because they interest and captivate more socially and environmentally aware customers.
A study by the Havas Media Lab asked 50,000 people in 14 countries to single out the companies that in their eyes comprised the most meaningful CSR. This data was then used to establish “The Meaningful Brand Index” (MBI). Havas found a direct relationship between the MBI scores of companies and how devoted their customers were. The shocking results: customers did not care if up to 70% of the companies would cease to exist. The 20% they did care for all had had a specific impact on the quality of their lives.
What we have to take into account is that not all CSR simply involves donating money. Some companies put actual effort in creating something that makes your life easier or more enjoyable, leaving you more loyal and attached to the company. For this reason you will recommend the company to your friends and continue shopping there, thus increasing their profits. Umair Haque, Director of the Media Lab, cited Nike+ as a good example.
“It’s not about their charity work, it’s because the campaign actually helps make you a better runner.”
“Instead of putting up another campaign of billboards with celebrities saying, ‘Buy our shoes’…Nike+ actually helps makes you a better runner,”
Nike also uses this as a hook in their advertisements
Reduction of Costs
However CSR does not only create value for a business by generating more revenues and implementing greater loyalty. It can also help save money!
A great example of how this goal can be achieved is Walmart. Their main three goals:
- to be fully supplied by renewable energy
- to create zero waste
- to sell products that sustain people and the environment
“The company is not perfect, but it is dealing with sustainability squarely as a business imperative. These are hard-core measurable and reportable goals, which if achieved can reduce costs.”
proposes Kellie A. McElhaney Kellie, a professor at Haas School of Business.
Nien-hê Hsieh, co-director of the Wharton Ethics Program and a visiting professor at Harvard Business School is of the same opinion. Suggesting that
“It has had an aggressive sustainability policy. If Walmart does alter its global footprint, it would make a difference in the world.”
Climate Corps, the Environmental Defense Fund offers summer internship for business school students. Their objective is to constrict more energy-efficient way for business to exist. Since 2008, this program has assisted in saving up to $1 billion in net operational costs by helping to cut 1.6 billion kilowatt-hours of electricity use, hence preventing more than 1 million metric tons of CO2 emissions from being produced annually.
The bottom line
The data and experts establishes that companies investing in CSR efforts have more advantages compared to those that don’t. These include but are not limited to better employee recruitment, greater customer loyalty, more positive reputation, increased shareholder value, and greater profits. Though I have to admit that I was very surprised by this outcome I was also very happy and relieved. I prefer to think that doing good is being rewarded!
What about you guys? Did you expect this or did it take you by surprise as well?