Corporate social responsibility: a strategic issue or a wasteful distraction?

Charles Holme

Charles Holme is based at Ethical Executive Training International LLP, Broughton, UK.

Abstract Purpose This paper aims to provide a rigorous practitioner review of the concept of CSR. The paper presents a comprehensive and sometimes challenging overview of the subject. It is about the practice and ethics of a topic of current interest. Design/methodology/approach Taking a representative selection of recently published papers, the article explores the concept. Questions are raised about whether CSR is just corporate window dressing or greenwash. Can it be a tool for business development? Is CSR for organizations big and small? Does it apply to government and NGOs or is it only for commercial businesses? Has the current economic climate forced companies to abandon CSR in the face of the harsh realities of the recession? Findings The ndings start with the variation in the subject and how the words corporate social responsibility are ill dened. A structure for examining CSR in practice is suggested by using two examples. Benets of CSR in prot based organizations are identied and compared with an example in a not for prot organization. An argument is put forward that SMEs may not relate comfortably to a corporate concept. The strategic role of CSR is outlined, as is the limited role of government. Directors responsibility and CSR lead on to the competitive advantage opportunities of CSR. The article ends with a key indicator of whether businesses see CSR as a distraction or a strategic issue by looking at evidence of whether CSR activity has declined in the current recession. Practical implications This is essential reading for strategic leaders reviewing their CSR activity, whether it is from a position of early implementation or after some development. The comparisons and examples are thought provoking. By raising the variations in practise senior managers will be able to clarify their own position, formulate a way forward and communicate their objectives. Originality/value This paper is aimed at directors and strategic leaders with an interest in linking CSR, ethics and competitive advantage. The article will also help senior managers to reect upon their own management style. HR practitioners will nd this review indispensible if they wish to lead or contribute to the development of CSR in their own organizations. Keywords Corporate social responsibility, Ethics, Corporate strategy Paper type General review

he basic question that will be addressed in this article is whether corporate social responsibility (CSR) is simply a cost to an organization or whether it is a strategic issue for business leaders. The journey to this destination will take us through a varying and sometimes confusing landscape. We will need to consider whether CSR is only corporate window dressing and public relations. Can CSR be a tool for business development? Is CSR for organizations big and small? Does it apply to government and NGOs or is it only for commercial businesses? A most telling question is addressed namely has the current economic climate forced companies to abandon CSR in the face of the harsh realities of the recession?

The practice of CSR

It would be usual to start with a denition of the term CSR. Part of the variation in the landscape is in the terms used for this idea. A scan of recent articles suggests that some writers simply use CSR without a denition as if we all know what it is. Others have used

DOI 10.1108/00197851011048528

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similar but different terms like corporate responsibility, emphasizing a shift away from soft philanthropy implied by the word social; corporate citizenship often used with the word good implying responsible membership of society; or corporate social integration implying the idea that successful business can only take place in and contribute to a successful society. One writer denes CSR as treating the stakeholders of the rm ethically or in a responsible manner. Examples of a lack of ethical behavior in rms are not difcult to nd these days and Madoff and Tragura are prominent examples. Some investigations have shown that ethical treatment of employees was found to be the most important aspect of an organisations CSR (Brammer et al., 2006). I have written about ethical issues in business in other articles in this publication (Holme, 2008a, b). Even some of the words used to describe CSR activities may be ambiguous. Community projects, employee development schemes and implementing environmental management initiatives are all described by companies as CSR activities but are very different. The majority of companies in a survey failed to dene what they meant even by sustainability for example (Brooks, 2009). Research among HRD specialists has shown little understanding of CSR (Fenwick and Bierema, 2008). There is no similar research among other manager categories like engineering or IT but there is no reason to believe they will be any better briefed than HRD staff. It would be interesting to track whether the CSR responsibilities in organizations are headed by a marketing executive, an environmental graduate or a strategic business leader. Later in this article I will show there are legislative and good business reasons why leaders do need to understand the strategic issues of CSR. A structure for CSR Given this variability, what we can do is to look at examples of CSR in organizations to see if there are any patterns. I will organize this section to report two patterns described by organizations and then go on to look at the benets of CSR. This will give a manger the opportunity to assess the activities of their own organization and perhaps to plan the case for the development of their CSR. Here are two frameworks, one from BT that describes development stages, the other from GAP that describes the scope of their CSR. The BT journey is described in three phases (Blake, 2007): 1. The protector phase where the company addresses the principle risks to its reputation, meeting all legal regulatory and compliance requirements, such as Health and Safety, corruption, pollution and discrimination. 2. The builder phase where the company is developing a genuine ethical reputation and trust by addressing workforce and supplier diversity, community investment, charitable donation, the efcient use of natural resources, and care of the environment for example. 3. The innovator phase where CSR becomes a stimulus to developing new business, strengthening strategic relationships, building sustainable solutions and long term partnerships that make a difference to the people they work with, their customers and suppliers.

