Markkula Center of Applied Ethics

New Strategies for Corporate Social Responsibility

by Sharleen Sy

Despite the growing awareness of and the unprecedented movement in corporate social responsibility, David Vogel candidly addressed why the world isn't a much better place at the November 4, 2005, meeting of the Business and Organizational Ethics Partnership, a program of Santa Clara University's Markkula Center for Applied Ethics and 13 corporations.

Vogel, the Solomon Lee Professor of Business Ethics at the Haas School of Business and professor of political science at the University of California-Berkeley, offered a pragmatic assessment of the movement's accomplishments, limitations, and potential to bring about significant change in the current business environment.

An authority on business-government relations, Vogel demonstrated that companies choose between taking an "offensive" or "defensive" approach to corporate responsibility. In Vogel's words, "Companies are either using corporate responsibility as a way of gaining competitive advantage or as a way to avoid a competitive disadvantage."

Based on Vogel's analysis, the amount of commitment and payoff are directly proportional. When companies employ a defensive approach, they are mostly concerned with preserving their reputation; as a result, commitment and investment are minimal. In this case, the benefits are elusive.

However, when corporations make a serious commitment and infuse substantial funding in a socially responsible strategy, then along with the increased risk, comes a bigger potential for payoff.

Gaining Competitive Advantage

Vogel, author of The Market for Virtue (Brookings Institution Press, 2005), acknowledged that it is hard to differentiate one's products through responsible business behavior because barriers to entry are low. Moreover, in an overly saturated market where choices are overwhelming, "evidence seems to be, for most products, for most consumers, it simply is not a viable marketing strategy," Vogel said.

Going against the tide, General Electric's "ecomagination" project was mentioned for its grand objectives of reducing greenhouse emissions and improving energy efficiency by 30 percent by the end of 2008 and 2012, respectively. By infusing $1.5 billion into research investment and aiming to develop ecologically responsible innovation, GE proved that this project is more than just a trivial publicity blitz. Although the level of risk and commitment involved is enormous, the potential opportunity at stake for the environment and shareholder value has yet to be seen.

Consistency: Aligning Corporate Social Responsibility With the Business Plan

However one chooses to approach corporate responsibility, Vogel stressed the need to align the strategy with the business model. Consistency is a key component to assure that business goals are reached and the bottom line is not compromised.

After being portrayed as the arch villain for its poor wages and inadequate health care coverage, Wal-Mart chose to move toward social responsibility by vowing to be a "green" company by cutting energy use and pressuring distributors and suppliers to be more fuel-efficient. After single-handedly revolutionizing and reducing prices in America, Wal-Mart cannot afford to raise wages with its low-margin business model. For the retail giant, the decision to be ecologically friendly is less costly and more in synch with its business model.

Beyond fitting into the business model, the most successful corporate social responsibility efforts coincidentally also serve the company's self-interest. As shared by one of the participants, Cisco's Networking Academy, a comprehensive e-learning program that provides students essential Internet technology skills, is an appropriate example, which makes a lot of business sense. Apart from providing training and support, Cisco is also molding the choices of future users.

"When I see companies doing stuff that has nothing to do with their business, it's just going to be self-defeating. The sincerity of it will be questioned," Vogel said.

Who Benefits From Corporate Social Responsibility?

Concerned with enhancing a business' sustainability through making ethical options, a participant raised the question, "Is it realistic for companies to advertise how [responsibly] their products are made?" In response, Vogel told a story about when Levi's CEO Bob Haas was asked by fellow classmates why none of the apparel company's philanthropic efforts were ever publicized. Haas went around and asked every lady in the classroom what criteria she used in deciding which pair of jeans to buy. The answer was unanimous - "the pair of jeans that makes me look the thinnest."

Vogel's take on the question: "Virtually no one has done that because they don't think customers would pay a premium." However, his studies show that consumers are more likely to be responsive when part of the benefits go to the product itself, citing organic goods as an example. On the contrary, when all of the social benefits go to someone else, as in the case of fair trade and improved labor conditions, the buyer is usually indifferent.

New Frontier in Corporate Social Responsibility

Through the years, the notion of corporate social responsibility has broadened and advanced. One of the new trends is toward "responsible lobbying," or aligning company values and strategies with the business' political behavior.

Furthermore, companies are exposed to increased pressure to disclose their political positions. Organizations are expected to be completely transparent about how much they spend, whom they support, and what their political stands may be.

Starbucks, whose full-time and even part-time employees receive full health care benefits, was mentioned for its efforts to lobby for improved medical compensation packages. Another example was Wal-Mart pushing for a higher federal minimum wage.

To promote the spirit of philanthropy, the government provides tax incentives to corporations for donations to communities or charities. As soon as a company engages in charitable projects, a certain portion of its gross total income becomes exempt from taxes. Oftentimes, however, corporations end up making more tax savings than actual contributions. In such cases, Vogel posed the questions, "Is it responsible to engage in these clever deals and tax shelters? Even if they are legal, are they responsible?"

Vogel considered it "unfortunate" that the number of executives who think about influencing public policy is dwindling. Often, executives only "focus only on issues that directly affect [the company, instead of] taking a broader view of the broader interest," Vogel said. Undeniably, the advancement of corporate social responsibility propels business leaders to go beyond their scope of responsibilities and make more proactive contributions to society.

Sharleen Sy is a media intern at the Markkula Center for Applied Ethics.