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Case H3
Corporate Social Responsibility
What’s in it for business?
Sensitivity to communities and their rights, public dialogue and enhanced transparency,
commitment to addressing the issues of social justice in the global economy, bringing the
dynamic skills of business to social needs: all of these are increasingly required to address
the shifting expectations, opportunities and challenges brought at the beginning of the 21st
century. The private sector has a central role to play, and individual business leaders can
translate this potential into genuinely sustainable growth, coupled with long-term corporate
success. 1
Can corporate social responsibility, as exemplified above, be reconciled with the pursuit of
profit? How is it possible to meet these wider goals of social justice and still achieve longterm corporate success? This case study assesses whether corporate social responsibility pays,
and, if it does pay, in what ways do businesses benefit from it.
The importance of corporate social responsibility as a business goal
Corporate social responsibility (CSR) can be defined as where a business attempts to meet
certain ethical, legal and commercial expectations as set by society. As a business goal,
corporate social responsibility has grown in importance over recent years. In 2003, 132 of the
UK top 250 companies reported on their social and environmental performance.
Also there are many national and international bodies promoting CSR. In 2005, the group
CSR Europe presented its new Roadmap for Business ‘Towards a Sustainable and
Competitive Enterprise’ to the European Commission. In the UK, 700 companies are
members of Business in the Community and a further 1600 ‘participate in its programmes and
campaigns’.
Our purpose is to inspire, challenge, engage and support business in continually improving its
positive impact on society.
... Membership of Business in the Community is a commitment to action and to the continual
improvement of their company's impact on society. Our members commit to:
 Manage, measure and integrate responsible business practice throughout their business
 Impact through collaborative action to tackle disadvantage
 Inspire, innovate, and lead by sharing learning and experience
The reasons for increased commitment to CSR have been diverse.
Changing social expectations regarding business behaviour
Heightened consumer awareness concerning the activities of business can be attributed to a
number of factors. For example, high-profile cases concerning companies such as Nike and
Puma and their use of cheap labour in production sites in south-east Asia have attracted
considerable media attention. In addition, activist groups, which seek to name and shame and
bring to the public’s attention bad business practices, have become increasingly vocal and
successful in placing issues of social responsibility high up on the business agenda.
The reduced role of the state in regulating business actions
As government regulation over business activities has diminished, business has had to take
increasing responsibility for identifying consumer and social concerns and acting upon them.
Such concerns, in days when government regulation was more prominent, used to be reflected
in government policy initiatives to constrain business activity.
Today, due to the complex network of suppliers that many businesses deal with, it is
increasingly the case that such suppliers are being subject to the same responsibility codes as
the businesses they supply. A business’s image may be damaged just as much by a supplier
conducting irresponsible business practices as the business itself. There is thus pressure from
one firm to another to behave responsibly.
Consumer concerns over business behaviour
The willingness of customers to act on the identification of irresponsible business practices is
a big motivating factor in encouraging businesses to adopt a more socially responsible
position. A 1999 survey by Environics and the Prince of Wales Business Leadership Forum
surveyed 25 000 citizens in 23 countries. It found 17 per cent of those surveyed have
consciously avoided buying products from firms that had been shown to be socially
irresponsible.
Changing patterns of investment and the growth of socially responsible investing
In 1999, the Social Investment Forum found that, since 1995, assets in funds that were
classified as socially responsible rose from $639 billion to $2.16 trillion, an increase of 238
per cent. This clearly shows the growing attractiveness of socially responsible investment,
whether this is motivated by ethical concerns, or a realisation that a business delivering
socially responsible business practices is more likely to be profitable and to attract
investment.
The effects on business performance
If corporate social responsibility has grown as a business objective, has this in any way
impinged upon business performance? Studies, empirical and otherwise, suggest that rather
than detracting from business performance and harming shareholder value, in fact the
opposite appears to be the case. Corporate social responsibility appears to offer a positive
contribution to business performance, especially over the longer term.
