Tuesday, November 20, 2012
CSR
This is a short article about Corporate Social Responsibility. The author
talks about the consequences of CSR and if is important to your company. He
gives an example of Pepsi Co. when they tried to launch a competition to its
consumers called the “Refresh Project”, and that it would give away $20 million
to the winner. The competition was about who could invent the best refreshing
idea that would change the world. During this time Pepsi actually lost part of
its market share and sales declined 10% in early 2010!
The author says that there is four keys to a healthy growth strategy and those
are; Internal Alignment, Clear Focus, Aggressive Marketing, and Undistracted
Consistency. And he says that as long as the company behaves responsibly,
makes a profit, and creates jobs, increases wealth of the shareholders – which
these things are the only thing that matters in the end.
My question to you is; how does a large corporation balance CSR while
maintaining high returns for its shareholder, should it only focus on
shareholders wealth? And when does CSR become contradicting with Shareholders
returns ?
http://www.businessweek.com/articles/2012-08-09/corporate-social-responsibility-distinction-or-distraction
-- Mario Basque
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Great post, Mario!
ReplyDeleteI am certainly no Friedman in thinking that a company's only purpose is to make a profit, so long as they do so legally. That being said, I'm not naive in thinking that companies will continually partake in activities that will negatively impact their profits and shareholder value and wealth. Companies will partake in activities that increase their value.
I think overall, the discussion of CSR is a very important one, as CSR is becoming less and less of a 'choice'. This is not simply because of increased pressure from consumers, but because of the fact that doing things like being 'green' has cost benefits for companies.
I think it is also interesting to consider the motives of the company in certain CSR practices. Some CSR practices are considered to be nothing more than glorified marketing strategies, while some hold more merit.
As smart consumers, it is our job to discern whether or not a certain CSR practice is simply a smart marketing technique (i.e. companies advertising they do a certain activity and may not) One example of this would be Nexxen, promoting environment friendliness when they were over the stated limit for emissions.
Brittany
I would have to agree with Brittany's comment.
ReplyDeleteIn today's society, the issue of CSR has become almost a mandatory issue that all corporations must consider. Large corporations are judged by us the consumers in they market, based on the level of CSR that they undertake. Therefore one could say that it is only fitting for large corporations to sort of mix their CSR motives together with their profit making strategies as a way to look good in the eyes of the public. Brittany mentioned a good point where she stated that some CSR practices are just "glorified marketing strategies".
In my opinion it is good that companies nowadays are trying to improve on their CSR efforts whether it be to give back to society or to reduce on their carbon footprint, but in the end their main objective will always be to make profits for themselves and shareholders. CSR, again in my opinion, for now sits at second on the to-do-list, after "make profit", for large and small corporations alike.
Bradley J
I think CSR and shareholder wealth can go hand in hand. Many consumers today value and are conscious of an organization's CSR. Consumers typically purchase goods from companies whose values align with their own. So if an organization's CSR practices align with the values of consumers, it can lead to increased profit and shareholder wealth by attracting and retaining more customers. Also, if an organization invests in more environmentally sustainable practices, it could save them energy expenses in the long run, thus further increasing shareholder wealth.
ReplyDeleteI came across this interesting article by Forbes ( http://www.forbes.com/2009/11/20/corporate-social-responsibility-leadership-citizenship-marketing.html ) which discusses how companies should be approaching CSR from a bottom up approach rather than top down. Companies should create their CSR culture through their stakeholders and consumers rather than through their board of directors. Companies should also communicate with their stakeholders to fully understand their needs. The article states that they should "use focus groups and other marketing research techniques to understand the deeper psychological needs that corporate responsibility can answer for stakeholders, such as the self-esteem and pride that a consumer can draw from affiliating with a socially responsible company." By doing this, companies can align their CSR practices by fully understanding the consumer's values.
I believe that CSR and shareholder wealth go hand in hand. However, the hard part is figuring out how to use your company's CSR efforts to market yourself even better to consumers, thus increasing sales, and thus increasing shareholder value. I think the important thing to always consider with CSR, especially when you are using it as a marketing technique is to make sure that consumers percieve it as something built in to the organizations that is apparent throughout all of its operations and does not seem like just a bolted on publicity stunt attempt. The consumers that care about CSR are the ones who will actually look at a company to see if they are really committed to what they say they are committed to. those consumers who do not care about CSR will not be swayed either way so a company must go into CSR marketing efforts witht he assumption that all of the consumers they are targeting with the CSR marketing campaign will be looking at them closely. If a company can successfully implement a CSR based marketing campaign then it will increase shareholder value. But it has to be done right.
ReplyDeleteMike Byrne
This is a very challenging question, but I fundamentally believe that organizations are not going to change they way they operate unless driven too. I am cynical on this issue, but the only way a corporation balances CSR and shareholders is where CSR is beneficial to their bottom line and therefore shareholders. As Mike discussed above, this is through marketing what the company does that is socially responsible to draw in customers. The way society is set-up, a companies sole responsibility is to the shareholder. In order for this to change, either governments need to set regulations and requirements that force companies to be more responsible, or consumers will have to "vote with their dollar" in order to change the way businesses act by altering their habits to change the motivation of business.
