If corporate social responsibility (CSR) is such a great idea, then why can’t half of Canada’s private companies be bothered?
That finding from a 2011 PwC study, challenges the argument that social responsibility strategies usually make good business sense. Indeed, the report suggests three tough questions Canadian executives should ask before they embark on lengthy and expensive CSR projects: Do your customers really care? Who sets the rules in your sector: regulators, or the supply chain? And, do you need a CSR program to fight for talent?
There’s more to corporate social responsibility than just a business payoff. CSR initiatives can improve labour standards, protect the environment and support customers’ health.
But they’re by no means easy to execute.
Without pressure from shareholders and government regulations, the majority of Canadian private companies have placed CSR low on their business priority list
Just ask Disney. In October 2012, the entertainment behemoth began overhauling the paper supply it uses for 250 million books and 400 million magazines it sells each year around the world. The company won’t say how much it will cost to switch to sustainable paper, but the exercise will take three years – and will undoubtedly invite much public scrutiny along the way.
Disney is jumping through these hoops because its customers care a lot about Indonesian rainforests – some even protested in front of its headquarters wearing Minnie and Mickey Mouse costumes. But for many businesses that don’t face consumer pressures, a CSR program might not be worth it.
A 2011 PwC study found only 21% of privately held companies with annual revenues ranging from less than $10-million to more than $50-million had a CSR plan while 48 per cent didn’t.
When it’s really about who is the cheapest, then I think CSR is not appropriate
“Without pressure from shareholders and government regulations, the majority of Canadian private companies have placed CSR low on their business priority list,” the study’s authors wrote. CSR programs make business sense, the report says, when they help a company compete for customers, anticipate regulation, and fight for talent. How does a company determine whether CSR will serve to better the bottom line?
Competition should be the starting point.
“When it’s really about who is the cheapest, then I think CSR is not appropriate,” says André Martinuzzi, associate professor and head of the Research Institute for Managing Sustainability at Vienna University of Economics and Business. “CSR and sustainability is something for high quality and high priced market segments because it’s an additional value that these companies provide. But when it’s about price competition, (CSR) does not [make sense].”
Airlines, for instance “haven’t gotten into the values debate as much because they’re still fighting on price. Their margins are razor thin,” says Nelson Switzer, director and leader of sustainable business solutions at PwC’s Toronto office.
Who are the stakeholders who have a material impact on your ability to profit and operate? They should be the ones driving the CSR approach
In fact, customers may not even have CSR on their minds when they think of a specific industry. A 2012 report by GlobeScan, a global public opinion research firm with offices in Toronto, found consumers think of CSR very narrowly: 28% say CSR only means environmental responsibility; another 28% say it’s all about employee treatment; only 4% say CSR is an indicator of something broader, like “honesty and ethics”.
The next consideration is related to who really sets the rules: regulators and courts, or the suppliers and clients in the supply chain?
Pre-empting public pressure for stricter regulation in a particular sector by stepping out ahead with a CSR strategy can make great business sense. In 2007, Kellogg Company said it would cut the sugar, calories, fat and sodium in food it was marketing to children. That meant either pulling or reformulating almost 60% of its products marketed to children in Canada. Kellogg triggered an industry-wide bout of “self-regulation,” and prompted two U.S. consumer groups and two Massachusetts parents to drop their billion-dollar lawsuit against the company.
If there is no imminent regulation or litigation to pre-empt, it may make more sense to take CSR cues from what is happening within the supply chain.
Take Walmart’s fish and seafood suppliers. In 2010, when Walmart Canada started buying only sustainably sourced fish, fish suppliers had to change too, says Edgar Baum, the Canadian Managing Director of Brand Finance, a global brand valuation company. Had Walmart not changed, its suppliers wouldn’t have bothered.
Human resources should be part of the calculation too. Social responsibility programs are often touted as a way to attract and keep talent. But in the fight for talent, only two types of candidates tend to care, says Tara Talbot, VP of Human Resources at Workopolis Canada.
People in their 20s and early 30s ― the Gen Ys and Millenials ― are asking potential employers about their CSR programs, Talbot says. Indeed, a 2006 study of 1,800 Millenials by AMP Agency and Cone of U.S.-based marketing agencies found 79% of Millennials surveyed want to work for a company that cares about how it contributes to society.
Employees in their 50s and 60s also care about social responsibility as they near the end of their careers and want to give back. A 2009 report for Industry Canada found “75 per cent of Baby Boomers want to keep working, and of that number 60 per cent want to do good works.”
However, those competing for talent between the ages of 33 and 53 may not get much of an edge by touting a CSR program.
Whatever the situation, PWC Canada’s Nelson Switzer urges executives to ask, “Who are the stakeholders who have a material impact on your ability to profit and operate?” They should be the ones driving the CSR approach, he says.
This article was originally published on the Financial Post website