Responsibility > Philanthropy

“Corporate Social Responsibility” – CSR – has become a buzzword; But what does it really mean?

Since CSR is a self-regulating business model, each corporation decides how to define and act upon its own “social responsibilities.”

For some, “CSR” is “philanthropy” with modern branding. In this model, CSR is essentially a check writing activity, an opportunity for a business to donate money or even employee time to a non-profit partner or worthy cause. This model is relatively easy to execute, at least on a surface level.

“We gave $5,000 to our local food bank, providing 1,000 meals to those in need.”

“Our employees collectively volunteered 100 hours with local NGOs during our annual volunteer day.”

For others, CSR has an emphasis on the “R” - “responsibility.” In this model, “CSR” represents a corporation’s commitment to make better business decisions; decisions that protect the environment, decisions that respect and provide for their people, decisions that support their community. While this commitment may also manifest in donations to non-profit partners and worthy causes, this model emphasizes the incorporation of socially-responsible decisions throughout the business, from top to bottom. This model is harder to execute, requiring more time and resources. Still, the hardest things to do are often the most worthwhile.

“Our goal is to ethically source 100% of our tea and coffee by 2022.”

“We are committed to hiring 10,000 refugees globally by 2022.”

“We will donate 100% of eligible, unsold meals to local food back partners.”

(Thanks to Starbucks for providing these 3 excellent examples of CSR in action).

There is nothing inherently wrong with the first, philanthropy-driven model of CSR. Donated money can address the most urgent, pressing needs faced by some of the most vulnerable populations: food, water, shelter, and safety. Unfortunately, organizations that follow this model tend to create a space for “social responsibility” adjacent to but not within their business. By doing this they seem to be saying:

“We’re committed to doing good things out there, in our community,

but not necessarily in here.”

This kind of CSR raises eyebrows and can draw criticism, not just from consumers but also from employees.

Furniture giant Wayfair knows; they’ve been there.

Wayfair advertises a social responsibility platform closely related to their business mission: everyone should live in a home they love. To achieve this goal, Wayfair partners with organizations that address housing issues including Habitat for Humanity and the Travis Mills Foundation which provides ADA-compliant vacation homes to veterans and their families. It seems these partnerships are often dual purpose; an opportunity to donate money or furniture as well as an opportunity for employees to log volunteer hours for a worthy cause. This model of philanthropy + employee engagement seems like a win-win-win: good for the company image, good for employee morale, good for families in need of a place to stay.

Wayfair’s social responsibility platform also includes charitable giving for disasters and their associated emergency response efforts. For example, in response to COVID-19, Wayfair provided 200 mattresses to National Health Service (NHS) hospitals in the UK and helped furnish a Boston Medical Center homeless quarantine facility. In times of crisis, corporate generosity is encouraging. However, companies are also judged for what happens in the course of “normal” business.

In 2019, Wayfair made headlines when employees discovered they were selling children’s furniture to a government contractor at the US-Mexico border. Employees alleged that Wayfair was furnishing a children’s detention center, the sort of place that, in recent years,

has become an unhappy home to the hundreds of migrant children who have been forcefully separated from their parents. Employees were outraged noting that this sale stood in direct contradiction to the company’s stated mission: everyone should live in a home they love. In protest, employees staged a walkout and demanded Wayfair cancel the sale. In response, Wayfair donated $100,000 to the American Red Cross and the sale went through.

A donation like this is an apology for poor behavior. Unfortunately, it rings hollow because it lacks the necessary change in behavior. Are you really sorry if you’re planning to do it again?

On the popular podcast “How I Built This,” Wayfair’s co-founders defended their decision saying that while their individual beliefs may have made them personally opposed to the separation of children from their parents, the company was committed to political neutrality. Since immigration is a polarizing political issue, cancelling the sale could have stirred controversy among their customers and caused associated financial repercussions. In leaked audio from an employee meeting, the co-founders went on to say:

“The business basically exists to be a profit-generating entity, tries to create success for all our employees, tries to create wealth in all our employees so that

we can all have an impact on the world.”

In other words: Business is business. Philanthropy allows us to “do good” out there so we can continue doing what creates the biggest profit in here.

Is it naïve to hope that an alternative exists?

Perhaps.

Slow but steady change

In August, 2019, nearly 200 CEOs signed a pledge declaring profit was no longer the sole objective of a corporation and committing to serve all of their stakeholders including their suppliers, their employees, and their communities. Much of the world applauded the Business Roundtable for leading in such a bold and conscious way while skeptics said “wait and see.” In early 2020, the sudden, catastrophic onset of the COVID-19 global pandemic provided ample opportunity for these companies to live up to their promise. Sadly, they did not.