Yet some have made CSR part of their principles, values and ethics, part of what they are.

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GAP describes their current position rather than stages in their development of CSR (Wright, 2007). It has four threads: 1. The center pieces is sustainable solutions in their supply chain including improving working conditions, monitor suppliers factories, integrate labor standards into their business practices, and collaborating with outside partners to drive industry wide change. 2. With their employees, making GAP a place where people can ourish and build their careers. 3. Community involvements from their foundation to their volunteerism. 4. Environment, health and safety, energy consumption and environmental impact assessment for all their business operations. Although not identical the similarities between these two summaries are worth noting.

Benets of CSR in commercial businesses But does it pay? Is it worth doing? A glance at the CSR reports on the web sites of large corporations paints a universally positive picture. Little wonder that the word green wash has been used to denigrate CSR activities. Negative examples are not reported in company publicity. Research that shows that the heaviest polluters are not the heaviest reporters only serves to conrm the suspicion that the whole story is not being told (Brooks, 2009). We can turn to more independent research about the benets of CSR. The positive reports in a wide range of examples and in a variety of industries are worth considering. I have not been able to nd any research that shows CSR to be a bad thing. Pzer (Baker and Jenkins, 2008) reports an example of involving their workforce in voluntary activities in their local community. The benets to the charities are assumed although demand in the community for volunteers is high. The benets to Pzer are clear in terms of employee motivation and improvement, and the development of a vibrant community to attract and retain world-class scientists. This is very like an example of BTs stage 2. Heslin and Ochoa (2008) provide seven strategies and 21 exemplary CSR practices. They all represent business benets for considering CSR. Some are basic and others more strategic. Looking at the list it is possible to relate them to BTs stages and GAPs range of activities. They may provide a checklist to see if your organization is getting these benets and may provide ways of arguing for CSR: 1. Cultivate needed talent. An example is a hotel chain delivering entry-level training into deprived communities and as a result having a pool of potential work force to choose from. This sounds much like the second thread of GAP. It is also a strategic activity to support the competitiveness of the businesses. 2. Develop new markets. This seems to t the innovator stage 3 at BT and the rst thread in GAPs description of their CSR. These are examples of strategy development arising from the recognition that CSR is not just about PR. 3. Protect labor welfare. The Levi Straus example of replacing their exploitation of child labor with education is an example of the protector stage described by BT. 4. Reduce your environmental footprint. Both GAP and BT include this idea in their frameworks. 5. Prot from by-products. The innovative examples provided here emphasize how CSR can impact on the creative development of the business. 6. Involve customers. It is difcult to see this as anything but sound business practice rather than specically CSR. Any business, which is not already trying to understand their market, does not deserve to be in the market place. 7. Green your supply chain. BT would place this in their Protector phase, I suggest.

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We may ask if CSR improves the performance of not-for-prot organizations? Royal Philips Electronics in The Netherlands funds a charity called Caritas that provides nancial support to socially disadvantaged school children in Austria (Weber, 2008). The article describes a CSR Impact Assessment tool and its application to this situation. The conclusion is that there were qualitative indicators of improvement. In three areas that could be measured there were improvements reputation, employer attractiveness, and employee motivation and retention. Changes in measures of brand value; and customer attraction and retention which might have a direct impact on the business were not available. From this example of a not for prot organization we might consider if in for example NGOs, hospitals, and government departments, only level one and two of the BT model can apply. CSR and smaller organizations Another question is how far SMEs can develop a business development impact from CSR. SMEs are unlikely to think of themselves as corporate and their impact may well be in their local environment. There are many examples. Among them the following are illustrations: supporting a local football club for youngsters, employee development, environmental initiatives or donating end of day sandwich stock to homeless charities. Like the Caritas example these illustrations are level two of BTs framework. Yet some have made CSR part of their principles, values and ethics, part of what they are. In so doing they will be carving out a unique place for themselves in the market in a sustainable way. On the whole the business case can be persuasive. It might be worth nishing this section with a quote from BT (Blake, 2007):
There is a compelling business argument for adopting CSR. In BTs case CSR performance differentiated it from its competitors on contracts worth 1.3 billion in the 2006 nancial year.

