The importance of corporate social responsibility

Introduction

Corporate social responsibility is now becoming a strategic imperative for many businesses around the world. Due in part to the internet and social media, consumers are now becoming much more cognizant of the plight of those around them. Issues related to carbon emissions, income inequality, policy brutality, racism, and healthcare have not entered mainstream discourse. Businesses are increasingly taking stances on issues they believe are helpful to move society in a much more prosperous and beneficial manner. Investors are backing these initiatives too, seeing a large potential for both profit and shared prosperity. The coalesce of investor capital, consumer demand, and business interest has created new and exciting initiatives around corporate social responsibility. In fact, research shows that consumers are willing to pay premium prices for products backed by companies that are socially responsible (Albinger, 2000).

The signs related to the increase in corporate social responsibility show no signs of abating either. Society is now holding businesses accountable to all their key stakeholders, not just investors. By being a good corporate citizen, not only can businesses continue to grow and flourish by society overall all will be better for future generations. One area that has garnered particular interest as it relates to corporate social responsibility to diversity and inclusion. The recent killings of George Floyd have highlighted a long existing racial gap within the country. This gap has grave implications for society. For one, income inequality heavily impacts people of color as many simply are not afforded the same opportunities as their white counterparts. This also an adverse impact on society as income and wealth have strong correlations to crime and incarceration rates. Companies have recently taking up various diversity and inclusion initiatives aimed and attracting, hiring, and training, diverse candidates. Companies around the world have taken these initiatives as it aims to protect and help all parties involved. Businesses benefit from a much more robust and engaged employee base. Society benefits as more minorities are able to move up the income and wealth ladder of society. The individuals themselves benefit from the opportunity to revers centuries of policies and procedures that often hindered the growth and prosperity of minorities. With these initiatives, the opportunity for generational wealth creation is afforded to minority groups.

1What is the nature of the CSR opportunity you are considering? Specify which CSR theatre you are focusing on (see assigned reading: The Truth About CSR). https://hbr.org/2015/01/the-truth-about-csr (4 points)

The nature of the corporate social responsibility opportunity I am considering is vast. Here the diversity initiative more closely resembles that of theater 3 which is related to transforming the business model. The idea behind this corporate social responsibility is to fundamentally change the method in which the organization not only interacts with minorities and women, but also how they attract them to the organization to address income inequality. For example, Wal-Mart has not only raised the minimum wage for its employees to $15 dollars an hour, but it also has aided in helping employees generate news skills by helping to pay for college tuition. Another example is Nike who have fundamentally altered senior executive bonus structure to account for diversity and inclusion initiatives. It has set internal metrics related to diversity and conducts annual reviews of compensation related to minority candidates. The company has also addressed this issue by donating heavily to women owned businesses and historical black colleges and universities. All of these initiatives are designed to fulfil the income and inequality void through corporate social responsibility.

As noted earlier the nature of the opportunity is large given the overall scale and scope of the work needed to be accomplished. By transforming the business model, both Wal-Mart and Nike are examples of the principles of shared sacrifice. According to Wal-Marts latest annual filing, the company generated a profit of $15 billion. Wal-Mart, according to its latest press releases, is committing $1 billion to career driven training and employment, or roughly 7% of profit. Here the business model has been slightly transformed to better ingratiate employees in a manner not seen before in the corporations history. This investment in its employees will indeed lower profitability for the company. However, the business model is such that society overall will benefit from a much more educated workforce, a much more productive workforce, and eventually a wealthier workforce. This bodes well for all other sectors of the economy including housing, education, auto manufacturers, and more. These impacts related to corporate social responsibility are particularly profound given that Walmart is the largest employer in the United States at over 1.5 million people.

Likewise, as the Harvard Business Review case indicates, corporate social responsibility activity does not apply to single theater. Instead many corporate social responsibilities apply to multiple theaters or have an influence on the others. Here, I believe the corporate social responsibility initiatives centered around diversity and inclusion along with income inequality will also have an impact on theater one. Here, philanthropic efforts commonly result in higher sales and loyalty to the brands the genuinely engage in these initiatives. The research indicates that consumers are often much more willing to pay higher prices for products that they know support critical initiatives. For example, Fire House Subs heavily supports firefighters and other first responders. As such, it enjoys not only a market leading brand position, but also slightly higher margins that its direct competitors. The same concept applies her with corporate social responsibility and its relation to diversity and income inequality (Epstein, 2001).

