The Business Case for CSR
February 3, 2014
Much has been written and discussed regarding the business case for corporate social responsibility, yet business management researchers, CSR professionals and corporate leaders continue to seek justifications for the function.
Jon Spector, the president of The Conference Board and a guest speaker at a recent session of the Institute for Corporate Social Responsibility at Johns Hopkins University, reminds us that many corporate functions (like Finance, Human Resources, Information Technologies) may have had to justify the business case for their functions at one time, but now they are readily accepted as important aspects of any corporate environment. However, as a relatively new field, CSR continues to build the business case for the function.
As stated by Matteo Tonello in a 2011 Harvard Law School Forum on Corporate Governance and Financial Regulation publication, building the business case for CSR revolves around the following question: What tangible benefits do business organizations reap from engaging in CSR initiatives? He also reminds us that there is no single rationale for how CSR provides a business benefit for the company - there are several.
These can be condensed into four main arguments:
- Gaining competitive advantage. Cited as one of the top two justifications for CSR in a 2003 Fortune survey of business executives, "competitive advantage" focuses on how firms can use CSR as a differentiator - setting themselves apart from their competitors and other firms. In this context, CSR is seen as an opportunity rather than as a constraint, and firms that utilize this approach strategically manage their resources to meet stakeholder demands and expectations for the benefit of the firm. Examples of good practices here include philanthropy, employee engagement, good governance, environmental stewardship and employee relations.
- Managing reputation and maintaining a license to operate. A 2010 Boston College Center for Corporate Citizenship study found that 66 percent of executives thought that their social responsibility strategies resulted in improved corporate reputation and saw this as a business benefit. Additionally, a strong corporate reputation can help sanction firms to operate in countries and markets, and CSR can help enhance the ability of firms to be seen as legitimate in the eyes of consumers, investors, employees and regulators. Examples of good practices here include corporate disclosure and transparency practices (including CSR reporting), adherence to global standards of conduct (such as the Global Reporting Initiative) and philanthropy.
- Managing risks and reducing costs. Engaging in CSR activities can reduce the firm's inefficient capital expenditures and exposure to risks. In a 2003 PriceWaterhouseCoopers study of business executives, 73 percent of the respondents indicated that "cost savings" was one of the top three reasons that companies are becoming more socially responsible. Examples of good practices here include energy-saving and other environmentally sound practices, diversity and inclusion initiatives, and enhanced government and community relations.
- Employee satisfaction and investor relations. With three of five people reporting that they want to work for a company whose values are consistent with their own, being seen as responsible company - as well as a fair employer - helps attract and retain the best people. Likewise, investors increasingly believe that CSR has a positive effect on business and many investors consider more socially responsible companies to be more secure investments.
In Jon Spector's presentation to the Institute for Corporate Social Responsibility last week, he outlined four different approaches to building a business case. Essentially, we need to answer the question, "is CSR worth the investment?"
His four methods included making the case in theory using either financial performance measures (financial metrics) or factor performance measures (statements based on business judgment) and making the case in practice through either functional connections (with other functions inside the company) or issue mapping.
Obviously, there's more to it than that, and the need to justify expenditures in CSR may be an ongoing exercise for many companies, but it's also possible that some socially responsible companies and executives have already been sold on the business value of corporate social responsibility and may not require further explanations.
What do you think? Have CSR professionals done a good job of making the business case for corporate social responsibility? If not, do the concepts outlined above help? Please send us a comment by clicking here. Alternatively, please follow me on Twitter at @timmcclimon and comment there. Thanks for reading and sharing this blog with others.
P.S. Did you know that according to CorporateWatch.org, 53 percent of the total value of Fortune 500 companies is made up of intangibles like reputation?