Corporate social responsibility is vital for

business survival
Corporate social responsibility used to be seen as a luxury. No longer. In today’s climate,
looking beyond short-term profit is increasingly important – and ICT can help. Roger Trapp
explains

Tuesday, 10 March 2009

Sustainable growth: producing cocoa for Divine Chocolate in Ghana

Over the past decade or so, the concept known as corporate social responsibility (CSR) has
developed from a fringe interest associated with companies with particular links to the
environment into a mainstream business activity adopted by household names the world over.
With much of that world now in recession, the coming years will demonstrate whether CSR
really has been embraced by corporations or whether it is – as some say – simply a marketing
wheeze designed to put a positive gloss on their operations.

Stephen Howard is chief executive of Business in the Community, a body of 850 companies
that says it “mobilises business for good”. He counters accusations that CSR will fall by the
wayside in challenging times by insisting that the current economic crisis makes being a
responsible business “more important than ever”. Perhaps conscious of the prominent role
played by bankers in the organisation’s activities in past years, he points to how his
organisation’s company of the year for 2008 – Co-operative Financial Services, part of the
Co-operative Group, which has operated according to responsible principles for generations –
is in a great position to gain from the crisis in the financial services industry because of the
trust held in it. The organisation’s merger with Britannia Building Society (announced in
January) creates a large mutual organisation untainted by the troubles experienced by most of
the other banks.

Nor is he alone in believing |that CSR’s time has come. Ban |Ki-moon, Secretary General of
the United Nations, told business leaders gathered at the World Economic Forum in Davos,
Switzerland, in January that they needed to embrace “global co-operation and partnership on
a scale never before seen” and should abandon short-term thinking in favour of long-term
solutions to climate change and other pressing global challenges. The UN’s Global Compact
aims to make this a reality by setting out 10 principles through which companies all over the
world should tackle such issues as human rights, labour, the environment and corruption.

Meanwhile, the European Commission’s Vice President, Günter Verheugen, said at the
February launch of the commission’s latest European Competitiveness Report: “Socially
responsible enterprises will find themselves in a better position than others, since they can
rely on a lot of strengths, including their dedicated workforce. Our report demonstrates that
CSR is good in good times, but an undeniable must to cope with bad times.”

Corporate social responsibility – also referred to, increasingly, as “sustainability” – has been
around for some time. For example, the cereal company Kellogg’s has had a commitment to
the community since it started in the US in the early 1900s, while the chocolate-maker
Cadbury began in the previous century with clear philanthropic ideals. More recently,
companies such as the US outdoor clothing company Patagonia and the UK-based beauty
products company The Body Shop have been as much about the causes they support and the
way they do business as about their actual products.

But the notion really began to take off in the early 1990s as increasing concern about the
environment – especially climate change – led to the development of environmental
reporting. This was encouraged by such initiatives as an annual competition for the best
environmental report organised by the accountancy body ACCA, which encouraged
companies to report on what they were doing to manage their environmental impact. The
programme continues to this day as “Awards for Sustainable Reporting”. At the same time,
consultants led by John Elkington of Sustainability proposed that companies should cease to
focus just on the financial aspects of their business and should also report on their
environmental and social performance – the “Triple Bottom Line”.

Among the early advocates of, first, environmental reporting |and, then, social and
sustainable reporting was the telecommunications company BT. Janet Blake is head of CSR
in the company’s global services division, which deals with large corporate and government
customers around the world. She dismisses ideas that CSR is about charity or philanthropy.
“Good CSR is about maximising a company’s positive impact on society while at the same
time maximising returns,” she says. As evidence of how this works, she says that BT’s
commitment to the sustainability agenda has helped it win £2.2bn worth of business in the
financial year 2007-2008, up from £1.8bn the year before.

The energy groups Shell and BP have also been setting out their credentials in this area for
some time. But they have sometimes been undermined by events. Shell attracted much
criticism in the mid-1990s over its proposal to dump a disused oil platform, Brent Spar, deep
in the ocean, while BP – which at one point rebranded itself as “Beyond Petroleum” – was
accused of not spending enough money to prevent oil spills such as that which occurred on
Alaska’s North Slope in 2005.

Fear of being found wanting after setting themselves up as being ethically conducted may
have deterred some companies from adopting responsible business principles. Another
deterrent may have been the difficulty of demonstrating the value of such principles.
Businesses have tended to see making the maximum amount of money and doing good as
mutually exclusive alternatives. However, recent research has produced hard evidence to
show that responsible businesses can still succeed according to traditional criteria.
Business in the Community has carried out research that shows that companies consistently
running their business according to responsible principles outperformed the FTSE 350 on
total shareholder return between 2002 and 2007 by between 3.3 per cent and 7.7 per cent per
year. Businesses have also pointed to improvements in their reputations as a result of having
been seen to do “good things”. Customers trust them, while staff feel good about their work,
goes the thinking. This in turn can have a direct influence on the balance sheet. No wonder
both FTSE and Dow Jones operate stock market indices that rank businesses according to
various responsible business criteria.

Many CSR initiatives have also been a response to growing pressure from environmental
groups and other non-governmental organisations and to the development of the concept of
companies having various groups of “stakeholders” rather than just shareholders. This helps
to explain the rise in the number of utility and mining groups paying attention to responsible
business principles. It was only by engaging with these stakeholders – who include
employees, customers, suppliers and the wider community – that such companies could
acquire a “licence to operate”.

This is a controversial area. Many observers believe it is not |the business of business to
become involved in society. They follow |the late economist Milton Friedman, who said that
the only social responsibility of business was to maximise profits so long as it was operating
within the law. Others, such as Robert Reich, the former US Labor Secretary, argue that there
are dangers to democracy in business becoming too closely involved in activities that should
be the preserve of governments. But such criticisms have not put off Bill Gates, founder of
Microsoft and now a major philanthropist, who at last year’s World Economic Forum
launched his idea of “creative capitalism” as “a way to make the aspects of capitalism that
serve wealthier people serve poorer people as well.”

The immediate effect of the recession is that companies are likely to concentrate most on the
aspects of CSR that help them as much as they help society. In other words, there is likely to
be a focus on climate change, since a commitment to reducing a company’s carbon footprint
not only looks worthy but can aid the bottom line (because it usually involves reducing
waste).

But there is also a business argument for measures that boost developing economies – which
are, after all, potentially developing markets as well. Communications experts believe that
new technology

could offer many such boosts – as the rest of this supplement shows – and crises have always
been catalysts for innovation.

It is unlikely that there will be a return to the time when governments were seen as having all
the answers to society’s problems. But there will always be a place for business solutions.
Already, CSR is being increasingly emphasised in business schools (whose previous
emphasis on maximising profits has been blamed by some for our current problems). So we
can expect to see plenty of fresh approaches to CSR.

One development, already under way, is the social business – an enterprise set up specifically
to deal with certain issues. Examples include People Tree, a fashion company that sells
distinctive garments in British and Japanese high streets through forging sustainable
partnerships with Fair Trade and organic producers in developing countries; and Divine
Chocolate, which gives cocoa farmers in Ghana direct access to the mainstream chocolate
market in the UK and elsewhere.

The outlook for both businesses seems healthy. And, as Sophi Tranchell, managing director
of Divine, says: “The present situation has shown us that the purely profit-motivated business
model hasn’t worked. It never worked for the poor and excluded, but now it can’t even
survive on its own terms. It has over-borrowed and over-promised and finally the bubble has
burst.”