5 Myths of Corporate Social Responsibility
5 Myths of Corporate Social Responsibility
It might seem easy to dismiss the idea of corporate social responsibility (CSR) as a new trendy corporate buzzword (with the likes of synergy and right-sizing). But CSR is not a fad, and it is not going away anytime soon. A series of myths often mischaracterize the idea of CSR. In an attempt to combat this, P3 Utah has identified five of the most persistent myths and debunked them.
1. CSR is Expensive
One of the fundamental tenets of corporate social responsibility is a profitable company. One of the key ways to achieve profit is to identify inefficiency and waste in a system and correct it. By doing this under the lens of CSR, a company can reduce its impact on the environment and increase savings. An example of a company doing this is Walmart. In 2005, Walmart announced plans to improve its supply chain and fleet efficiency. By using innovative routing and loading techniques and investing in new technologies, Walmart was able to double its fleet efficiency, significantly reduce emissions, and save over a billion dollars a year.
2. Loss of Competitive Advantage
This myth is easy to understand. Sure, the factory is questionable with the treatment of their workers, but they are the cheapest, and you are already facing fierce price competition. If you were to switch suppliers, wouldn’t your firm lose its competitive advantage?
This is what the executives of Patagonia first thought in 1999 when they joined a task force created by President Bill Clinton to improve factory conditions. What they discovered is when they worked with factories with higher labor and safety standards, the workers were happier, and they produced better quality goods. This reduced the need for expensive rework when goods failed to pass quality control and the “boomeranging” that happens when customers bring their lower quality goods back for a refund or exchange. In the long run, the switch to a more reputable supplier lead to a reduction in costs and a greater competitive advantage for Patagonia.
3. CSR is Just a Form of Brand Management
This is a rather cynical myth about the idea of corporate social responsibility. While it is true, the implementation of a strong CSR program may help your company image, it is much more than that. A good CSR program should encompass the 3 P’s of Sustainability: Planet, Profit, and People. Taken together, the company works to become more profitable by cutting unnecessary costs, fostering happier employees and community, and helping the planet. Though CSR as a form of marketing misses the other opportunities, the 3 P’s provide.
4. Investors Don’t Care About CSR
The Nobel Laureate, Dr. Milton Friedman, argued that “the sole purpose of a business is to generate profits for its shareholders.” The very idea of CSR profoundly goes against this argument. It argues that businesses shouldn’t just focus on their shareholders but also their stakeholders. This includes the employees, the environment, and the community in which the company operates. It seems natural that investors would not like the idea of CSR. If they are not the priority, why should they care about this program?
The fantastic rise of impact investing debunks this myth. Impact investing are individuals and institutions, think retirement and endowment funds, who are focused on investing in companies that are focused on environmentally and socially beneficial causes. This idea of impact investing has grown particularly popular with the millennial generation as they enter the financial marketplace. In 2019, it was reported that impact investing exceeds $500 billion. There are now credit agencies who rank companies based on their CSR, specifically for impact investors. There is now a huge market for investors who care about corporate social responsibility, and companies who fail to implement a successful CSR program will miss out on billions of dollars of investment.
5. It is Optional
The world is about to go through the greatest transfer of wealth in human history. It is estimated that within in the next 30 to 40 years between $30 and $68 trillion in assets will be transferred from Baby Boomers to Millennials and Generation Z. That is just in the United States alone. These coming generations are demanding a lot more from the companies they interact with. If firms want to stay in business during this coming wealth transfer, they must emphasize corporate social responsibility.
This is all notwithstanding, the increasing dangers of global warming and the harm rampant consumerism is causing to our environment. As entrepreneurs Yvon Chouinard and Vincent Stanley point out in their book, The Responsible Company, “biologists agree that we’re in the midst of the planet’s sixth extinction crisis (the fifth was that of the dinosaurs).” If commerce and society are to survive in their current form, every company must enthusiastically embrace the ideas of corporate social responsibility. It is better for the profits, people, and the planet.