CSR: it’s like an insurance policy

Posted by: James
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One of the topics being discussed at the upcoming LBS Global Leadership Summit is the demand for big businesses to think beyond the needs of their shareholders and for them to become responsible world citizens.

Recent world events certainly demonstrate the backlash that can occur when companies appear to put profits ahead of people. Companies, such as Primark, who had their products manufactured at the Rana Plaza factory in Bangladesh came under the spotlight when the building collapsed, killing hundred of workers. BP also felt the heat after its Deepwater Horizon drilling rig exploded and leaked millions of barrels of oil into the Gulf of Mexico. And Foxconn’s practices in China have dragged Apple’s name into discussions of corporate social responsibility (CSR).

CSR initiatives can act as a good publicity campaign and PR for a company. Many companies donate a percentage of profits to charities or offer employees a day to work for a charity. While these initiatives may send warm fuzzy feelings to employees and consumers, are they actually having much of an impact? No doubt the receiving charities very much appreciate the donations and the good publicity probably helps companies bottom line. But these types of CSR initiatives are not going to stop oil spills, factories falling down, and employees jumping from windows.

So what does it mean to be a good world citizen? I think it is taking into consideration all your immediate stakeholders: your shareholders, employees, contractors, suppliers and customers. But the web of stakeholders doesn’t end there; it should include anyone and anything who is and could be impacted by your business. For example, BP should have been considering the families, the wildlife and the environment along the coastline of the Gulf of Mexico who would be at risk from an oil spill.

As you can see, the list of stakeholders can quickly grow. And when you start thinking of possible worst-case scenarios, the list continues to multiply. A multinational company would need to take into consideration a vast number of people and possible outcomes, some who might actually never be affected by the company. Put simply, for a multinational company to be a good world citizen is a Herculean task.

Then, even when a company tries to get it all right, it can still go horribly wrong. Tesco supposedly had rigorous checks on its suppliers but that didn’t stop products being tainted with horse meat.

Perhaps then, CSR initiatives by a company are like an insurance policy – not just for the company, but for all the stakeholders involved. Ideally you would insure against every eventuality, but the premiums are too high and so you must be pragmatic in what you insure against. So too, a good corporate citizen can’t be expected to stop all risks, especially the most remote, from occurring. There will be some things that slip through the cracks. When you’re a multinational company with innumerable activities happening, it’s only a matter of time before something happens that your CSR initiatives haven’t covered.

The most difficult question then is, what level of insurance (or CSR initiatives) should a company take? Not all companies want to be world citizens. And who should decide that level – the company itself, an industry body, the regulators, or consumers?

I’m looking forward to hearing these questions being addressed by the CEOs of Unilever and Deloitte UK at the upcoming LBS Global Leadership Summit.

Perhaps if the banks had undertaken some more CSR activities, or the regulators had insisted upon them, the global financial crisis would have been prevented from happening.

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