2. Evaluate its potential for success – why might this CSR opportunity be an attractive one and for which stakeholders in particular? (6 points)

The potential for success hinges entirely on the duration and consistency of these initiatives. Diversity and inclusion along with income inequality are very tough corporate social responsibility initiatives because they often require a long duration before results are shown. Unlike other initiatives that can show direct, immediate, and tangible results early and often, the initiatives above do not benefit for such convenience. For example, corporate social responsibility initiatives related to climate change can be readily measured using monthly, annual, and decades long data tapes. Diversity and income inequality will be difficult to properly measures consistently and therefore will be difficult to determine success. For one, these initiatives often depend on factors that are very difficult to measure or predict. For example, economic conditions can determine the amount of minority candidates in leadership positions. Adverse economic conditions, irrespective of the investments made, will have a negative impact on the success of the corporate social responsibility initiative. The labor and job market will impact how the tuition and fee programs ultimately benefit the individuals who used them. The degrees and programs enrolled in will also have an impact on success as well. In addition, many of these variables take time to manifest themselves. Skills development can take many years and therefore the benefit of tuition programs may not be seen for many years into the future. Income and wealth creation will likewise not be seen for many years as consumers must first obtain the skills, obtain the job, and save adequately over time, all while navigating a volatile economic environment.

Likewise, success will depend on the ability for firms to consistently invest over time. A one-time program although very helpful, will not solve the longer-term issues. As a result, organizations such as Wal-Mart will need to contribute heavily in the future for these corporate social responsibilities to be successful over the next few generations (Diller, 1999).

This corporate social responsibility initiative is attractive for a number of reasons. First, from a society perspective it helps to reduce poverty, crime, and incarceration rates for communities of color. Historically speaking, African Americans and Hispanic Americans often have the lowest socio-economic status, lowest education levels, the lowest incomes, and the lowest wealth figures out of all the demographics in the United States. Likewise, they often have the highest incarceration rates, and the highest high school drop out rates. This has compounding effects on the nation as well. For example the ability for minorities to afford healthcare, to purchase a home, or to have an emergency fund is significantly hindered. This lowers the overall tax base for the country. It also requires higher amounts of spending on welfare and other social safety net programs. It also increases expenditures related jails and prisons. Each of these expenditures from a social perspective have an opportunity cost. Funds spent on these programs take away from funds spent on more productive government programs that can benefit society such as education or infrastructure. As result of these benefits, this corporate social responsibility initiative is very attractive. This is particularly attractive for minority groups impacted as they have the opportunity to generate wealth, better support their families, and otherwise become productive members of society (Segal, 2003).

3. Evaluate the challenges in moving ahead with this CSR opportunity – which stakeholders might be opposed to this initiative, and what types of barriers will you have to overcome? (6 points)

There are very significant challenges related to this corporate social responsibility initiative. For one, for the initiative to be successful, it must rely on consistent funding. In certain instances funding will be heavily dependent on prevailing market conditions. A deep recession could curtail funding right at the moment that it is most needed to help provide training for minority with antiquated or out of date skills. As it relates to those oppose to the initiative, those with older business models would be opposed. Here, classical business theory suggests that businesses only exist to make the most money for shareholders and do not have a responsibility to societal initiatives. Here, the classical model would have individual investors make their own contribution to corporate social responsibility initiatives if they wont to illicit change, but the organization itself should not be involved. Those who perspective to this model will be opposed to such an initiative. If the member is a controlling shareholder than this will opposition will be difficult to overcome. The best method in which to do so is through capitalism. Here consumers, can simply refuse to purchase or use the company products until the corporate social responsibility initiative is untaken. Likewise, they can simply go to a competitor who does prescribe to these corporate social responsibility initiatives.