The idea of corporate social responsibility has become a growing topic in boardrooms in the last few years, with the debate centering on what obligations companies have to be socially responsible, and what impact it can have on the bottom line.
For public companies, the issue can be particularly daunting as they seek to please shareholders, lure investors, build a brand, and all the while preserve a pristine reputation in the public eye. The common refrain among managers is that a corporation’s primary responsibility is to act on the behalf of shareholders who own the company, who want the best possible return on their investment.
At the same time, managers increasingly face pressures from government, nongovernmental organizations, media and the public to take action that demonstrates a social conscience. But there is evidence many companies cannot live up to their commitments, and that is likely to present a continuing challenge for anyone managing corporate reputation
David J. Vogel, Solomon P. Lee Distinguished Professor in Business Ethics at Haas School of Business, University of California at Berkeley and editor of the California Management Review, says it is nearly impossible to make an overall judgment about a company’s commitment to socially responsible behavior or to sort the good companies from the bad.
The author of six books on business political influence and the politics of environmental regulation argues that there is a place in the corporate world for responsible firms, but that the “market for virtue” is not sufficiently important to make it in the interest of all firms to behave more responsibly
Recently he spoke with The Wall Street Journal Online about how managers are adjusting their strategies to the call for increased voluntary action that is good for society. Here is an edited excerpt of that conversation.
Q: Who determines what is “Socially Responsible”?
It is impossible to clearly define what is socially responsible. When it comes to how to distinguish between what is a normal business opportunity and what is socially responsible, the boundaries are flexible, and it varies over time. There are, however, three key components to what is normally considered corporate social responsibility (CSR). They are environmental, labor issues and human rights. When corporate policies or activities go beyond what is mandated by law, then that is commonly thought of as socially responsible.
Q: What’s the difference between business ethics and corporate social responsibility?
Business ethics connotes lawfulness, that a company is obeying certain standards or regulations, whereas CSR is voluntary behavior that serves and outside purpose.
Q: Which industries have more success or difficulty in implementing these policies?
It isn’t necessarily correct to think of corporate responsibility in terms of success. It’s more correctly analyzed in terms of the efforts that companies are making. At the moment, branded firms that rely on consumers are exerting the most efforts.
Q: Is social responsibility a fad?
No, I strongly believe that CSR is pretty resilient and enduring. It is more institutionalized among certain firms or industries. Some firms such as Whole Foods or Patagonia, for instance, have made CSR part of their business profile. And there is a huge consulting business that is growing to accommodate growing interest.
Q: Some companies have received unfavorable media attention for touting responsible policies and practices here in the U.S., but then having abusive labor practices or abuse the environment, for example, overseas. Are there indications that management strategies are beginning to expand the idea of social responsibility beyond U.S. shores?
Most definitely. I think there is a greater awareness that companies need to monitor practices within the corporation and also those of suppliers wherever they may be. I think companies are definitely trying to be more consistent across the board.
Q: Can there be any incentives that reward socially responsible corporate practices?
Regulatory benefits are one way to encourage CSR. And when a company abides by socially responsible practices, government is less likely to interfere and more likely to listen to their side of things. There are also the added benefits of CSR, such as greater employee morale or carving out new markets, for example, that are branded as CSR, but they can also be part of a viable branding strategy.
Q: What do you think about some of the arguments against CSR, that it costs shareholders in terms of stock performance?
I’m not persuaded by that argument. In most cases, companies don’t commit huge resources to CSR. And it’s too complicated an issue for most companies to try to promote in their messages to consumers. Most consumers buy products based on the simple equation of cost vs. quality. The notion of a company’s socially responsible practices involves cost with little potential reward, so many managers don’t bother to try to get that message across. Most realize there are limits to consumers’ response to that unless they are niche products designed to appeal to a particular market.
Q: There has been some research on the correlation between perceptions of corporate social responsibility and a company’s stock performance. Do you think there’s a link?
There’s a weak correlation. There are reputation effects and an impact in terms of employees, energy conservation or resource efficiency, for example. And there are certainly business risks of not doing it. But I don’t think the link has been proven one way or another. It’s not critical to company performance. And if you talk to fund managers, you will find few investors ask about it.