Corporate Social Responsibility

By Shohini Kundu

In recent decades, corporations have come under increasing pressure from various groups to act in socially and environmentally responsible ways. In 1987, a group of Vermonters started a national campaign called McToxics to ban the use of styrofoam in food packaging. This campaign attracted students, animal rights activists, and even church groups. Even though McDonalds initially resisted pressure from the campaigners due to concerns about packaging cost and its impact on profit, it was in their long­term business interest to not alienate customer groups.

Consequently, McDonald announced that they would phase out use of Styrofoam and reduce their solid waste output by 90%. More recently, Chick­-fil­-A was embroiled in a public controversy in 2012, when chief operating officer Dan Cathy expressed opposition to same­sex marriage. In fact, the family operated business had contributed millions to organizations opposing LGBT rights. Once Dan Cathy’s comments became widely known, Mayor of Boston Tom Menino pledged to stop Chick­-fil-­A from opening franchises in Boston. Soon this protest expanded to other cities, like Chicago, as well as university campuses country­wide. As a result of public pressure, the Cathy family backed down from their position and promised to end funding groups that oppose LGBT rights.

Such pressures force companies to adopt standards that are ethically acceptable, as well as socially and environmentally responsible. Even though ethical standards vary from country to country, global corporations often face pressure to apply higher standards of ethical principles while doing business in under­developed countries. On April 24, 2013, garment factory Rana Plaza collapsed in Bangladesh and more than 1100 workers died under the rubble. Labor groups in Europe and the Americas mounted a campaign against retailers to improve the conditions for workers in Bangladesh. As a result, companies such as Zara, El Corte Inglés, and Loblaw set up a $40 million compensation fund for the workers in Bangladesh. These companies were under no legal obligation to do so, seeing as they did not violate any laws in Bangladesh. Nevertheless, there was pressure to apply ethical standards prevalent in Europe and the Americas.

Corporations today have to balance both the profit interest of the shareholders as well as the ethical, social, and environmental interest of all stakeholders. This has led to the emergence of what is known as corporate social responsibility, or CSR. CSR is also referred to as corporate citizenship or corporate conscience. CSR can take many forms including clean­up activities, donation of employee time on volunteer activities, and direct charity. For example, bigbox retailers such as Target and Walmart have community grant programs that donate money to local schools, homeless shelters, or other localized charitable organizations. The typical amount of these grants are less than $2500, representing a small cost to the corporations but large benefit in terms of goodwill generated in the community. In the absence of a positive local presence, local groups may focus on issues such as unfair labor practices or displacement of small community based retailers. Establishing a positive local presence through charity dissipates negative publicity and helps these businesses in the long­term.

However, CSR is not an absolute good. It is also controversial. In a recent article in Forbes magazine, David Fogel argues that while there are examples of superior performance at companies from better CSR programs, there are at least as many companies where that is not the case. He argues that majority of consumers do not care about ethical, social and environmental behavior of the companies. When CSR imposes tangible costs to companies, profits suffer as does shareholder value. He cites Starbucks as an example. Starbucks has generous labor policies and is committed to sound environmental practices by its suppliers, yet its share performed poorly in the stock market. Whole Foods and Timberlands, other companies that are known for strong CSR, had similar declines in stock prices.

There has been a spate of articles that claim that CSR is no longer a choice for the company, but an imperative. For example, McDonalds and the impact public pressure has had on the fast food industry would support this claim. McDonalds has been criticized for poor pay for its workers while it advertises their giving to Ronald McDonald House Charities, which some claim is corporate hypocrisy. When companies engage in charity, they also seek publicity and mount media campaigns to promote goodwill.

An example of such promotion can be seen in pharmaceutical companies who run programs to give away certain expensive medications for free to qualified patients (rxassist.org) and advertise their charity heavily. The actual cost to the companies is low because few patients qualify, but the promotion is beneficial to image. Examples such as this one have brought charges that CSR is nothing but window­dressing, an attempt to fool the public and the regulators.

However, not all charitable acts are selfish or for self­-interest. Americans cherish capitalism and profit making, but they also value contributions to society. Bill Gates, the wealthiest man on the planet, started the Bill and Melinda Gates Foundation. He is committed to giving away his wealth to promote social well­being, be it through works such as early childhood immunization, education, or health programs. Warren Buffet, the “Oracle of Omaha”, known for his spectacular stock picks and investments, is also giving away his fortunes and urging other billionaires to do so. The key difference is that these donations are personal, not corporate. While no one objects to private charity, corporate giving is a more complex subject.

Some argue that profits should be distributed to shareholders, and not given to charitable causes. David Henderson, in his book “Misguided Virtue: False Notions of Corporate Social Responsibility” argues against diluting the primary profit­making mission of a corporation. CSR has its champions and critics. It has been variously portrayed as an act of charity, a product of competitive pressure, an act of rational self­interest, or an act of window­dressing. It is surely a battleground for public opinion which the companies must win using public relations and CSR to succeed in the long term.