RENOWNED economist Milton Friedman would never have imagined that acceptable returns on shareholders’ investment would remain to be the only measure for assessing a corporation’s success because for him there is only one responsibility of business—to utilize its resources and perform activities designed to boost profits so long as it follows the rules of the market without fraud or deceit.
But current geopolitical and business complexities and the radical change in regulatory policies of countries all over the world now encourage and sometimes require corporations to take an active role in social reform and action. These realities have changed the traditional landscape for businesses and the way they operate. Societal demands have increased the pressure for the Board of Directors of companies to move from a purist “rights and duties” role to one of good governance.
Larger role in society
And part of governance is confronting the escalating impact of environmental, social and political issues associated with a company’s daily activities. Companies are now increasingly conscious about the impacts of their operations—pollution, climate change, unfair labor conditions, hunger, political unrest and human rights. Since the demand of different stakeholders for more socially responsible operations are relentlessly growing, companies are left with no choice but to accept and integrate these concerns into their practices. Benchmarks and internal systems have been developed to assess performance on the basis of the aforementioned impacts. All of these initiatives are now described in one term—“corporate social responsibility” or CSR.
Good for the bottom line
The positive correlationship between good financial performance and CSR is now becoming clearer more than ever. In fact, many economic researches reveal that financial markets are rewarding or punishing companies based on their perceived social performance. Companies are realizing that there may be temporary tradeoffs between CSR goals and profitability, but on a long-term basis, there are greater opportunities for competitive mileage from establishing a social value dimension into typical corporate strategy. CSR initiatives enhance shareholder value by compelling companies to properly manage the risks, evaluate new markets, monitor and anticipate governmental and regulatory action while contributing to the developmental and welfare needs of the societies where they operate. In sum, CSR attracts more investors, the right employees, improves the company’s brand, leads to a positive reputation and pushes overall market performance.
But not everyone is impressed with companies and their present “fixation” with CSR. Some financial analysts and critics dismiss CSR as nothing more than a convenient public relations strategy. Others argue that CSR is a mere ‘‘window dressing,” “greenwash” and a pathetic attempt of companies to shirk from their legal responsibility by showing acts of corporate kindness and benevolence to hide the truth behind their misdeeds. Certain non-governmental organizations and cause-oriented groups have, likewise, shared their view of CSR as an effective preemptive move of companies to stop governments from acting as watchdogs over their activities. In fact, ethical compliance stakeholders observed that in many instances, CSR is even being used as a vehicle for graft and corruption in the area of charitable donations and social performance endeavors. Donations are being given left and right to social organizations that are chaired or managed by government officials, their relatives or minions. CSR has become a political accommodation.
These criticisms must be taken very seriously if companies are genuinely concerned with doing good. Process and governance-wise, companies must rigorously develop their respective assurance frameworks where there are common parameters to measure CSR goals, simple processes in place to achieve benchmarks, internal auditing and probably, a system where these goals can be externally verified by independent and reputable accredited bodies.
With CSR continuing to be a critical business issue, it is to be expected that companies shall face the challenge of proving to their investors, employees, customers and the general public that they strive to create value for both their shareholders and society in general. Striking that delicate balance is key. From philanthropy to being a real vehicle for social and economic change, this should direct how a company’s CSR platform should be measured. After all, there is always a large room in the marketplace for responsible and ethical firms.