The Truth About CSR I: 10 Myths & Misconceptions

Does CSR mean philanthropy? Is it primarily a PR issue? Is an expensive luxury that hurts competitiveness? Or is it a big business issue only? In this two-part series, I will dispel come of the most common myths, misconceptions and false promises surrounding corporate social responsibility (CSR). In this first article, we look at myths & misconceptions: what mistaken beliefs about CSR are most commonly held and what is the truth behind them?

Some of these myths are also commonly heard as objections - reasons why a business shouldn't or cannot engage in CSR. But as we'll see, they quickly fall apart even when exposed to some simple logic.

1. CSR is a PR/Marketing/Communication Issue

Corporate social responsibility is more often than not the child of those responsible for a company's marketing, public or government relations, or general corporate communications. This setup recognizes that a crucial piece of CSR involves stakeholder engagement and that some of its major benefits involve the company's image and benefits.

But what about the rest of it? What about employee engagement? What about your suppliers and supply chain? What about operational efficiency, resource consumption, and waste? Packaging and facility design? What about volunteerism? Governance? Ethics codes? Customer service?

PR-focused CSR can neglect these issues. It can even sometimes ignore important stakeholders by being overly outward-focused, not recognizing the importance of employees, owners, and suppliers to the process and the objectives.

CSR involves public relations but, at the end of the day, is really about so much more. Leaders should be careful not to confuse CSR and PR. A more holistic approach is necessary to realize CSR's true potential.

2. CSR is Corporate Philanthropy

A similar misconception is that CSR primarily consists of corporate philanthropy - donating a portion of profits to charitable causes. Philanthropy can certainly be an aspect of CSR, but it is hardly fundamental. This misconception arises for four reasons:

1. Because the charity of large companies has been one of the most visible aspects of CSR.
2. Because philanthropy is already easy for people to understand. Defining CSR as philanthropy is a sort of cognitive shortcut.
3. Because philanthropy is fairly easy to implement. To engage in philanthropy, you need only write a cheque.
4. Because there is a long history of charitable donations being tax deductible by corporations. Philanthropy is well-established in the mainstream of corporate activities, while CSR itself is still emerging.

A focus on philanthropy leads to ineffective CSR programs that fail to achieve very dramatic benefits for the community or the company. The fact is, a company has far greater resources to tap for the sake of social good than its earnings before income tax. Philanthropy can be an effective component of the CSR puzzle, but it is just one piece.

3. CSR is Expensive

"We can't afford to do corporate social responsibility." The misconception that CSR is an expensive luxury is widespread, and it's rooted in the other myths, like the thought that CSR only involves giving money away to charity. Indeed, if that's all you do, it will be expensive, and probably won't provide much return on investment. But as we've already pointed out, that's not CSR.

Most initiatives cost little or nothing. The best initiatives to drive employee engagement and happiness don't cost a dime, they're just about treating people differently. The same goes for customer service. Community involvement can often be costless as well. And sometimes, even philanthropy can be free - if, instead of giving your own case, you work to encourage and facilitate donations by others (such as at the point of sale).

Many initiatives create savings. Some initiatives, especially environmental ones, can result in a reduction in the overall energy and resources that you consume. This can cause you to reduce your expenses, as a result of CSR.

I have one more objection to this myth. If some companies - big or small - apparently cannot afford CSR, then why are all of them engaging in it already? That's right, every company is already engaged in some socially beneficial activity, even if just by making money and providing employment. It would be hard to say you couldn't afford to do those things. And while definitions of corporate social responsibility generally involve a more strategic or formal approach, there is nothing about such an approach which is inherently expensive. Ultimately, CSR is about finding socially responsible initiatives that are appropriate (and beneficial!) for your business. How can you not afford that which will make your business stronger?

4. CSR Hurts Competitiveness

The corollary to the expensiveness argument is that corporate social responsibility is inconsistent with the firm's goals of profit maximization. Many have specifically claimed that by engaging in CSR, they would be placed in a competitive disadvantage.

