A new generation of executives and consumers have begun to shift the way corporations think. The companies of today take more responsibility for how they affect the world and their place in it, and consumers respond to those ethical business practices.
Public relations stunts are as old as the public itself. Whether clever tiles in a Roman mosaic or inventing the concept of halitosis, companies will always find a way to get your money. Today they do it by saying they care about hunger, poverty and the environment.
This is the debate over corporate social responsibility.
What Is Corporate Social Responsibility?
Corporate social responsibility is the idea that companies should take an active part in philanthropic, environmental and other social-welfare related goals. It can take a wide variety of forms depending on the individual firm, in terms of both scope and projects. Some companies might assign one or two individuals to a social responsibility task while others will found entire departments dedicated to this mission.
Not all companies embrace corporate social responsibility as an active part of their business model. The ones that do typically work in ways directly relevant to their industry. For example, a manufacturing firm might work toward environmental cleanup and ecological welfare while a pharmaceutical company might work on spreading access to medical care.
The specifics can vary, but ultimately corporate social responsibility is best defined as social welfare-oriented projects that are not a part of the company's core business model, even if they are related to it. This can also be thought of as non-profit initiatives undertaken by for-profit companies.
There is a long history both among American and global firms of non-profit giving, even though it is only in recent years that corporate social responsibility has become a formal part of the business environment. Today many firms have dedicated social responsibility officers or make this part of their executives' portfolios.
While many companies will launch projects directly, it is more common for corporate social responsibility programs to work in partnership with government agencies, non-profits and NGOs that have institutional experience in any given field.
Examples of Corporate Social Responsibility
Every year in Chicago, the payment processing firm Visa (V) hosts a financial literacy summit. This is part of its Practical Money Skills program, a department focused on expanding education about money and access to financial literacy nationwide. It is also an example of corporate social responsibility in action. Financial literacy is related to Visa's core business model, but education is not how the company makes its money. Nevertheless, the company has an entire program dedicated to helping people learn how to manage their money better.
In another field, there is the Hyatt Corporation (H) . A company that runs upscale hotels around the world, Hyatt also works frequently with the non-profit organizations in the communities where it operates. The managers at its properties will often directly fund NGOs local to that specific hotel, host fund raisers, place locally sourced art in the gift shop and undertake other methods of encouraging local development initiatives.
As with Visa, this mission does not directly advance the chain's core business model. It is not a philanthropic organization. Yet it is related to the hotel's core business model as it helps to develop the communities in which the Hyatt has properties, particularly within developing nations.
Standards and Regulations Around Corporate Social Responsibility
There is no direct regulation of corporate social responsibility aside from the laws and regulations that otherwise apply to companies in the ordinary course of business. Social responsibility is an entirely voluntary practice, even if it is increasingly common among large firms.
For companies looking to work within certain best practices, the International Organization for Standards has issued ISO 26000 on the subject. This is an entirely voluntary guideline to help companies build social responsibility programs, but it is not part of any ISO certification.
Corporate social responsibility can also have significant tax implications for a company. Depending on how the operation is integrated into the firm overall, a company's social responsibility operations can be treated as charitable giving for tax purposes. This is a potentially significant write-off, however companies must be careful. If the social responsibility branch promotes the company's product or in some other way is seen more as a publicity operation than anything else, the IRS may deem this tax break illegitimate.
Why Undertake Corporate Social Responsibility?
There are many reasons for a company to develop a corporate social responsibility mission. The first is, potentially, that the firm's officers simply believe in the project. As millennials move into positions of greater authority, there is an increasing push for greater social consciousness both among corporate operations and financial investments. This has led many to want their jobs to come with a sense of purpose beyond the day-to-day.
Another reason why a company might launch a social responsibility program is, as noted above, the tax advantages. They can be substantial.
Further, corporate social responsibility can make it easier for a company to operate in its chosen field. For example, consider the example of the Hyatt hotel chain. It runs a global program to work with local non-profits in the communities that surround its hotels. This has the effect of improving the hotel's reputation among potential employees and beautifying the community that its guests will see when they step outdoors. This is not directly related to the company's core business model, but indirectly supports it nonetheless.
Finally, corporate social responsibility can substantially improve a company's reputation. While reputation has always mattered to a company's bottom line, today that has become more true than ever. Social media and the internet allow consumers to change their minds about a firm quickly, and online commerce means that every company operates in an environment of maximal competition at all times. Even virtual monopolies like Facebook (FB) have to deal with this reality, as the firm discovered when 44% of young users deleted the network's app from their phones after the news broke about its data mining operations.
The Debate Over Corporate Social Responsibility
Critics of corporate social responsibility argue that it is, ultimately, little more than a PR stunt. It doesn't help, they argue, when a polluting firm cleans up a few beaches. The company should simply stop causing that damage in the first place.
Advocates argue that it is a chance for companies to help their consumers on multiple levels. It doesn't matter if this is about PR, they argue; in fact, that's the point. Corporate social responsibility is consumers voting with their wallets. Especially young people, who want to buy products from companies that care about having a philanthropic impact, and those firms have begun to listen.
If the company just wants to clean up the environment as a way to get more customers, well… isn't that showing that the system works?