Does it pay to be ethical?
We are seeing an increasing amount of companies jumping on the ethical bandwagon with their all singing, all dancing corporate social responsibility (CSR) reports. Amongst the numerous accreditations and environmental claims, you come away wondering just how much a company cares, whether they really believe what they say, and is there any real value in the promotion of CSR within a company.
A recent Guardian article highlighted how many large companies frequently claim to practise CSR, and boast of charitable and green activities in their annual reports, yet at the same time moving high value brands to low-tax countries to avoid tax, a practice seen by many as unethical. Another area of contention is that many companies that regularly top CSR and environmental charts are involved in controversial areas of business. However it seems that if you can prove you are implementing green strategies and CSR initiatives the impact of your business can be completely mitigated. Cynics would argue this is dubious.
However despite all this we should not underestimated the value CSR can have for a company, and if implemented well how it can be used to increase a company’s profitability. Proponents argue that there is a strong business case for CSR as corporations benefit in multiples ways by operating with a strategy broader and longer than their own immediate, short-term profits.
The workforce is an area that most companies can easily identify and will actively promote as it more tangible than other areas of CSR. It is a visible resource within the company, and there is a more definable relationship between it and the profitability of a company e.g. higher staff retention means less recruitment costs and skill retention. It is therefore an easier concept for people to “come on board with” as they can not only see the benefits directly to themselves and colleagues but the company as a whole.
The issue of environmental policy within companies is also becoming ever more prominent. But environmental policies are not just to “save the world”. Good environmental practice is also about business efficiency - it’s about the best use of valuable raw materials, and feeding the benefits of action straight through to the bottom line. Being sustainable is as much about reducing costs and being more efficient as it is protecting the environment. It can also have added benefits of retaining customers as they become ever more demanding. Many suppliers, clients and consumers are now looking for companies to present them with purchasing decisions which can be taken without compromising the future.
In reaching environmental targets companies will often review their supplier process. A better integration of corporate responsibility into companies’ sourcing policies and procurement processes is a way to manage more effectively risks that might arise in the supply chain. It can also create new opportunities in terms of savings, innovation, and supplier relations management, amongst others. If you are not aware of who your suppliers are and where products come from, the result can be negative for your company’s image. Look at recent exposes of major organisations for child labour being used by clothing companies such as GAP and Primark to whether supermarkets are providing high enough animal welfare standards.
The increase in outsourcing and the setting-up of operating sites internationally – particularly in developing countries – has become a central part of many company strategies. This has proven invaluable for increasing gross net margins, due to the key advantages of available labour and logistics. However, it is becoming more and more apparent that with these advantages come risks. Implementing good CSR practice and scrutiny of supply chains can help companies mitigate these risk factors.
The sector of CSR that most people recognise as CSR is the more widely accepted practice of community-based development projects. Many of these projects are either centred on the local community that a company directly impacts upon or on impoverished communities in developing countries. Community projects can provide opportunities for engagement with the work force and promote the company internally as well as externally. In terms of measuring the direct impact it has on a company’s profitability, it is much harder to gauge. Take a construction company, if you have a solid community involvement programme it can avoid major delays in construction. This could be at the planning stage or avoiding demonstrations that may delay controversial construction programmes. A computer consultancy company on the other hand has minimal impact on the community and so is likely to not gain as much from implementing involved schemes. However, although difficult to measure it should not be underestimated how this type of engagement provides good PR and be very effective as “team building” events and motivational for staff.
In the end, if a company can manage its CSR programme effectively and report honestly the benefits reach beyond that of positive PR, creating cost efficiencies, driving innovation, retention of staff, and better supplier and client relations. It would therefore seem that the real challenge is for companies to see through the spin and understand what CSR is really about and not just follow the hype. Then they will see the real advantages!
