Balancing Corporate Interests and Social Responsibility

Nicholas J Price
5 min read
Public distrust of big business ' along with distrust of the media, government and even each other  is at historic highs, The Atlantic writes.

And who can blame people, really? In the wake of the 2008 financial crisis, employees at bailed-out banks received substantial cash and in-kind bonuses, as detailed by outlets like Vanity Fair. The Volkswagen emissions scandal, Uber's worsening reputation and multiplying accusations of pharmaceutical price gouging are just a few examples of more recent corporate misdeeds.

The good news, though, is that corporate responsibility is becoming a much bigger concern for board members and shareholders. The increasing public demand for accountability is impacting how business is done. With the myriad of political issues facing the global market, consumers are finding a plethora of reasons to hold corporations accountable to their impact on financial markets, the environment or whatever else could affect them in their lives. In fact, the public does hold a bit more sway in corporate practices, which holds boards to be a little bit more accountable for their actions because every action is looked upon with scrutiny and depending on what market you are in, this could severely impact your business.

If you take a look at the recent bad publicity for United Airlines, it becomes clear that being held accountable for a corporation's actions is something the public takes to heart. In fact, after a few incidents on their airlines, the CEO of United Airlines, Oscar Munoz, made a public statement to their shareholders that the airline would 'redouble [their] efforts to be more customer-focused in everything [they] do.' Any issue like this, certainly has legal repercussions and can alter shareholders' opinions of board members when it comes time to electing new seats.

Corporate social responsibility and the social contract

Corporate social responsibility (CSR) is built upon the idea that businesses should act responsibly not because it will be profitable, but because society expects them to, as per the implicit social contract. The United Airlines backlash example can serve as a cautionary tale about what happens when a company fails to honor its social contract.

The Internet, along with consumers' desire to vote with their pocketbooks on issues like the environment, has inspired some to focus on impact as much as the bottom line. For example, now consumers can choose to invest in carbon-neutral and environmentally and socially conscious mutual funds through a robo-adviser or fintech company.

This kind of agency and advocacy has placed enormous pressure on businesses and their boards to become more environmentally and socially responsible.

Some firms are leading the way. For instance, last year, Danish toymaker Lego announced that it would open a sustainable materials center with a staff of 100 to find more environmentally friendly materials for the company's iconic  and petrochemical-based plastic  building blocks. Lego pledged that by 2030, its products would be environmentally sustainable.

These measures are crucial to preserving and improving brands' reputations. As Forbes says, "42 percent of how people feel about a company is based on their perceptions of the firm's corporate social responsibility practices."

But, the question is, can companies effectively execute CSR principles?

Implementing CSR principles

Some companies have excelled at building positive reputations for CSR through philanthropy, the development of community programs, and social and environmental stewardship. Microsoft, for example, has earned a positive reputation for its approach to CSR, in large part thanks to its longstanding citizenship mission, which promotes good corporate citizenry and community action. Microsoft founder Bill Gates' US$44 billion charitable foundation surely doesn't hurt.

But, as the Harvard Business Review notes, implementing CSR within a company and throughout its business practices is difficult. The Review polled 142 managers who had attended the university's CSR executive training program in recent years, and found that many companies chose to create a CSR program rather than fully integrate CSR principles into their business strategies. As the article notes, "Although many companies embrace this broad vision of CSR, they are hampered by poor coordination and a lack of logic connecting their various programs."

Additionally, as the Sustainable Investments Institute finds, just over half of the large-cap companies on the S&P 500 had voluntary board oversight on sustainability issues.

So how can a business and its board meaningfully integrate CSR principles into their operations?

The quickest way to effect change is to start at the top. The board of directors is responsible for management oversight, but shareholders ultimately set the agenda. Leadership receptive to board input, especially on matters of environmental, social and corporate governance, is a good place to begin.

In a paper on how shareholders influence CSR policies (opens as PDF), business ethics professor Katherina Glac writes that shareholder activism and socially responsible investing are tools being used increasingly to influence business. She calls shareholders the biggest allies of the CSR movement, noting: "

Activist shareholders are now routinely submitting social proposals to annual meetings and working together with management to improve performance on a variety of social issues. Other socially concerned investors are using more indirect ways to express their expectations of socially responsible conduct and 'vote' with a socially motivated allocation of their investment dollars."

Board diversity, too ' not only racial and gender diversity, but also experiential and economic diversity ' can help improve board transparency and better reflect markets and consumers.

Some companies take a collaborative tack with staff, encouraging (and relying on) employees to devise innovative ways of addressing social and environmental issues. Google, for instance, has rolled out a multi-pronged approach to address its own racial and gender staffing disparities. The company has re-balanced resource allocation, added anti-bias staff training and blind hiring practices, and encouraged employees to create bottom-up inclusion projects.

"It's not your standard, top-down, CEO-driven initiative," Fortune writes. "Rather, it's more of a crowdsourced effort inside Google, with a host of different Googlers leading in various ways."

Honoring the social contract that exists between companies and communities is becoming an unspoken requirement in the modern business world. Building consumer trust and boosting your business's public reputation hinges more than ever on proactively and meaningfully developing CSR measures. It's more than paying lip service to a new class of socially and environmentally minded consumers and investors. It's about building sustainable  and profitable  businesses for the future.