Making the Case: Corporate Social Responsibility grows your bottom line
What is Corporate Social Responsibility (CSR)?
This often-misunderstood term promotes the idea that businesses can’t ignore the bigger picture and must take into account their actions in the pursuit of profit. Some suggest that the sole objective of a corporation is to maximize returns for its shareholders and increase its bottom line regardless of other factors. The surprising reality is that CSR is precisely what a business must pursue in order to maximize its returns to shareholders.
While you could debate at length what’s considered ‘socially responsible’ and which CSR goals are worth pursuing, there are two examples of internal and external CSR practices that are considered to be fundamental social expectations of business today which can have significant implications on profitability:
- Zero tolerance for gender or race–based discrimination in the workplace
- Synchronization of environmental practices with stakeholder expectations
Zero tolerance for gender or race–based discrimination in the workplace
A business can’t survive and flourish without its most important asset—its employees. Much like a hockey team must have all four lines contributing in order to achieve success, a business must have all its employees performing at their best to rise above the competition. Accordingly, any form of discrimination cannot and should not be tolerated as this would lead to an unhappy, unmotivated and unproductive workforce. Moreover, discrimination leads to employee turnover, which is a further drain on a company’s resources and should be avoided at all costs.
If a corporation’s objective is to maximize profit, it has a responsibility to engage the best people, regardless of gender or race. In the short term, a business may be able to get away with discriminatory remuneration practices based on gender or race; however, this is an extremely ill-advised tactic, as it opens the door for the competition to recruit away top talent. Studies have shown that, on average, the cost of turnover is equivalent to about 21% of the replaced employee’s annual salary.[i] This unnecessary additional cost does nothing but reduce the bottom line and may even result in a replacement of lower quality talent, further cannibalizing profit.
Synchronization of environmental practices with stakeholder expectations
At a basic level, being respectful of the environment is a simple concept—if we destroy the very natural resources that sustain our lifestyles, there will be no more profit left to pursue. While profit is often maximized in the short term using an approach that disregards environmental impacts, this acute view is fundamentally incompatible with a business’s objective to maximize profits in the long-term. Moreover, companies whose environmental practices are viewed in a positive light stand to benefit over businesses that appear to show a blatant disregard for their natural surroundings. As such—at a minimum—it’s critical for businesses to create policies on matters of the environment in order to leverage social media-driven public opinion in their favour.
Take single-use plastic straws as an example. Although plastic straws represent a minute fraction of the millions of tons of plastic waste that corporations produce globally every year, they have become the focal point of public scrutiny in recent years. A business that focuses on the elimination of these plastic straws, reducing their waste by even a fractional degree, will invariably reap the benefits of higher returns to their shareholders for two reasons: one being lower costs by not supplying the plastic (or alternatively charging for a substitute product), and the second being from increased notoriety in the public sphere.
The bottom line
While a commitment to CSR doesn’t guarantee anything for businesses, it also doesn’t hinder them from achieving success in the ‘traditional’ sense. A business must still produce a good product or provide a good service, but when it operates with a commitment to sound employment and environmental practices, it stands to be more profitable in the long term. A commitment to the values of CSR, as viewed through a 21st century lens, can separate top performers from their peers.
Article written by Marcus Brandt, CPA, CA.