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The potential benefits of CSR

2.Look after the staff and the profits will look after
themselves
Responsibility however goes beyond suppliers and raw
materials. Another key stakeholder in any business is its
employees. By acting in a socially responsible way towards
them further benefits will be felt. Earlier this month the John
Lewis Partnership (which has 750,000 staff who co-own the
chain) announced that its employees would gain a bonus
equivalent to 17% of their annual pay as a reward for an
outstanding performance by the chain along with its Sister
chain Waitrose. Ironically the sale of the 10.4% stake the
group had in Ocado led to shares in Ocado falling in February
2011, it is hard to say that this is not a reflection on the good
standing of John Lewis.

To further illustrate this, a number of firms have had a less


friendly relationship with employees this year. The impacts of
this have seen significant and negative effects on the business
in both a PR and profit way. On top of tube workers and
various airline staff disputes, staff at 373 of the largest Post
Offices voted for strike action in March after they were
refused a pay rise in the light of a 2.25% management rise.
The ballot received a 90% support for strike action from a
66% turnout suggesting a disgruntled workforce. This is on
top of news that the Post Office lost a government contract for
pension and benefit payments. Interestingly in 2008 a
Guardian article proclaimed that Postal workers are overpaid,
workshy luddites, says government report. Consider the fact
that the PO is partly government owned. Staff do not seem to
be a big priority for the Post Office, and considering how the
growth of other providers and shrunken the PO monopoly,
and seen lots of PO closures this is further evidence of a lack
of consideration for employees being detrimental to an
organisation, although the relationship between cause and
effect is not necessarily clear here. Is the Post Office suffering
because of poor labour relations or is a struggling business
facing inevitable employee – employer difficulties?

In conclusion: CSR starts at home – if a business looks after


its workforce, the impact on motivation and good will is likely
to lead to overall better performance. It can be a spiral up, or
indeed downwards.

CSR opens up new sources of finance


The banking system has been criticised of late for failing to
lend to businesses as well as homeowners, 2010 saw lending
rates plummet. So where can businesses get funding from, and
can CSR help? Green finance is a term that relates to a
number of finance stream sopen to ‘green’ businesses. These
range from tax breaks, Green Deal apprenticeships and a
range of government grants available to green businesses. In
addition to this the basis for grants from UK and EU
governments has always been based on supporting businesses
that put something back, whether it is facilities for community
use or grants for projects that will have a wider community
positive impact.

More recently investors in the private sector have also shown


a shift towards more profitable green businesses, this is shown
by investment lists such as the FTSE4GOOD. The index was
launched in 2001;
The launch of the FTSE4Good series was also in
response to growing investor demand for Socially
Responsible Investment (SRI) indices and products.
This growth is fuelled by investors seeking to
capitalise on the long-term benefits of good corporate
social responsibility (CSR) and sustainability
performance, recognising that good CSR practice
mitigates risk and goes hand in hand with good
company management.

This again reflects the better business practice of adopting the


‘triple bottom line’ approach to decision making which should
eliminate future negative issues and produce vastly superior
decisions. The existence of a CSR report alone is likely to
suggest that any potential ‘nasties’ have been thoroughly
audited and are being ‘managed’.

In 2007 ‘ethical and green’ investment opportunities were


significantly outperforming the more traditional indexes
including the FTSE100 – a list of the top 100 UK firms (Put
your cash where your principles are”). In short if you need to
attract investors, be responsible and they will come.

In conclusion: There are a range of financial rewards for


taking a more CSR approach – investors (including
government agencies) acknowledge this for good reason – it is
profitable!
There are certainly other points that could be raised here
(please feel free to add comments), but in summing up.

The costs
Costs of CSR & Competitive disadvantage

Demonstrating CSR costs money. This can be through higher wage rates,
increased costs of raw materials through ethically sourced raw materials (e.g.
Fair Trade coffee growers receive a $0.05/lb premium over market price levels),
or superfluous activities such as local community projects. Higher costs therefore
have one of two implications – pass on the increased costs to customers and
become less price competitive, or absorb the costs increase and instead be a
less profitable business, or one which offers inferior products. Such a lack of
competitiveness is obviously detrimental to long-term corporate survival.

Additionally basic economic understanding would suggest that a free market


approach of letting produces identify the most productively efficient methods of
production usually is the ‘fairest’ at matching supply with demand. Restricting
the availability of resources (such as low price labour) will invariably impact on
the ability of an industry to produce efficiently, or whether that product is
produced at all. In February this year Channel 4 reported on issues concerning
food poverty. An average loaf of bread now costs £1. If ‘not’ responsible methods
had been used to produce it, perhaps the number of those who cannot afford to
eat would be much reduced.

SME's and smaller organisaitons already find that they are unable to benefit from
the economies of scale that their larger competitors do. As such they will find the
costs aspect of acting in a CSR manner especially difficult to manage.

In conclusion, adopting CSR entails embracing higher costs of


production. This can be either passed on to customers through higher
prices, or alternatively absorbed by an organisation as lower profit or in
cost-cuttings elsewhere, e.g. quality.

Shareholders money

For many businesses, the only ‘social responsibility’ is to create shareholder


wealth through dividend payments and increasing the value of shares held in the
organisation. In much the same sense that a pet is owned to fulfil the needs of
its owners, the company exists to serve the shareholders. As such the directors
of the business have a legal obligation to manage the organisation in the interest
of shareholders – and not for any other stakeholders.

All monies generated by the business belong legally to the owners. If an


organisation were to cease trading, all money invested would be returned to the
owners – not any other stakeholders. Based on this simple truism, the decision of
the directors to spend the company’s profits on non-core activities (such as
community projects) could be seen as theft. In their 2009-10 Sustainability
Review, Coca-Cola outlined charitable spending alone of $88 billion. Surely it
should be the decision of shareholders as individuals to decide where they want
to spend their money? Many are likely to be minority shareholders, and as such
have little to no say in the decisions of several larger groups.

In conclusion, it must be the decision of shareholders how they want to


spend their profit income after it is returned as a dividend – not
something prescribed by directors.