The case for CSR is often presented in moral or ethical terms. Organisations ought to engage with a variety of stakeholder interests because it is ‘the right thing to do’.
However, this also requires organisations to be successful. Indeed the moral basis of stakeholder capitalism is questionable if, by its adoption, the material standard of living is diminished, or there are too few successful organisations to provide enough jobs and decent incomes. A strong case for CSR must therefore show how and why it leads to improved organisational performance.
The case is strongest if linked to the implications for organisations of three key economic and social trends:
the combination of increased consumer power with a shift away from mass produced to mass customised products and services
a growing tendency for ethical and environmental considerations to influence consumer behaviour
an increase in the importance of human and social capital as inputs to the production of products and services
Each of these developments limits the ability of organisations to act solely in the short-run interest of shareholders without damaging their long-run performance. Organisations faced with sophisticated and ethically minded consumers cannot afford to focus on short-term returns to shareholders at the expense of product and process improvement, or seek purely low cost organisational strategies with disregard to what, how and where they produce.
The growing need for organisations to retain knowledge and give customers ‘the personal touch’, combined with the need to constantly adapt to changing consumer demands, alters the rules of engagement between employers and employees.
Organisations that manage people as costs rather than assets find it difficult to succeed long-term, partly because of the negative impact on employee motivation and partly – as highlighted in the joint CIPD/Business in the Community report on the business case for CSR – because they will struggle to attract and retain high calibre workers.
The underlying shift to what might be called ‘the value-values economy’ will leave organisations little option but to engage actively with their various stakeholders.
But organisations need to pay attention to the nature of that engagement, avoiding the temptation to implement lots of ‘CSR initiatives’ for show, but not improve the organisation in the process. The example of Enron, once renowned for its CSR activities, shows the limits of skin-deep ethics. A strategic approach, by contrast, stresses underlying performance improvement as the most appropriate form of engagement with stakeholders since this is best way of satisfying the long-term interests of shareholders, consumers, communities, employees and the environment alike.
The CIPD/BITC report, Responsibility: driving innovation, inspiring employees, is available through the CIPD website: http://www.cipd.co.uk/communities
Corporate Citizenship Briefing, issue no: 75 – May, 2004
Professor John Philpott is chief economist at the Chartered Institute of Personnel and Development. He is currently advising the European Commission on its approach to evaluation of the European Employment Strategy.
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