For corporate social responsibility to damage a company's competitiveness, it would have to be expensive or would have to direct resources away from more productive alternatives. We've already addressed the expensiveness issue, but competitiveness is also about the productivity issue. Which brings me to my next point:

Many initiatives benefit the company economically. They win customers and allow the company to enter new markets with new products. They help recruit and retain top talent. They boost the image and reputation of the firm. They differentiate the company from its competitors. Do these things hurt competitiveness?

After all, it begs the question: If CSR is bad for competitiveness, why are companies in many industries rushing to be leaders in their CSR performance? (For example, the intense rivalry between Coca Cola and Pepsi)

Three things to remember:

• CSR is about opportunities. Find the focus areas that will improve your competitiveness, rather than the options with no benefit!
• CSR is about the long term. If you are stuck living quarter-to-quarter, you might need an attitude adjustment before CSR will make sense to you. CSR is about building a strong and sustainable company that will excel well into the future, not about maximizing this one quarter's earnings.
• CSR takes some guts. If your customers aren't yet buying on ethical criteria, perhaps you should be engaging them, encouraging them, and educating them as to why it matters.
   

5. CSR is Impractical in a Recession

If corporate social responsibility simply invovles giving money away to charity, then this is definitely true. When CSR is viewed as an expensive luxury, untied to the company's strategic goals, then it simply consumes scarce resources - resources that are even scarcer in hard economic times.

But we know now that CSR is about opportunities to make your company stronger and more resilient. This doesn't suddenly lose its importance in a recession. If anything, it becomes ever more paramount. Ask yourself whether, in a recession, you could say:

6. CSR Violates Fiduciary Duty

In most jurisdictions, corporate law mandates that directors and managers act in the best interests of their shareholders - the owners of the corporation. This requirement is often interpreted to mean that management must strive, within legal reason, to maximize the company's profits at any given time. Indeed, the argument offered in 1970 by American economist Milton Friedman was that if shareholders wanted social responsibility, they would give their own money to charity rather than invest it in corporations (as if CSR = philanthropy). Their investments in corporations exist solely to achieve an economic return.

But to claim that corporate social responsibility violates the duty of directors and managers makes several flawed assumptions:

1. CSR is inconsistent with the goals of shareholders. This could sometimes be true (every company is different!) but is false in general. Whether the goal is short term profit maximization or long term wealth creation, CSR can usually contribute (but especially toward the latter goal). And with the drivers of CSR growing each day, it is quickly becoming a necessity for businesses desiring profitability and growth to demonstrate their responsible business practices.
2. Managers only owe a duty to shareholders, not other stakeholders. This certainly isn't true. In a legal context, corporate managers have, on many occasions, been held liable for damage done to non-shareholders. Owners are not the only entity that permits a corporation to exist; society at large grants it its license to operate. 
3. "Corporate" Social Responsibility and "Personal" Social Responsibility are perfect substitutes. Friedman suggested that in lieu of corporate social responsibility, individuals should do it themselves (if they so desire it). If social responsibility is simply philanthropy, this would be possible. But it's not, and the simple fact is that individuals do not have the same opportunities as corporations to better the world. Thus, many shareholders will encourage CSR even if it does not provide an economic return (and at least some of the growth in socially-responsible investing is due to this), because it provides a desirable social return.

Indeed, if the shareholders of public companies really didn't want CSR, they could simply sell their stock. We would expect a fall in prices amongst the companies that engaged in the most CSR activity. If they really thought CSR was contrary to their goals, we would see shareholders rising up in opposition to its growth. We don't. Even in Europe, where institutional investors take a much more active role in the management of the companies they own, CSR is rapidly growing.

7. CSR is for Big Business Only

"Corporate" social responsibility. It sure sounds like a big business issue. And it's certainly something that big businesses are preoccupied with. Around 80% if the world's largest companies regularly issue CSR reports. Can that be said about small and medium sized enterprises (SMEs)? Certainly not. So is CSR principally a big business issue

To answer this question, examine two things: the drivers and benefits of CSR, and the resources of small businesses. In other words, do SMEs have the motivation to engage in social responsibility, and do they have the resources necessary to implement it?