The following factors have been identified as some of the positive economic benefits that
businesses have gained from adopting a more socially responsible position.
Improved economic performance
A large number of studies have attempted to identify and evaluate the economic returns from
social responsibility. Factors that have been considered include business growth rates, stock
prices and sales and revenue. A 1999 survey by Roman, Hayibor and Agle evaluated the
findings of 52 studies that considered the link between business ethics and enhanced profits.
2
They concluded that 33 studies showed a positive link, 14 suggested neutral effects or were
inconclusive, and the remaining 5 suggested that there was in fact a negative relationship.
Although this evidence would on balance favour an argument that corporate social
responsibility is good business practice, the whole area of linking ethics and responsibility to
profit is a contentious one. When considering ethics and social responsibility, what are we
including within this definition? Is the business merely complying with a business code,
either developed within the business or by a third party. Such codes essentially state what is
not acceptable business behaviour, such as taking bribes or pursuing anti-competitive
behaviour. Or does the understanding of an ‘ethical business’ go further and entail positive
social actions, ranging from giving money to good causes, to contributing to particular
programmes in which the business has competency. For example, a pharmaceutical company
might develop a drug that might benefit the populations of the world’s poorest countries, with
no possibility of profit. So at what level do we identify an ethical business, and to what
degree might this level of responsibility influence profitability?
The concept of profitability is also contentious, most crucially so in respect to the time
frame over which the assessment takes place. Linking long-run profitability with an ethical or
socially responsible programme is fraught with difficulties. How are all the other factors that
influence business performance over the longer term accounted for? How do you attribute a
given percentage or contribution to profit to the adoption of a more socially responsible
business position? Can it ever be this precise, or are we merely left with intimating that a link
exists, and is this good enough?
To answer these questions would take us far beyond the goal of this case study. They do,
however, suggest that the link between profitability and socially responsible business
behaviour is incredibly complex and difficult to prove.
Enhancing the brand
Related to profitability is the issue as to how far corporate social responsibility enhances
brand image and the firm’s reputation. Not only would this strengthen consumer loyalty but
also aid the firm in raising finance and attracting trading partners. An increasing number of
studies have identified that value-based criteria are becoming increasingly important in
consumer buying decisions. A 1997 study by Walker Research found that, given two products
with similar quality and price criteria, 76 per cent of those surveyed stated they would
purchase the product produced by the company most associated with good causes. Factors
such as environmental responsibility and active participation in the community were most
often cited as those factors most likely to affect consumer purchasing behaviour.
Business may be further encouraged to develop the social image of their brand with the
increasing number of awards given to recognise and promote corporate social responsibility.
Most Admired Companies Lists, such as that presented by Management Today in the UK and
Fortune in America, are based around an assessment of corporate social responsibility criteria,
such as reputation for ethics and honesty, use of corporate assets and community and
environmental responsibility. The public relations and marketing potential that might be
gained from such awards would go a long way in helping the business to further strengthen its
socially responsible brand image.
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Attracting and retaining employees
It increasingly appears to be the case that companies with clear ethical and social positions
find it easier, to not only recruit but to hold on to their employees. In a number of surveys of
graduate employment intentions, students have claimed that they would be prepared to take a
lower salary in order to work for a business with high ethical standards and a commitment to
socially responsible business practices.
A survey conducted in June 2000 by Burson Marsteller and the Prince of Wales Business
Leaders Forum found that when employees were asked to rank the reason for admiring certain
companies, 24 per cent identified respect for their employees, and a further 21 per cent
identified environmental responsibility. The survey concluded that the reputation of the
employer was crucial in the recruitment and retention of staff. As John Browne the chairman
of BP Amoco has remarked,
When we are competing for the brains and energy of the brightest and best against the
fashionable and apparently lucrative world of the dotcoms we do not ignore the values of the
society and particularly of the new generation. People want to work for something they believe in
and to make a contribution to the progress of the world in which they live. And if the business is to
succeed, it has to offer them the opportunity to do that.2
Access to capital
As mentioned previously, the growth in ethically screened investment funds has grown by
over 238 per cent since 1995. This phenomenal growth is driven not only by the demands
from shareholders for ethical funds, but also by a realisation from investors generally, that
socially responsible business has the potential to be hugely profitable.