A strategic view of CSR

So far we have looked at examples of good practice within the organization. This section of the article will take a strategic view of CSR. A strategic leader needs to consider external factors when making long-term decisions that are specic for their business. Benchmarking Policy development will include some form of review and evaluation. The Global Reporting Initiative (GRI) started in 1998 (www.globalreporting.org). Now based in The Netherlands, GRI has produced a framework which emphasizes Sustainability reporting . . . can be used to benchmark organizational performance with respect to laws, norms, codes, performance standards and voluntary initiatives. They report from 2007 to 2008 we have noticed a 46 percent increase in reporting to just over 1,000 organizations. As of January 2009, Wikipedia says more than 1,500 organizations from 60 countries use the Guidelines to produce their sustainability reports. It is a comprehensive benchmarking system allowing organizations to compare themselves with others using the same questions. Being top of a CSR league table and thus publicly being seen to be performing well in comparison to other corporations on this topical and ethical issue, may be an important part of the persuasive argument to change. A senior accounting manager wrote to me Its the recognition and competition that is the driver. A search of CSR League Tables will provide examples from which to choose some providing conicting information. Government One of the external inuences comes from government. In the UK (as in November 2009) Ian Lucas MP is the Minister for Business and Regulatory Affairs who has CSR within his portfolio. Government in 2004 set up the CSR Academy where the range and cost of training programs are aimed at organizations that are large and well resourced. The titles of their

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 Successful organizations need a successful society where for example there is an educated workforce, safe products, sustainable resources and the rule of law.

programs would seem to emphasize the potential for business development stage of CSR development. The EU is reported to be considering regulation. Health and Safety, discrimination and pollution are already regulated. There is little case for trying to regulate the business advantages for CSR. Regulation is based on the idea that government can be sure what is right for all companies and denies the reality of their individuality and their search for a uniquely sustainable competitive advantage. Mike Barry of M&S describes their Plan A, which is 100 environmental and social commitments. The drivers are the customers, driving down costs, employees, and innovation and change. It is doubtful that regulation would add to these drivers. At best a consistent legislative framework that applies to all and is implemented and audited would be the least disruption from regulation. Directors responsibilities In an article about changes in directors activities and responsibilities the author notes some important trends for strategic leaders (Clarke, 2007). He brings forward evidence that corporate responsibilities are taken increasingly seriously by businesses and have become central issues for directors and strategists to consider. This is reected in how the substance of corporate reports is changing from purely environmental up to 1999 to sustainability reporting social, environmental and economic. A KPMG report shows that 35 percent of their sample published corporate responsibility reports in 1999 rising to 52 percent in 2005. The same survey identied the drivers for CSR reporting:
B B B B B B

economic considerations 74 percent; ethical considerations 53 percent; innovation and learning 53 percent; employee motivation 47 percent; risk management and risk reduction 47 percent; and access to capital or increased shareholder value 39 percent;

A survey of professional investors reveals a sharp trend. A total of 81 percent of those surveyed said corporate responsibility was currently a central or important consideration in their investment decisions, compared with 34 percent ve years ago. This article also highlights an important shift from the directors concerns for only the shareholder to their obligation to be concerned with all stakeholders. In the UK, the Companies Act 2006 denes directors duties. The relevant section of the Act is section 172, which states the following: 1. A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benet of its members as a whole, and in doing so have regard (amongst other matters) to:
B B B

(a) the likely consequences of any decision in the long term; (b) the interests of the companys employees; (c) the need to foster the companys business relationships with suppliers, customers and others;

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B B

(d) the impact of the companys operations on the community and the environment; (e) the desirability of the company maintaining a reputation for high standards of business conduct; and (f) the need to act fairly as between members of the company.

