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