Do Not Neglect Corporate Social Responsibility

As we have seen with the current problems in the Gulf of Mexico and recent recalls in the automotive industry, Corporate Social Responsibility (CSR) can have huge consequences for global firms. CSR has a long history but the past decade has shown that big firms now accept they must devote resources to CSR activities across a range of corporate functions.

What has also become apparent is that firms that don’t spend time and money on CSR will lose out to savvier competitors.  In our experience, those firms that have well established CSR policies and initiatives tend to be the best performers.

Correlation does not imply causation of course but there are numerous examples (for Procurement Strategy Council clients, for Corporate Strategy Board clients, and for Research & Technology Executive Council clients) of firms that have used CSR to improve both top line and bottom line performance. From our work with some of the world’s biggest firms, the main functions that incorporate CSR into their work are compliance and ethics (obviously), corporate communications, procurement, HR, R&D, and corporate strategy.

Where to Focus

Despite many firms working on CSR for over a decade, Procurement Strategy Council (PSC) research has identified several key points that firms are still struggling with when creating, improving, or revising CSR initiatives:

1. Globalize Responsibly: Companies realize the importance of social responsibility in order to adhere to government standards, gain access to international financial markets, and expand global connections. Recognizing that there are differences in laws, customs, and economic conditions that affect business practices in various parts of the world, companies must set environmental, ethics, health and safety standards to remain competitive and maintain a strong corporate image.
2. Recognize the Benefits: Media interest is one of the main reasons why companies focus on CSR initiatives. CSR programs enable companies to integrate the economic, social, and environmental impact of their operations. Many companies have found that CSR programs increase employee productivity and product quality, reduce operating costs, increase sales and customer loyalty and improve financial performance.
3. Formalize Compliance Programs: Leading companies agree that written codes of conduct give direction on how to ethically operate in business. McDonalds Corporation and Ericsson are two companies that have taken the lead on establishing supplier codes of conduct. Once firms have established a supplier code of conduct, managers should then use it as a tool for assessing supplier performance.

Companies must pay close attention to their operations with suppliers and manufacturers, especially in foreign countries. When dealing with suppliers and manufacturers, it is critical that they adhere to your firm’s corporate ethics, policies, and standards to help avoid hidden risks. The last thing your company needs is negative PR regarding poor working conditions, child labor, competitive pay, or environmental issues. PSC clients should use this research to learn how leading firms design and ensure compliance with corporate ethics policies.

Protecting Against Reputation Risk

If your firm has been the subject of negative media coverage, whether true or not, it will trigger a long struggle to regain a socially responsible status. To protect yourself against reputation risks use tools like Cadbury’s risk-assessment model (for PSC clients) to perform due diligence, assist internal and external partners in managing risks, and ensure continuous monitoring.

What’s essential to remember is that CSR is here to stay and all firms need to work out how to not only comply but to profit from it. As the Corporate Strategy Board showed at the beginning of 2007, some of the best firms have already used these issues to gain competitive advantage over less-responsive, slower-moving firms. Your firm cannot afford to be left behind any more.