Better CSR 'delivers better performance'

2004

High performing businesses show a strong correlation between CSR (corporate social responsibility) activities and stronger performance in terms of productivity and profitability than other businesses, according to new research.

An analysis conducted by The Work Foundation and The Virtuous Circle argues that there is now a sufficient weight of empirical evidence to indicate that building CSR activities into the heart of business strategy leads to higher productivity and profitability.

While a few business leaders have been sufficiently convinced about the business benefits of CSR that they have embedded those activities throughout their organisations, the majority still pay lip service to CSR.

But according to Paul Bateman, HR and operations director of Boots Group plc, CSR activities aren't optional any more: "The evidence is clear. We know that unless we place such activities at the heart of our business strategies we won't deliver the performance benefits that this report shows are clearly available.

"CSR is no longer about buffing up one's corporate reputation. It's about doing good business."

Across all business areas from creating shareholder value to engaging customers and employees, the report found that CSR activities have added value – from 19 per cent increase in profitability in one study to outperforming other organisations by more than 40 per cent in another.

Employees made a greater contribution towards their organisation if they saw it as being a more responsible employer and this in turn influenced their decision to remain with that employer. Conversely, a strong correlation existed between increased sales volume and the perceived quality of line management, corporate culture, employee commitment and customer retention.

Similarly the studies that concentrate on CSR and customer preferences show that the highest levels of employee satisfaction relate to the highest levels of customer loyalty and earnings.

Ethical criteria are also becoming manifestly more significant in both purchasing and brand loyalty decisions among a growing proportion of consumers in the UK. The message to businesses is clear – ethical practice, CSR performance and the “bottom line” are more closely linked than ever.

The report also argues that those companies who place CSR policy and practice at the very heart of their business strategy gain most in terms of performance outcomes.

However a lack of leadership from the top is still a barrier to placing CSR at the heart of business, a state of affairs that the report suggests can be addressed with a Leadership Agenda to help business leaders relate to their stakeholders. This includes:

1. Baseline analysis: know where your organisation stands with its current CSR activities.
2. Strategic positioning: decide where, in comparison with the baseline analysis, you want your organisation to be positioned (both with peers and competitors and in regard to CSR indices).
3. Engagement: understand and engage with your stakeholders.
4. Action: implement, integrate and evaluate best practice CSR policies and activities in line with business strategy.

For policy makers the report recommends a number of further actions, most notably strengthening the existing provisions contained in the Operating and Financial Review (OFR) which formed part of the last review of Company Law.

The report also recommends looking at how the leadership challenge could be sustained through sensible reforms of legislation that bolster investor/company relations, and finally looking at ways of incentivising firms to conduct CSR audits.

As co-author, Tony Hoskins, The Virtuous Circle, says: "Our analysis shows that CSR is no longer merely “fashionable” but an essential component in delivering improved performance, requiring committed leaders to put it at the heart of business."

Stephen Bevan, The Work Foundation’s director of research, agrees: "The challenge now for CSR practitioner, policy-maker and board member alike, is to foster the recognition that CSR represents good business practice for every function and should not be confined to programmes conducted by a few departments in isolation from one another, " he said.

"For all those concerned with making the UK a high performance, high productivity economy, CSR offers a route to achieving just that.”

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