In the 1990s Nike faced a consumer boycott after the press reported abusive labour practices in some of its Indonesian manufacturers. McDonald's has recently been in the media spotlight after an exposé highlighted the impact overindulgence on their food might have on consumers' health. Both reactions forced public adjustments in their business practices and correspondingly exhibit the basic tenet of corporate social responsibility (CSR): companies can no longer concern themselves exclusively with profits; they must also show concern for their impact on the wider community and environment.
The majority of large corporations have CSR policies in place nowadays. It is a term that has become familiar jargon in boardrooms worldwide and it is interesting to note that the current incarnation of the idea was (for the most part) foisted on the economic community by the general public. According to a PriceWaterhouseCooper poll, two-thirds of consumers want companies to go beyond their historical goal of making profit, contributing to broader societal goals as well.
But we have entered a perceptibly new era and businesses have started to recognise the benefits of socially-motivated projects for corporate ends. Firms are driving the concept as they see the advantages that a ‘human face' can offer. The escalating use of modern technologies such as the internet, television and text messaging is proliferating public awareness of the idea and consequently the place for the projection of this image.
What is it?
Fundamentally, CSR is about how companies manage their business processes and interaction with the wider community in order to have a positive overall impact on society. Being a now global ideology, a certain amount of cultural relativism is involved. Within the Western world alone there is divergence: America traditionally defines the idea in philanthropic terms with charitable donations to offset profits; Europe focuses more on ensuring that businesses operate in a socially responsible and sustainable way, complimented by investment in local communities.
Nonetheless, the World Business Council for Sustainable Development defines CSR as a "business' commitment to contribute to sustainable economic development, working with employees, their families, the local community, and society at large to improve their quality of life". It is realising that the stakeholders matter as much as the shareholders.
Stakeholders include employees, customers, business partners, communities and society in general. There are subtle variations in the stakeholders associated with each company so policies are tailored appropriately but projects can take many forms. Education campaigns, foreign charity projects for employees, environmental schemes, energy saving measures, health drives for colleagues, financial support for community causes in art, youth and elderly projects are just some examples of initiatives already in place. It's not just about money; it's about interfacing with society.
Growth of CSR Awareness
Though it has become inordinately popular, there is not universal support for the CSR principle. In the Middle East, for example, there are those who argue that it is first and foremost a government's job to safeguard the economic and social welfare of its people. According to website AMEinfo, others have deemed it to be a simply cosmetic exercise, "nothing more than a cynical PR opportunity, a way for MegaCorp to gloss over its dumping of chemicals into a nature reserve by spending a few dollars on a youth centre."
But for the most part the corporate world is optimistic. There a prevailing sense of long-term planning and ‘the bigger picture' that permeates the principle which is both refreshing and exciting to see in the corporate world. The term ‘sustainability' contained within the title is central to the philosophy, something coveted by consumers and executives alike.
Whilst it is undeniable that companies are in business to make money, this does not mean that value creation and CSR are mutually exclusive entities. The International Institute for Sustainable Development (IISD) assert that there is a growing consensus on the connection between CSR and business success; strategies based on integrity, sound values and a long-term approach offer clear benefits to society and the business.
Why pursue a CSR policy?
There are direct and precise advantages. Crucially: it builds a good reputation with clients (suppliers and customers), it helps to attract and retain talented human resources, it affords commendable transparency and compliance with regulators, and (by fostering good business practices) it ultimately creates added value for shareholders. The implementation of a strategy can act as a form of audit, helping to improve operational efficiencies with corresponding cost-savings. A better and happier workforce can harbour greater innovation and increase competitiveness. The list goes on.
Of these advantages, reputation is unquestionably the key. The establishment of PR and marketing as prosperous industries are testament to its importance. The European Commission for Enterprise underlines this, saying, "Your customers want a reliable supplier with a good reputation for quality products and services. Your suppliers want to sell to a customer that will return for repeat purchases and will make payments in a timely manner. The community around you wants to be confident that your business operates in a socially and environmentally responsible way. And, your employees want to work for a company of which they are proud, and that they know values their contribution."
This goes part way towards demonstrating the broader benefits of the idea. Properly applied, it can also aid market stability, improve the talent pool in a locality and help the economic region in general. Supporting this, the IISD posit that "effectively managing governance, legal, social, environmental, economic and other risks in an increasingly complex market environment...can improve the security of supply and overall market stability."
On a GCC-specific level, CSR can be of direct benefit to local businesses by inspiring confidence and cooperation in securing the economic goals of the UAE and the region. Traditionally family-owed local enterprises are becoming aware of the need to align Middle Eastern business with the global economy if they want to attract foreign direct investment.
In sum, it is a question of astute and forward-thinking corporate governance.
CSR and Government
The governance aspect of CSR continues as governments see the potential for businesses to support the global good. Though coercion by governments has barely been necessary, some are keen to formalise the unspoken agreement between business and society. It has become politicised. The Government of Malaysia has been a front-runner in this, having already instituted that CSR is legally required of all organisations and annual reports must be provided. Legislating on the matter allows the government to monitor and direct socio-economic issues and hold everyone to the same standards. The UK has an appointed a CSR minister to promote sustainable economic development. The EU has a commission in place specifically for dealing with CSR.
As businesses have grown in power and influence, so has their ability to operate effectively within a global sphere of operations meaning that they are more influential in the realm formerly reserved for governments. The World Bank confirms that businesses themselves can see the inherent value of self-regulation with judicious public social policies: "Firms in emerging markets are realising improvements in revenue, market access, productivity and risk management as a result of such initiatives. Governments are capitalising on them as cost-effective and voluntary business mechanisms to: ensure implementation of labour and environmental standards; enhance national poverty-reduction strategies; and build country competitiveness by ensuring the standards investors want to see."
The United Nations has set up a voluntary global organisation to encourage companies to support universal environmental and social principles. Launched in July 2000, the Global Compact now has 4,500 members who work together to stimulate change, promote good corporate citizenship and encourage innovative solutions and partnerships. Members are required to lead by example in advancing responsible corporate citizenship, produce practical solutions to contemporary problems of globalisation, leverage the UN's global reach and convening power with various stakeholders, share good practices and learning and improve their internal processes for the good of the company and its employees. These greater-reaching aims alongside the use of the term ‘global citizenship' indicate a more holistic, utilitarian approach to the corporate-social relationship.
In the Middle East, CSR is more embryonic but taking root. Corporate social philanthropy is traditionally intertwined with the Islamic principle of zakat (to a certain extent) but alignment to the Western form is becoming commonplace. More and more companies are researching and installing region-specific CSR policies of their own. A pan-regional CSR summit is held annually in the GCC (now entering its fifth year) and professional associations (like the Dubai Centre for Corporate Values) are cropping up.
Reaping the Benefits
It boils down to shrewd corporate governance. Companies that exhibit good leadership and organisation are those that generally enjoy success. Those that are transparent in doing so are those that enjoy the spoils of public acclaim. A forward-thinking attitude that grasps the inherent tactical benefits of an astute approach to profit, both financial and non-financial, will reap long-term rewards. Good and appropriate activities, especially those involving education and health, can help firms themselves, the sector as a whole and perhaps the wellbeing of the market itself.
For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.