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What Does Corporate Responsibility Really Mean?

Q: What does corporate responsibility really mean?

A: Corporate responsibility means long-term profitability. And here’s why…

With all this talk about reporting, labeling, transparency and social responsibility, companies are scrambling to find the right balance between responding to consumer pressure, government mandates, client requirements, and employee demands, while at the same time satisfying their investors and shareholders. Is this sustainable? Can we really demand so much from our corporations? Can we truly expect companies to behave this way and still make money?

The answer is a resounding YES! Let me explain. There is more than a 100-year history of sustainable and profitable businesses because contributing to society (and not just through annual tax-deductible donations) meant more than just satisfying one set of stakeholders. The companies invested in all their “assets” – suppliers, employees, and customers – and it paid off. It paid off well. What we are now asking of today’s companies is to include the environment as one of their assets, and it can pay off just as well.

In Chicago, there is a small company that makes widgets for car engines. They’ve been around for a number of decades and are in a small, unassuming building in the near suburbs. This isn’t a particularly striking company except in one measureable area – they have an average annual employee turnover of 3%. When I found out about them, I was working for a dynamic consulting/software company which had an average annual employee turnover that hovered around 35%.

Employee turnover is a good measure of health for a company on a number of levels. First, it costs a lot of money to hire and train new employees. Second, loyal employees tend to work harder, be more productive, have less absenteeism, and support (meaning, buy and promote) the products and services offered by the company. Third, loyalty is mirrored in a number of other aspects of the business, most of which are intangible and difficult to measure but which have an ultimate impact on the bottom line. So, what were the differences between the widget company and the one I worked for?

There were many. The widget company hired mostly manual labor and there wasn’t much glamour or room for ambition. They made small parts for cars of which end-users (i.e. car owners) were oblivious. And their facilities were drab and indistinguishable from the other warehouses and factories surrounding them. On the other hand, my company hired young, college educated people with bright eyes and lots of ambition. We had two floors in the tallest high-rise in Evanston, a liberal, hip, young community around Northwestern University. We rewarded a go-get-‘em attitude and had annual meetings with awards and ceremonies celebrating top earners and out-of-the-box thinkers. And yet, we were routinely unable to hold onto these bright young stars.

It didn’t take too long to see the most obvious things that impacted the moral and loyalty of the widget manufacturer’s employees. Long before the term “corporate social responsibility” or “sustainability” was part of daily language, this small company built an in-house daycare for their employees. They had a subsidized cafeteria with edible and affordable food. They rewarded loyalty with real subsidies and support. And their employees felt necessary, needed, and an integral part of the company.

The sole objective of my company was to make money — always having meetings to review quarterly revenues, and short-changing next quarter’s numbers to supplement the current one. We pitted employees against each other in subtle competition. We rewarded ambition at all costs and our executive leadership encouraged and rewarded outstanding results even if they came at a price (usually meaning a broken relationship with a colleague or a supplier). And while we were successful, profitable and growing very quickly, the company would only last a couple more years before it was acquired by another bigger company, and then a few years later, bought up by an even bigger corporation until the original company and its employees had all but disappeared.

The widget manufacturer isn’t trying to be “responsible” in any other way other than in the personal philosophy and beliefs of its leadership. They believe in supporting their assets in whatever way makes sense for them and their business. Unlike companies that have consistently exploited employees, suppliers, and the environment, businesses like this little car-parts manufacturer survive and thrive because they believe in long-term investment and the ultimate payoff that mutual respect and support brings.

This is what “responsibility” and “sustainability” truly mean. Sustainable fishing practices ensure that there is a fish population abundant enough to harvest in generations to come that provides profit for today and for tomorrow. Sustainable forestry practices ensure that there are forests to harvest for future generations. Fairtrade practices ensure that farmers in developing countries have the infrastructure and technical support to supply quality raw ingredients for today and for the future. It’s about caring about the quarterly numbers but not at the expense of the next quarter, year, or generation. And it’s profitable. Ask a small widget manufacturer in Chicago who remains active, making money, and surviving against the odds, because it values all its assets.

Sara Pax is the president of Bluehorse Associates, a developer of sustainability metrics specialized in the food and beverages industry with its smart product-level lifecycle assessment solution, Carbonostics (cost + carbon + nutrition). www.carbonostics.com

Sara Pax
Sara Pax is the president of Bluehorse Associates, a developer of sustainability metrics specialized in the food and beverages industry with its smart product-level lifecycle assessment solution, Carbonostics (cost + carbon + nutrition). www.carbonostics.com
 
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4 thoughts on “What Does Corporate Responsibility Really Mean?

  1. Sara – One of the better articles that I have read on defining corporate responsibility. Thanks for sharing. The widget company sounded like when they made decision, they looked as to the impact on their people, their processes and the environment. By using these 3 filters, they increased their profitability.

  2. The term CSR really is not a new concept, it is a rebranding made possible necessarry, for the short-sited profit motive that many consumers have become both disgusted at and distrustful towards. Whatever CSR means, it really will never be a first priority when it comes to business. Accepting that the profit motive, the exploitation of markets, is chiefly the driving force behind modern trade, allows some clarity when getting around to examine the role of business in society. Trade is of course necessary, but when it surpasses the bounds of reasonable limits i.e. understanding the finite nature of resources, it becomes wholly unwary as an unchecked entity.

    CSR, that is, real CSR, is a ground up approach entwined to the fabric of the market in which the firm is engaged. It is an acknowledgement that the firm’s place is to provide necessary services for the betterment of our society. Too bad that this branding strategy has been a reverse engineering of the legacy of great business that have advanced our society, and are not truly an integral approach to how business is conducted.

    CSR deserves a little more quantification, rather than the blanket and bland mission statements of several backpedaling firms attempting to appeal to the the better instincts of its loyal consumers. Just as Sara suggests, metrics are the key, metrics with published and transparent, independent assessment of criteria, rather than the overt and slimy veneer of “being committed” to more than just the dividends of stock holders

  3. Good job, Sara! We’re a tiny company but we’ve been around for now almost 26 years. Until Y2K, every year was better than the previous, but soon after 9/11, it’s really epitomized the word ‘work’. After surviving and then rising above all this, ’09 hit and knocked us down again. I just bounced payroll checks for the 2nd time in our lives (mine included), so it’s really rocky right now. But we’ll survive and hopefully I’ve learned my lesson. It’s a real drag to have to admit it took me 25 years of ‘primary’ education to learn to become a conscious competent, but if I look in the mirror, that’s what I’d tell myself. I’ve been into the socially responsible way of doing business since the second week of doing business when I discovered it was smarter to recycle our post-industrial scrap than to put make it ‘dumpster food’. From there when I realized our products were part of the tons of trash taken from McCormick Place after every event, my next epiphony took place. In the early 90s I tried my hardest to get the industry to recycle their post-consumer waste but chose to give up after 3 years of effort. I could never achieve critical mass. Now, I’ve made more changes and since ’07, I think I’ve found a way to make sure we’re making a sustainable product line and will move towards it “with great vigor” as President Kennedy used to say. And I hope all of the members of our Team will back me so we can finally actualize on all the potential we’ve have for all these years. I just took a little longer than successful business people to figure it out. And I think this lesson will be one I never forget. Now, we can really put our ‘pay for performance’ into play and share our profits with our people as it has always been my prayer. Thanks for your wonderful article. I hope to read more by you. BTW: Most of my family is from the Chicagoland area so it was nice to read the subject of your article was also from there. Sincerely, scott

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