Apparently everyone’s an activist these days.
Millenials appear to be the driving force. And now it’s CEOs. As if to confirm this latest trend, last month Laurence D. Fink, CEO of BlackRock – one of the most influential investors in the world – informed business leaders that profits are not enough and that serving a social purpose is now mandatory if they wish to receive his financial support.
Is CSR becoming sexy? Maybe. Is it fully understood? Probably not. Is that a problem? Yes, especially when those that don’t understand it are the ones that can do the most with it.
My last article led to a flurry of questions from a good friend via WhatsApp. He liked the article but his line of questioning suggested to me a deep sense of scepticism towards CSR and a general lack of understanding.
This concerned me because, not only is he a good friend, but he also graduated with an MBA at a prestigious business school and has since become a powerful decision-maker: He’s the CEO of a group of companies employing about 1,000 employees.
Activists or not, if the majority of leaders do not understand the business and ethical case for CSR then, quite frankly, this ship will never sail.
My friend’s questions were very logical, and they’ve offered me an opportunity to take my best shot at explaining some of the main principles of CSR to a sceptic.
If something is good for profit then it’s not CSR, it’s just PR by another name.”
A popular approach to CSR today requires a great deal of reflection on how profit can be gained through having a positive societal impact. PR can be part of that.
If something is good for profits then I’m looking after shareholders, not all stakeholders. Or I’m looking after stakeholders by coincidence because looking after them aligns with shareholder interests.”
Remember, profits aren’t only beneficial for shareholders. A number of stakeholders can benefit from businesses making profits: employees, suppliers, local communities, governments, and so on.
Conversely, profits are regularly impacted by actions of non-shareholder stakeholders: Activist NGOs staging stunts to expose unethical behaviour or celebrity tweets causing significant devaluation of company share prices, for example. Shareholders react to how other stakeholders value the company.
CSR is a consideration about how you make profits. This business ethos is something that you will need to communicate to your shareholders, many of whom are already on board with this way of doing business!
Or does CSR just mean behaving positively towards other non-shareholder stakeholders regardless of intent?”
Stakeholder management is one of the main CSR principles. It’s simply good business to have a handle on the issues that affect or are influenced by your main stakeholders, because they will have an impact on your business.
Once you have identified who your main stakeholders are, you should also analyse the extent of your social, environmental and economic impacts – another main principle. There are frameworks to help you with this.
You will end up with relevant, or “material” issues that should be addressed. It’s a way to remove the blinkers; it makes good business sense; and it helps you to do business in a responsible way.
Yes, you could call this ‘behaving positively’ but the business advantage is definitely there: these are issues that are relevant to your main stakeholders and society. This will benefit your business, and, in the long-term, your shareholders.
Pret-A-Manger give 50p back to consumers for bringing in their own cup. * Is that: 1) good CSR, 2) good PR damaging bottom line in the short term but grabbing volumes/market share and positive brand – all medium term profit upside, or 3) merely pre-empting government policy? So a defensive measure and again in truth shareholder centric?”
[*He was referring to this article on MP’s calls for a “latte levy” in the U.K. – a 25p tax on unrecycled disposable cups.]
Yes, yes and yes. Another principle of CSR is addressing challenges (managing risk) and identifying opportunities (adding value).
The Pret-A-Manger example shows how the company has anticipated and managed the risk that government will impose the tax. Their implementation of the 50p policy demonstrates leadership on the issue of environmental stewardship and, ultimately, boosts brand value.
The Pret CEO says “we would prefer to be generous to our customers than tax them”, i.e. shareholder interest and pure economics at the heart of it. ” Get to the heart of the definition of CSR – is it the action or the intent?”
CSR is the action and the intent – but only where both stem from an ethical business mentality and follow the main principles outlined above.
There’s a quote in the article that says, “Only by treating this issue as one that is the responsibility of both industry and consumers will re-use become the norm in place of single-use and throw away.” I think the Pret CEO falls someway short of fully justifying the intent behind the action. He should have added that, alongside offering customers the opportunity to save money, they can also help Pret to save the planet.
I sent the above to my friend. He still wasn’t convinced. The conversation continued:
Dan… it’s not clear that the Pret CEO’s decision did stem from an “ethical business mentality” but rather – 1) risk management 2) brand/pr 3) long term profitability.”
Maybe so. But I don’t know Pret’s business ethos, so I can’t be sure. The point is it could have been part of an ethical business mentality!
Instead of saying “CSR is good for business”, I’d ask you to tackle the definition head on with no wishy washy. What if stakeholder management is clearly not aligned to shareholder interests (unless you want to go super super long-term and ultra theoretical).”
The question is: Does CSR mean deviating from the principle of maximising shareholder returns? There are examples when shareholder and other stakeholders are fundamentally polarised.”
Okay, as plainly as possible: No, it certainly does not definitively mean deviating from the principle of maximising shareholder returns. Businesses have to stay in business; let’s not be naïve about that. What it does mean, though, is deviating from the principle of maximising shareholder returns through unethical short-termism.
Since sharing this final draft with him, he sent me this FT article on the AirBnB’s CEO’s recent announcement of a strategic shift towards a more responsible way of doing business.
I take that as a positive step. Now that he’s more informed, my hope is that this kind of news will take on a new meaning for him, and our conversation will continue on a deeper level.