BUILDING CORPORATE VALUE THROUGH CORPORATE SOCIAL RESPONSIBILITY
As the practice of corporate social responsibility (CSR) is being embraced by more companies, there is a greet appreciation of its role in building corporate value. While well-known management thinkers, such as Michael Porter, have written about CSR as part of a firm’s competitive advantage, it can also be a key mechanism for building corporate value.
A reflection of this understanding by some of Canada’s corporate leaders was evident in a recent article in the Globe & Mail (October 12, 2009). Gordon Pitts interviewed two corporate titans who commented on corporate social responsibility: Paul Desmarais Jr, Chairman and co-CEO of Power Corp of Canada and Charles Sirois, Chairman, CIBC.
Desmarais commented that CSR has captured a lot of attention over the past decade for two reasons. First, “society’s eagerness to scrutinize and criticize behaviour is stronger than ever and is continuing to escalate.” This trend has grown with the evolution of the stakeholder approach to corporate activities; companies have obligation to various groups that are impacted by their actions. Milton Friedman’s famous “custodian of wealth approach,” articulated in 1970, that corporations exist only to make a profit is long out of fashion. In fact, many companies routinely integrate community commitments into the mission and vision statements.
Secondly, Desmarais noted that “reputation risk has become a much bigger factor in corporate valuations. You’ve got to be a lot more attentive than ever before.” Just ask Nike. Not long ago Nike was being tarred with accusations of exploited sweat shop labourers producing high-priced shoes. The company could not sit idly by. Phil Knight needed to launch a serious and expensive counter-offensive to safeguard the value of his brand.
The second corporate leader interviewed was Charles Sirois. He noted that while the main goal of a corporation is to be profitable, it has to be looked at on a longer-term basis. He explained that a company should take the approach of an “owner’ who is involved for the long term rather than that of an “investor” who is treating the shares of the company as a commodity.
Sirois explained that the “owner’s perspective is you need to maximized return over a longer-term basis and for this you need to be socially involved.” Of course, the challenge in Sirois’ position is for management to maintain this long-term perspective despite the demands of shareholders and even other managers who seek shorter-term gain.
Sirois further explains that, “Creating value not just for yourself but for the society around you is a key element of building value for your corporation.” Sirois’ approach reflects the importance of CSR as part of the value-building process for a corporation.
The comments of these two corporate leaders, Desmarais and Sirois, are reflective of a clearer understanding that CSR is vital to the value building process. Not only are these companies doing well, but they are helping their own objectives. As Michael Porter has written, CSR has great potential to be a competitive advantage; but it won’t be for companies that don’t embrace the opportunity.
Corporate social responsibility with the local community
Working with your local community brings a wide range of benefits. For many businesses, local customers are an important source of sales. By improving your reputation, you may find it easier to recruit employees. A good relationship with local authorities can also make your life easier. For example, some local authorities prefer to award contracts to businesses with a record of community involvement.
There are many ways to get involved. Some businesses choose to support a local charity, or sponsor a local event. It makes commercial sense to get involved in. an activity related to your product. This lets you use your expertise as well as showing the human face of your business. For example, some restaurants provide food to local homeless groups, while builders may give free labour and materials to community projects.
You can find out more about getting involved with your community on the Small Business Journey website – Opens in a new window.
Look for opportunities that will directly benefit you – for example, by generating publicity, or improving the neighborhood around your premises.
Many businesses involve their employees in working with the local community. For example, you might support charities chosen by employees. Some businesses encourage employees to volunteer for community activities and also give them paid time off for this. As well as improving your community relations, this can help motivate employees and can help develop their interpersonal and team participation skills.
You could also give your employees the option of making regular charitable donations which are deduced’at source’ from their pay.
Business in the Community (BITC) has developed the Community Mark standard to help businesses get the most of out community involvement. For more information, read about the Community Mark standard on the BITC website – Opens in a new window.
Community Justice Projects
The government’s community justice initiative helps businesses work with local agencies to improve the quality of life in their local area. This can benefit your business in a number of ways. For example, if your business is suffering because of damage to your property or the surrounding area, the community justice team can work with you to address this.
Your business could take a pro-active approach to dealing with local crime by supporting recent offenders. You could help them learn new skills by offering them work experience or training, as part of a sentence or on a voluntary basis. Or you could provide financial or practical resources to the local community justice team. And getting involved with local regeneration projects is another way of helping attract new business to your area. Find your nearest Community Justice project by checking our list of current schemes – Opens in a new window.
You could also support staff who volunteer in the criminal justice system, e.g. as mentors, special constables, youth offender panel members, or in victim and witness support. See our guide on allowing time off work.
You could offer financial or practical resources to the local community justice team. Corporate social responsibility and your business Corporate social responsibility (CSR) can cut across almost everything you do and everyone you deal with. You need to think about:
- The suppliers you choose and the way you deal with them. For example, trading with suppliers who pollute the environment could be as irresponsible as doing so yourself. See the page in this guide on how to deal responsibly with customers and suppliers.
- How you treat your employees. For the responsible business, this means doing more than simply complying with legal requirements. See the page in this guide on how to benefit from corporate social responsibility.
- How your business affects your local community and whether you should be actively involved. See the page in this guide on how to work with the local community.
- How what you do affects the environment and what you can do to use resources more efficiently and reduce pollution and waste. See the page in this guide on how to understand the environmental impact of your business.
This doesn’t mean that you can’t run a profitable business. In fact, CSR can help you improve your business performance. By looking ahead, you’re ready to cope with new laws and restrictions. You avoid costs such as wasted energy or paying unnecessary waste fees. Perhaps most importantly, you can keep winning business from increasingly demanding customers.
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