A recent survey by the Ethical Investment Research Service has revealed that 77 per cent
of members of pension schemes wanted their pension funds to adhere to some form of
socially responsible investment, so long as it did not impinge upon their returns.
The likelihood of returns being lower in ethically screened funds has been questioned by
the findings of two recent reports. Innovest Strategic Value Advisors and the Alliance for
Environmental Innovations, both concluded that, in respect to environmental responsibility in
particular, those companies that exhibit superior environmental performance over their peers
achieve better financial performance in the stock market. It is suggested that the reason for
this is that environmental performance is a good indicator of general management quality,
which is the main determinant of stock price. As Frank Dixon of Innovest states:
Environment issues in certain industries are some of the most complex challenges facing
management because of all the stakeholders, different regulations, many things to measure, and
a high degree of uncertainty. Doing a good job of managing that high degree of complexity should
be transferable to other areas of business, and that’s why you see good environmental companies
consistently outperforming bad ones.3
In 2002/3 The UK’s top 100 companies gave 0.8 per cent of their pre-tax profits to good
causes. This was some worth some £800m, and over 2.5 times the amount that was given in
the year previous. Even though this is clearly a large sum of money it only represents 5 per
cent of that necessary to run the UK’s voluntary organisations. Public attitudes towards
corporate giving seem to be hardening. In a 2003 MORI poll, 72 per cent of those interviewed
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thought that business failed to contribute enough to good causes and the communities within
which they operated.
The benefits from being socially responsible appear not only to be diverse, but from an
economic point of view, worth having. Not only is business performance likely to be
enhanced, but brand image will be strengthened, employee turnover minimised and access to
stock market funds readily available. The next step for research is to attempt to quantify the
benefits, and try to relate the economic advantages directly to the level of social responsibility
a business adopts.
Corporate responsibility index
Business in the Community has for four years been producing a ‘Corporate Responsibility
Index’. Participation in this is voluntary, but in 2005, 131 companies, representing 4.2 million
employees, took part in the survey. These included 57 of the FTSE 100 largest companies.
The index considers their approach to corporate responsibility under four headings:
1. Corporate strategy – this looks at how the nature of a business’s activities influence
the company’s values and how these are related to strategy.
2. Integration – this refers to how well the company organises, manages and integrates
corporate responsibility throughout its operations.
3. Management – this refers to how well the firm manages its stakeholder
responsibilities to the community, the environment, the marketplace and the
workplace.
4. Performance and impact – under this heading, the company’s performance is assessed
from two key impact areas: global warming and waste management. The company is
also assessed on two areas it chooses from six, which include human rights, product
safety, occupational health and safety, workplace diversity and community
investment.
For further information on corporate social responsibility and the CR Index, you may like to
have a look at:
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UK Government Gateway to Corporate Social Responsibility
Executive summary 2005 Corporate Responsibility Index
FAQ’s Corporate Responsibility Index
Companies that count – Corporate Responsibility Index press release
Two-faced capitalism – The Economist (22nd January 2004)
Poll shows most ethical companies – BBC News (14th March 2004)
Resources on CSR from Intute
Question
Using reference sources with which you are familiar, such as the Internet, find either a
business or industry code of conduct currently being used to establish socially responsible
business practice. Do you feel that if such a code of conduct was adopted by a business, the
code by itself would be sufficient to identify a socially responsible business?
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1
Responsible Business, Financial Times Guide, 8 November 2000
2
ibid.
3
The Greening of Corporate America, Journal of Business Strategy, January/February 2000
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