A study conducted by Wharton Business School professor Tyler Wry revealed that signatories of this pledge were 20% more likely to announce layoffs or furloughs in the aftermath of COVID-19 than those who did not sign. Despite these layoffs and furloughs, signatories of the pledge also paid out 20% more to their shareholders (via dividends and stock buy backs) than similar companies who did not sign the agreement. Unfortunately, change won’t come easily. Despite pretending otherwise, many seem to believe business is still business and profit is king.

But it may not always be this way.

The Deloitte Global Millennial Survey 2020 surveyed 27.5 thousand millennials and Gen Zs both before and after the onset of COVID-19. The results suggest young folks have different expectations for corporations, particularly after feeling the effects of a global pandemic.

Generally:

• Barely half (51%) of millennials said business is a force for good, down from 76% just 3 years ago.

• Only 1/3 of those surveyed feel business leaders are having a positive effect on the world.

• Almost half of respondents, 47% of millennials and 42% of Gen Zs, have investigated the environmental impact of the brands they consume.

• One third of respondents said they had stopped or lessened relationships with businesses because they were doing harm to the environment.

• On the other hand, 38% of respondents said they had initiated or deepened relationships with companies whose products and services have a positive effect on the environment.

• Another third of respondents said they had done the same with companies that achieve a balance between doing good and making a profit.

COVID-19 has revealed that corporate actions matter to young employees.

• Of the survey respondents who were still employed after the onset of the crisis, 60% stated that their employer’s actions during the pandemic have made them want to remain with them for the long term.

1. Two-thirds of respondents were pleased with the speed at which employers responded to the pandemic and supported their employees.

2. A majority of survey respondents believe their employers sacrificed profits to help their employees and clients/ customers.

Deloitte notes:

“The world that follows the COVID-19 pandemic surely will be different and likely more aligned with the ideals that millennials and Gen Zs have expressed…

They know that a post-pandemic society can be better than the one that preceded it, and they’re tenacious enough to make it a reality.”

Millennials and Gen Zs, myself included, are now slightly more than half of the US population. While we may not always vote as voraciously as our older counter parts, we can certainly spend money. Gen Zs alone will account for 40% of global consumers this year. Considering the importance of their $143 billion spending power, as well as their influence over their parents and older family members, companies would be wise to reconsider their priorities.

Profiting from Responsibility

Embedding social Responsibility throughout a business doesn’t necessarily mean companies will sacrifice profit. A recent study revealed that 77% of consumers, regardless of age, would be more willing to purchase a company’s products or services if the company demonstrates a commitment to addressing social, economic and environmental issues.

The data also shows that investors have a social and environmental conscious too. The Harvard Business Review reports that, in 2018, $11.6 trillion dollars of all professionally managed assets – $1 of every $4 invested – were under environmental, social, and governance (ESG) investment strategies. This was a dramatic increase from the previous year and is likely to increase further in the years ahead as investors more frequently use poor ESG ratings to filter out under-performing companies.

This kind of decision-making isn’t personal – it simply makes financial sense.

Data shows that companies who act upon their social and environmental responsibilities are more resistant to shocks. According to the New York Times, impact investments, those aiming to promote social good or prevent social ill, have outperformed traditional investments during the COVID-19 pandemic. Overall, 64% of actively managed ESG funds beat their benchmarks versus 49% of traditional funds through the first week in August, 2020.

With this in mind, it seems companies who integrate social and environmental initiatives throughout their organizations aren’t just courting consumers and investors; they’re thinking strategically. Targeted, authentic investments in social and environmental improvements will pay dividends. Consider the cost savings for streamlining processes and eliminating waste. Imagine the boost in productivity, employee loyalty, and brand image that will result from hiring a diverse workforce and paying them fairly. Picture the increase in consumer interest caused by your commitment to an ethical, transparent supply chain. Realize that all of these initiatives will result in a much greater return on investment than a donation that apologizes for poor behavior, attempting to buy another year of “business as usual.”

Corporate Social Responsibility is more profitable than corporate philanthropy, plain and simple. As the impact of our climate crisis ripples around the world, as inequality grows, as consumers raise their expectations, experts agree that total, systemic change is better than donations: better for the planet, better for people, and ultimately better for long-term business survival.

Companies who avoid their responsibilities today will pay the price tomorrow, and it won’t be through donations.