ReplyDeleteSeth Pickard-Tattrie
I think that the main purpose of a company is to provide value for its stakeholders. Increasing returns for shareholders is only one part of the main objective. If a company focuses on providing a product or service that benefits consumers, treats its employees well, all while not hurting the environment, then the business will do well and earn higher profits. If CSR strategies are built in to the core business strategy, then these strategies will help build a better reputation for the company while not taking away from corporate wealth. The key here is not for companies to just simply make charitable donations, but to build socially responsible values into their core business practices. Having good CSR strategies will not only make their products more popular, but it will also attract the best employees to work for their company. Of course companies will want to advertise all of their socially responsible initiatives, but I believe that if they focus on what the company is actually doing, then this will be reflected in society. If companies are just simply "greenwashing" for example, this will (hopefully) be scrutinized by the media.
ReplyDelete- Rebecca Hebb
Hi Mario:
ReplyDeleteGreat choice article and a very insightful question. The examples in the article TOMS shoes and Pepsi provide some good basis as to where a company should might ere when determining whether to pursue a costly CSR initiative and how best to maximize shareholder wealth.
In the case of TOMS, their CSR is centered right around their operations. It is genius marketing: a pair of shoes sold sends a pair to someone in need. Shareholders expectations are formed around this and it jives very well with the consumer.
A successful CSR strategy in mind should work to make headway in areas where a firm may be providing a diservice. In the case of Pepsi, could the corporation not give back in helping to fight obesity, diabetes, or some other chronic illness for which there might be an association? SUch efforts would generate good publicity and one would hope that this would also increase revenues and shareholders wealth.
In any case, thorough research is very much required: a firm must determine the effect of CSR initiative will be on the bottom line. Done correctly, it ought to increase shareholders wealth.
-Patrick Losier
There is no question that one of the main goals for every for-profit company is to create profits and to create wealth for it shareholders. I feel as though these companies could use their money more wisely by undertaking creating shared value (CSV) strategies. By Pepsi doing this “Refresh Project” giving away $20 million is a pure CSR strategy. They could, such as Pat has indicated, focus on a project to lower obesity or another societal health concern which would create a societal benefit. Other options would be to change the way the product is produced to help raise the quality of life of their employees. This would also improve their image in the eyes of consumers which hopefully would help in increasing profits. A CSV strategy, if done correctly, would help society while also creating profits and shareholder wealth.
ReplyDelete-Ben Chisholm
Great question, Mario. It's true. Basic economics prove that the main objective of companies is to make profit. That said, today there are a myriad of ways for companies to achieve their objectives while creating shared value and abiding by the CSR movement. Your question asks us: how is this possible? After doing some research and reading up on Ray Anderson, it is possible through clear focus, commitment, and a built in approach. CSR must be a key ingredient within a company's business practices.
ReplyDeleteRay Anderson is an excellent example of an individual who has truly proved the business world wrong. Profit and socially responsible initiatives can in fact go hand in hand. His company, Interface, is an extremely petroleum intensive company, yet has found a way to reduce its environmental impact each year. By 2020, Interface hopes to have a 'zero' impact on the earth. That said, today Interface is a billion dollar corporation. Thus, satisfying shareholders and respecting the environment, all while making a profit is possible.
As a consumer I am reluctant to pay more on the dollar for a similar product that will bring me equal benefits simply because the company that made the more expensive one has a reputation for being socially responsible. I could see how shareholders would react in a similar manner; they may be concerned that the company they've invested into is not utilizing the shareholders dollar to generate more wealth. That being said, any shareholder who does not have faith in how their money is being spent can simply withdraw their investments from that firm by selling their shares for example. In general I feel the minimum any business should be required to attain is to be completely environmentally sustainable. I believe some ways are much more efficient than others, but at least by being sustainable companies will not take away from the environment and society. This is important because the company needs the environment and society to exist; businesses are much more reliant on these factors than society is reliant on their product, regardless of what the product is. As Brittany said there are ways in which the business can build their strategy so that being socially responsible is intrinsic in their functions and success we simply need to innovate and explore new conceptions of what it means to be a successful business.
ReplyDelete- Nolan Hanson
I agree with Nolan's point, and i would also be hesitant to pay more as a consumer just to support a good cause. If i felt personally convicted enough to help a cause, I would spend my money their directly. However, I can see the corporate perspectives here. CSR is certainly worth considering in order to protect the interests of an organizations shareholders, and the environment it operates in. I can also see how promoting CSR within an organizations marketing strategy can be effective. I think Mike B. said it earlier, that by simply "bolting on" a CSR facet to an organization, reduces the integrity of that organization. I think consumers are becoming more and more educated and their consumption decisions will be less likely to be swayed by these methods.
ReplyDelete- Mike Lowe
Well I agree with britt on this one. It does come down to returns for the shareholders otherwise they wouldn’t invest in the company. However that being said companies have an obligation to be leaders in society. By taking on CSR initiatives companies show world they care about more than just money. And this in turn can actually result in an improved corporate reputation which can increase shareholder wealth. People often associate strong CSR with a successful company so it can be seen as an investment to generate interest in the company and add valuable exposure. CSR initiative like going green have actually proved to reduce costs in the long run which also increases dividend payments for shareholders. However, sometimes these bolted on CSR efforts can waste money a lot of companies have been able to implement effective campaigns that can generate increased wealth.
ReplyDelete-stu