The answer to both of these questions is a resounding yes. SMEs, like their larger cousins, are facing demands from consumers and their supply chain to demonstrate social responsibility. They have the same need to build customer and employee loyalty. They too want to build a strong and sustainable business that will last and provide long-term value. And their owners and managers and employees too care about social and environmental issues. They case about CSR.

And they are capable of doing it. In fact, there are good arguments why SMEs are better able to implement social responsibility programs, due to their flexibility, speed, culture, and closer relationships with key stakeholders, for example. Big businesses have a tough time getting everyone at the company on-board. Small companies are much more able to build the support and leadership needed for the program.

It is true that it CSR looks different in small companies, and SMEs will engage in different initiatives and will have different focus areas. Regardless, corporate social responsibility is a small business issue, no question about it.

8. CSR is Less Important Than Other Business Functions

"I agree that CSR is important, but we need to fix our customer service and human resources first." Even those that recognize the importance of corporate social responsibility sometimes deprioritize it, suggesting that other business "functions" and "strategies" are more critical.

But this uncovers another fundamental misperception about what CSR really is. It is not a function like marketing or human resources. It is not a strategy like total quality management or customer relationship management.

Rather, it is an integration of all of these things and every aspect of the business. It is a way to do every function better and every strategy better, by enhancing the positive impact and mitigating the negative impact that each of these strategies have on your most important stakeholders.

If CSR is about making HR stronger, how can you say that HR is more important? If CSR is about making marketing more effective, how can you say marketing is more important? And if CSR makes operations more efficient, how can operations management be more important?

9. CSR is Immeasureable and Thus Unmanageable

"You can't manage what you can't measure" goes the old management adage. If CSR is tough to measure, how can we hope to be able to manage it?

In fact, corporate social responsibility can be measured, it often is measured, and it is getting easier to measure. Many - if not most - areas of corporate responsibility can now be quantifiably measured. Not only that, but standards are emerging (the GRI G3 being the best example) that specifically identify the metrics one can use when reporting CSR performance.

Many businesses, especially smaller companies, overestimate the cost and difficulty involving in measuring their performance. But it's often easier than they think. A few simple processes and habits can routinely provide a great deal of useful information. A lot of the data is already right at their fingertips. And the management adage is correct, collecting this information will help a company to manage its CSR.

The real issue is not measurement, but comparability. How do we compare a company that reduces pollution with a company that provides community education opportunities? That issue will never be solved; it is a moral issue that each individual must judge for themselves. But it hardly hinders, and certainly encourages, the measurement and reporting of CSR performance.

10. CSR Displaces Government Power

Finally, an interesting complaint I occasionally hear is that corporate social responsibility somehow displaces the power of governments to regulate corporate activities and maintain social and environmental standards. And this displacement of regulation will allow companies, ultimately, to be more irresponsible.

That's right: by improving their business practices, and by being more socially responsible, companies will be able to be more irresponsible.

As you can guess, I don't buy it - and neither should you. If governments lack the will to regulate, then this is a political problem, not a corporate one. At the very least, this is not an indictment of corporate responsibility programs. Because even if there are (and there are) companies engaging in CSR simply to persuade government that regulation is unnecessary:

1. These companies are still subject to new and existing regulation;
2. The burden still remains on government to determine whether the voluntary corporate actions are authentic and adequate and whether regulation is necessary. CSR has caused them to lose no power, vested in them constitutionally, to do this.

Other Myths

What other myths and misconceptions have you run across?

CSR expert Wayne Visser has a list of seven other CSR myths. Since I tried to avoid overlapping with those that he mentions already, you should definitely check out his article too.

Finally, you might have the sense from this article that CSR is the best thing since sliced bread - or that I seem incredibly biased. Stay tuned this week for a follow-up article that will address both of those by discussing the "false promises" of CSR and what you shouldn't expect from it.