This section replaces the discretion of directors with a duty to have regard for stakeholders interests. Lines b, c and d are directly related to CSR. So far in this article has not linked CSR to the strategic aim of creating a business with a sustainable competitive advantage. Competitive advantage Porter and Kramer (2006) link competitive advantage to corporate social responsibility. They say CSR can be much more than a cost, a constraint or a charitable deed it can be a source of opportunity, innovation and competitive advantage. CSR can become an instrument of change in an organisations values, behaviors, and performance. Successful organizations need a successful society where for example there is an educated workforce, safe products, sustainable resources and the rule of law. At the same time a healthy community needs successful organizations to generate the wealth, create jobs, improve standards of living, and pay taxes. And successful organizations need to be competitive. So the link between society and organizations development is emphasized. In developing its strategy, any business has to make choices. In so doing it builds a unique position, doing things differently than its competitors. Strategic CSR moves beyond good corporate citizenship and mitigating harmful consequences of its activities to where the business benets and the social benets are integrated to give a competitive advantage. Toyota has developed market leadership with respect to environmentally friendly vehicles with their Prius car as an example. Examining and changing activities of the business that deliver value to benet society and at the same time to reinforce the uniqueness of the organization is the challenge. Offering a social dimension in the offer to the customer can add another element that makes for uniqueness. It is a strategic way of thinking of CSR. And it goes beyond that, into driving the values and the operational changes in the business. Good intentions have never been a substitute for developing new ways of thinking in a business, new relationships and incentives. Social responsibility in business is so much more than damage limitation or philanthropy. Nor can businesses solve all the worlds problems. But they can have a tremendous inuence for good. Has the recession reduced the interest in CSR? In the FT in April 2009, an article asks this question and concludes companies have worked out how to make it pay. Many of their initiatives help to cut costs or sustain supplies. In November 2009 a press release about the top ten values of organizations (Kinross and Render, 2009) showed that social responsibility was fourth in 2006 and seventh in 2009. At rst sight this looks like a reduction in the importance of this value in a time of recession. However the values to come top in 2009 were associated with competitive advantage like innovation and integrity. The survey highlights that humanism entered the top ten for the rst time in 2009 again suggesting that sound competitive strategies are valued more highly at this time.

Conclusion
The main messages from this journey are:

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CSR as described today is very variable and there are many activities in organizations that can fall under its umbrella. There is evidence that some companies use this variability to present themselves as socially responsible in the best possible light. If government sets out to intervene in CSR activities in commercial companies they may have experience of the philanthropic and compliance aspects of CSR and not the commercial ones. This could lead to regulations that hamper the most signicant benets of CSR. There is plenty of evidence that CSR activities can be benecial for businesses and not for prot organizations even if carried out for compliance or philanthropic reasons. Within commercial organizations CSR activities that support and develop the competitive uniqueness of a business offer considerable opportunities to secure a place in the market. The evidence that businesses are still developing their CSR related values during a period of recession is impressive.

The evidence for the advantages of CSR in business emerges as positive if sometimes variable. The advantages of competitive advantage underlie our economic system. Combining them suggests that CSR is here to stay in the good times and the bad.

References
Baker, P. and Jenkins, C. (2008), Pzer shows community spirit, HRE Strategic Review, Vol. 6 No. 5. Blake, J. (2007), Caring for the bottom line, Human Resource Planning, Vol. 30 No. 1, pp. 36-44. Brammer, S., Rayton, B. and Millington, A.I. (2006), Do CSR policies affect employees commitment to their organisations?, People Management Magazine, Vol. 12 No. 3, p. 52. Brooks, G.I. (2009), Corporate responsibility, People Management Magazine, March. Clarke, T. (2007), The evolution of directors duties: bridging the divide between corporate governance and corporate social responsibility, Journal of General Management, Vol. 32, pp. 79-105. Fenwick, T. and Bierema, L. (2008), Corporate social responsibility: issues for human resource professionals, International Journal of Training and Development, Vol. 12 No. 1, pp. 24-35. Heslin, P.A. and Ochoa, J.D. (2008), Understanding and developing corporate social responsibility, Organisational Dynamics, Vol. 37 No. 2, pp. 124-44. Holme, C. (2008a), Business ethics Part One: does it matter?, Industrial and Commercial Training, Vol. 40 No. 5, pp. 248-52. Holme, C. (2008b), Business ethics Part Two: making it part of your strategy, Industrial and Commercial Training, Vol. 40 No. 6, pp. 303-9. Kinross and Render (2009), Companies declare allegiance to their people, Kinross and Render, November. Porter, M.E. and Kramer, M.R. (2006), Strategy and society: the link between competitive advantage and corporate social responsibility, Harvard Business Review, December, pp. 78-92. Weber, M. (2008), The business case for corporate social responsibility: a company-level measurement approach for CSR, European Management Journal, Vol. 26 No. 4, pp. 247-61. Wright, P. (2007), Corporate social responsibility at GAP, Human Resource Planning, Vol. 30.

About the author

Charles Holme is a Strategic Leadership Consultant and Partner in Ethical Executive Training International LLP (eeti.org), Broughton, UK. Charles Holme can be contacted at: charlesholme@aol.com

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